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Critically evaluate the extent to which the financial focus of shareholder value analysis leads to a short-termist approach to “doing strategy”.
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Critically evaluate the extent to which the financial focus of shareholder value analysis leads to a short-termist approach to "doing strategy". In recent years, the phrase "maximizing shareholder value" has become a battle cry for managers and directors of both public and private companies throughout the world. With the determination to do just that, an organization often undergoes drastic changes such as a major restructuring or the diversification of one or more of its business segments. Shareholder value is created when the cash flow to shareholders that's generated from invested equity exceeds the required rate of return on equity. Prospective shareholder value is usually best measured using a discounted cash flow (DCF) method, whereby prospective cash flows to shareholders are discounted at the required rate of return on equity. Rappaport argued for the use of shareholder value to guide strategic investments. He objected to the use of capital utilization measures (ROI, ROCE)...
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