Fortune Magazine: Misconceptions about shareholder value

Lead: The 18th issue of Fortune magazine said that companies have long been pursuing shareholder value as their primary goal and using stock prices as a measure of shareholder value, but it is a misconception that stock prices do not reflect the long-term value of a company.　　The idea of shareholder value once, precisely, the 1990s, has been rooted in the belief that companies are concentrating on pleasing shareholders, and their share prices are soaring. However, this has not been the case for some time. Even with the recent rally in equities, the overall return on the S & P 500 index has been negative for the new millennium.　　The collapse of Enron and WorldCom in the decade (and many other minor crashes) was due to the eagerness to please shareholders. The recent implosion of several of our top financial institutions is also the result of the firm's belief that it is their mission to pursue higher returns for shareholders.　　It was so bad that even Jack Welch, Welch, came out a few months ago and said it was "the dumbest idea in the world" (his tenure at GE could be summed up in the pursuit of shareholder value). Jack, is that right? Is this a stupid idea? The key is how you can understand what it means.　　In 1981, an article in the Harvard Business Review introduced a term to the world, and Professor Alfred Rappaport, an accountant, tried to construct a "theoretically complete, practical" model of Rappaport, maximizing the "shareholder's economic value". His goal is to get the company's management to focus less on book profits, focusing on economic profits, the cost of capital discounting future cash flows. His theory is that it should focus on creating long-term value rather than focusing too much on quarterly profits.　　This idea doesn't sound stupid. The 77-Year-old Rappaport is in a semi-retired state and is still writing a new book on the Harvard Business Review. He said: "I do not know how many times: long-term, long-term, long-term." For me, shareholder value is not an immediate boost to the stock price. "But that's what happened in the 1990s," he said. CEOs who cling to shareholder values have fallen in the process of trying to please the stock market.　　They are struggling to achieve quarterly profit targets, which in turn makes the company less valuable. Why is that? Partly because of the greed of economic incentives in executive pay, and because of a strange accounting standard, the remuneration contains too much stock options.　　But it also comes from a strong but flawed notion that is also born in the "efficient market hypothesis" of university campuses. Effective market theory was born in the 1960s at the University of Chicago Business School, and in the 90 it was the idea that the stock market was priced correctly. If the stock price is correct, maximizing shareholder value is the simplest thing in the world. The late University of Chicago renowned financial scholar Morton-Miller (Merton Miller) 1993"It may be short-sighted to focus on recent earnings, but this is not the case because the share price reflects not only current earnings but also the expected future earnings of the market," said the year. "Share prices do reflect future expectations, but after decades of research, we now know that stock prices also reflect too many things: emotions, mistakes, and often perverse incentives in the money management industry." Rappaport said the stock market "contains a lot of misinformation in the short term".　　As a result, stock prices are basically a useless reference signpost for those who pursue long-term shareholder value. So is shareholder value a stupid idea? No, but it's a difficult thing to understand, because to understand it correctly, you need to ignore your shareholders.