The top executives of the large, mature, publicly held companies hold the conventional view when they stop to think of the equity owners’ welfare. They assume that they’re using their shareholders’ resources efficiently if the company’s performance—especially ROE and earnings per share—is good and if the shareholders don’t rebel. They assume that the stock market […]
The top executives of the large, mature, publicly held companies hold the conventional view when they stop to think of the equity owners’ welfare. They assume that they’re using their shareholders’ resources efficiently if the company’s performance—especially ROE and earnings per share—is good and if the shareholders don’t rebel. They assume that the stock market automatically penalizes any corporation that invests its resources poorly. So companies investing well grow, enriching themselves and shareholders alike, and ensure competitiveness; companies investing poorly shrink, resulting, perhaps, in the replacement of management. In short, stock market performance and the company’s financial performance are inexorably linked.
A version of this article appeared in the July 1987 issue of Harvard Business Review.
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BB A chemical engineer by training, Ben C. Ball spent 30 years with Gulf Oil Corporation in operations and planning. When he retired he was vice president of corporate planning. Now he heads his own consulting firm, Ball & Associates of Cambridge, Massachusetts, teaches and does research at MIT, and is faculty principal of the MAC Group, another management consulting firm.
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