The EVA Challenge: Implementing Value-Added Change in an Organization (Wiley Finance) - Hardcover

Stern, Joel M.; Shiely, John S.; Ross, Irwin

Hardcover

ISBN 10: 0471405558 ISBN 13: 9780471405559

Verlag: Wiley & Sons, 2001

Inhaltsangabe

The co-founder of EVA shows how to apply it in today s new economy
EVA-economic valued added-is a measure of the true financial performance of a company, and a strategy for creating corporate and shareholder wealth. It is also a method of changing corporate priorities and behavior throughout a company, right down to the "shop floor." In The EVA Challenge, the authors outline how to implement EVA-from training employees to answering the most frequently encountered implementation problems faced by companies.

This detailed "how-to" guide represents the second phase in the "EVA Revolution", showing executives around the world how to customize and implement EVA at their companies. Here, EVA converts learn how to work some "EVA magic" through company-specific initiatives and case study examples. Coverage includes completely new materials on "real options", leveraged stock options, and other concepts critical to corporations in both new and old economy industry sectors.

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Über die Autorin bzw. den Autor

JOEL M. STERN has been Managing Partner of Stern Stewart & Co. since its founding in 1982. He currently serves on the faculties of five graduate business schools all over the world. A widely published writer, he has been a financial policy columnist for the Sunday Times of London. A recognized authority on financial economics, corporate performance measurement, corporate valuation, and incentive compensation, Mr. Stern is a leading advocate of the concept of shareholder value.
JOHN S. SHIELY is President of Briggs & Stratton, one of the most successful implementers of EVA. He began his career as a tax accountant at Arthur Andersen & Co., then served as a lawyer, first with the Hughes Hubbard & Reed law firm, later at Allen-Bradley/Rockwell Automation, and finally joining Briggs & Stratton in 1986 as general counsel. He has received a bachelor of business administration in accounting from the University of Notre Dame, a JD from Marquette University Law School, and a Master of Management degree from Northwestern University.
IRWIN ROSS was retained by Joel Stern to assist in the writing of The EVA Challenge. He has written a number of books, including The Loneliest Campaign, The Image Merchants, and Shady Business. He is a former roving editor of Reader's Digest and over the years has written for a variety of other magazines, including Fortune and Harper's. Mr. Ross has also been a regular contributor to Stern Stewart's EVAngelist.

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Praise for The EVA Challenge

"The EVA Challenge provides helpful insights for both the beginner and the advanced EVA practitioner. Its real-life examples illustrate how the practical application of shareholder value orientation can align the goals of all organizational levels, motivate management by linking compensation to EVA performance, and bring additional value to shareholders."-Dr. Karl-Hermann Baumann, Chairman of the Supervisory Board

Siemens, A.G.

"A very valuable book for practicing managers who must solve problems. The authors provide a wealth of information and examples not only on implementing EVA, but on performance measurement and compensation in general. Their analysis is first rate. They draw from their extensive experience and from real companies, problems and solutions. I especially like the chapter on EVA failures."-Michael C. Jensen, Managing Director, Organizational Strategy Practice, The Monitor Group, Jessi Isidor Strauss Professor Emeritus, Harvard Business School

"Joel Stern knows this subject matter better than anyone. He adapted EVA so that we could use it to incent management at the United States Postal Service to greatly improve performance. We stopped losing billions and started turning profits."-Marvin Runyon, 70th Postmaster General

"The EVA Challenge is mandatory reading for any management in any business enterprise. Stern shows the way theory becomes practice and benefits not only management, but the shareholders and stakeholders alike. A must-read for management and shareholders."-Alfred G. Jackson, Global Head of Equity Research, Credit Suisse First Boston

"Joel Stern knows more about creating shareholder value than anyone in America. In The EVA Challenge you'll learn how the master dumps rusty old accounting rules and hands managers a remarkable new yardstick for measuring success. Want to know the concept that made Roberto Goizueta great? Follow the Adam of EVA."-Shawn Tully, Senior Writer, Fortune

Aus dem Klappentext

-Economic Value Added-is a measure of the true economic performance of a company and a strategy for creating shareholder wealth. It is also a method of changing corporate priorities and behavior throughout a company, right down to the shop floor. Properly implemented, EVA frees the mea-surement of corporate performance from the vagaries of accounting conventions and aligns the interests of managers with those of shareholders, ending a decades-long conflict of interest.

