The End Of Shareholder Value: Corporations At The Crossroads

After two decades of taking the money and running, it's time for corporate managers to seek to make a difference as well as a buck. That's the thesis of Allan Kennedy's analysis of the state and likely fate of corporate America at the turn of the new century. It was Kennedy who, in 1982, cowrote the bestselling Corporate Cultures, which gave us the notion of the heroes, rites, and rituals involved in modern business. Here, Kennedy argues that shareholder value--using discounted future cash-flow streams rather than traditional accounting measures such as earnings per share--has become the final gauge of a company's worth. This emphasis will have potentially dangerous unintended consequences for everyone, he says. Management's shortsighted focus on squeezing the last penny out of every part of the business has exploited its key stakeholders. Faced with downsizing, outsourcing, and hard (sometimes deceptive) bargaining, employees, suppliers, governments, communities, and customers are each beginning to turn on companies in ways that now threaten the future success of the companies themselves. The result today, he writes, is an overvaluation of stock prices that's "simply a symptom of the failure of the shareholder value ethic to produce anything of lasting value."

The book outlines three eras of business evolution, from the family enterprises of the 19th century, through the engineers and inventors of the immediate post-World War II period, to the financial entrepreneurs of high technology. As it briefly chronicles the growth of some of the corporate icons of each era, the portrayal is not always favorable, particularly when it reaches the present. One is tempted to think of investment bankers and venture capitalists as the Svengalis (or Rasputins) of the high-tech economy, whose machinations have led to "insupportable levels in the stock market [that] should be known as the shareholder value bubble." Finally, Kennedy proposes remedies to create real, sustainable wealth for all of a company's stakeholder groups, not just the stockholders. While there's little to dispute in these rather general proposals, his recommendations for overhauling the way boards of directors are chosen and operate are thorough and well argued, radical even.

Kennedy is a bit of a Cassandra in places. He's very skeptical of even the small nuggets of promising Internet trends and statistics he himself quotes. Nevertheless, the book is provocative and timely. Perhaps the most important point is its resuscitation of the old discussion about the wider, social purpose of business--a debate that's been forgotten in the flush of the "new economy." --Alan J. White