Dr. Alfred Happaport, the Leonard Spacek Professor Emeritus of J. L. Kellogg Graduate School of Management at Northwestern University, developed the idea for the Shareholder Scoreboard, published annually by The Wall Street Journal. He is co-founder and former Chairman of the Board of The Alcar Group Inc., whose consulting and education practices are now part of The LEK/Alcar Consulting Group, LLC, the U.S. operation of a worldwide strategy consulting firm. He has been a guest columnist for The Wall Street Journal, The New York Times, and Business Week, and lives in La Jolla, California.

List of Illustrations

Preface

CHAPTER 1. SHAREHOLDER VALUE AND CORPORATE PURPOSE

Management Versus Shareholder Objectives

Shareholders and Stakeholders

Shareholders Are "Us"

CHAPTER 2. SHORTCOMINGS OF ACCOUNTING NUMBERS

Earnings-An Unreliable Bottom Line

The Trouble with Accounting Return on Investment (ROI)

ROI Versus DCF Return Illustrated

Additional Shortcomings of ROI

Shortcomings of Return on Equity (ROE)

CHAPTER 3. SHAREHOLDER VALUE APPROACH

Estimating Shareholder Value

Estimating Shareholder Value Added (SVA)

Threshold Margin

The Shareholder Value Network

Appendix: Conventional Versus Shareholder Value Break-Even Analysis

CHAPTER 4. FORMULATING STRATEGIES

Strategy Formulation Process

Competitive Advantage and Shareholder Value

Strategy "Best Sellers"

CHAPTER 5. VALUING STRATEGIES

Strategy Valuation Process

Valuing Alternative Business Opportunities

Valuing Interdivisional Synergies

Choosing Optimal Investment Level for a New Business

Do Stock Repurchases Create Value?

Ten Value-Creation Questions

CHAPTER 6. STOCK MARKET SIGNALS TO MANAGEMENT

Reading the Market

Corporate Versus Shareholder Rate of Return

Management Implications

CHAPTER 7. PERFORMANCE EVALUATION AND EXECUTIVE COMPENSATION

CEOs and Other Corporate-Level Executives

Operating Managers

Performance Evaluation Alternatives-Shareholder Value Added (SVA)

Performance Evaluation Alternatives-Residual Income

Performance Evaluation Alternatives-Economic Value Added (EVA)

Performance Evaluation Alternatives-Change in Residual Income or Change in EVA

Leading Indicators of Value

Target Level of Performance

Linking Rewards to Superior Performance

CHAPTER 8. MERGERS AND ACQUISITIONS

The Acquisition Process

Value Creation Framework

Do Mergers Create Value for the Acquiring Company?

Gillette's Acquisition of Duracell International

Premium Advice for Targets

CHAPTER 9. IMPLEMENTING SHAREHOLDER VALUE

Implementation Objectives

Gaining Commitment

Introducing Shareholder Value

Reinforcing Shareholder Value

CHAPTER 10. THE SHAREHOLDER SCOREBOARD

A Rising Tide Doesn't Lift All Stocks

Investing as a Game of Expectations

Notes

Index

About the Author

Economist, consultant, and Wall Street Journal contributor Alfred Rappaport provides managers and investors with the practical tools and tests for a corporate strategy that creates shareholder value.

The ultimate test of corporate strategy, the only reliable measure, is whether it creates economic value for shareholders.

After a decade of downsizings frequently blamed on shareholder value decision making, this book presents a new and indepth assessment of the rationale for shareholder value. Further, Rappaport presents provocative new insights on shareholder value applications to: (1) business planning, (2) performance evaluation, (3) executive compensation, (4) mergers and acquisitions, (5) interpreting stock market signals, and (6) organizational implementation. Readers will be particularly interested in Rappaport's answers to three management performance evaluation questions: (1) What is the most appropriate measure of performance? (2) What is the most appropriate target level of performance? and (3) How should rewards be linked to performance? Through the lens of high-stakes case studies, like the notable acquisition of Duracell International by Gillette, Rappaport dissects the intricate decisions and risks inherent in the merger and acquisition process.

The shareholder value approach presented here has been widely embraced by publicly traded as well as privately held companies worldwide. Brilliant and incisive, this is the one book that should be required reading for managers and investors who want to stay on the cutting edge of success in a highly competitive global economy.