In The EVA Challenge, authors Stern, Shiely, and Ross outline how to implement EVA at all stages-including strategy development, organizational design, training, and incentive compensation.

Essentially, an EVA program encompasses three things: a measurement system, an incentive system, and a system of financial management. In measuring performance, for example, EVA's key ingredient is the recognition of a capital charge--the cost of the capital in a company, in a division, in a branch store, or in a product. This detailed how-to guide shows executives around the world how to customize EVA for their organizations and improve the economic value they deliver. Here, EVA converts learn how to work some "EVA magic" through company-specific initiatives and case study examples. Coverage includes insightful new material on matters such as real options and new economy valuations, showing why new economy firms need EVA as much as old economy firms.

Executives around the globe now have a book that shows them how best to utilize EVA at their companies-reorienting the corporate ship in the direction of true economic profit. Research shows that companies using EVA outperformed competitors of comparable market capitalization by an average of 49% over a five-year period, as measured by total returns to shareholders.

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The Problem

Back in the early 1960s, one of the authors of this volume was asked by an old family friend what he was studying at the University of Chicago. "I'm trying to come up with what determines the value of a company," said the young Joel Stern. "Even like my store?" asked the old friend, who ran a mom-and-pop grocery store. "Of course." The grocer was incredulous: "You're going to school for that! Come down to the store tomorrow and I'll show you what determines the value of a company." The next morning, he escorted a skeptical Joel behind the counter and pointed to a cigar box. "This is where we put the money," he explained. "If the lid is rising during the day, it means we're doing fine."

This simple insight into the basic importance of cash in valuing a business has always been known by the entrepreneur. Indeed, he can often work it out on the back of an envelope, comparing his total expected return with what he could plausibly earn elsewhere with the same amount of money at the same level of risk--in other words, the opportunity cost of capital. What has befogged this insight and prevented most investors from making these calculations has been two major developments in American capitalism: (1) the split between ownership and control of publicly held corporations and (2) the widespread acceptance of accounting measurements to gauge corporate value, a purpose for which they were never intended.

To start with the first point: the essence of the problem is that although numerous shareholders own a public corporation, control over its operations is in the hands of professional managers, who typically hold relatively few shares and whose interests often diverge from those of the silent majority of shareholders. Moreover, the managers possess detailed information about the company's prospects that outside shareholders lack, despite the best efforts of security analysts to inform them.

The divorce between ownership and control had been going on for a long time, and was by no means a secret when, in 1932, the subject was explored in depth in a blockbuster book, The Modern Corporation and Private Property, by two Columbia University professors, Adolf A. Berle Jr. and Gardiner C. Means. The authors chronicled the growth of the modern corporation in the United States from its start in the late eighteenth century, when companies built bridges, canals, and turnpikes. Early in the next century came the extension of the corporate form to the textile industry, its later dominance of the railroad industry and, afterward, of oil, mining, telephone, steel, and almost every other industry.

Berle and Means boldly asserted, in 1932, that so powerful were the large corporations that "private initiative" was now nonexistent, that self-perpetuating groups of managers dominated the economy and often pursued agendas contrary to the interests of owners and, presumably, to that of the country as a whole. Their rhetoric at times seems excessive, and may well have been influenced by the book's publication in the depths of the Great Depression. Timing may also have heightened the impact of the book, but its renown has extended over the decades, and it is still in print.

It is a book worth recalling, for it foreshadows the present concern with "corporate governance"--a high-flown term for a search for systems to get managers to act in the interests of shareholders. For a given degree of risk, shareholders obviously seek the highest total return--the sum of dividend payments plus share price appreciation. Managers, by contrast, often tend to be preoccupied by their personal pecuniary interests. The book's examples of conflicts of interest between managers and shareholders are both hair-raising and anachronistic--and are doubtless evidence that things have improved since 1932. Thus, it gives many examples of self-dealing, with managers typically funneling purchases to suppliers that they covertly own, as well as various types of fraud that have become less common in the years since that powerful police agency, the Securities and Exchange Commission (SEC), was established in 1934. The book also mentions a form of managerial imprudence not unknown today: the pursuit of growth for its own sake, to enhance the prestige and personal net worth of top executives, even when that growth is uneconomic and diminishes shareholder value.

Lacking the inside information of the managers, shareholders today, as in 1932, attempt to monitor their companies' performance using presumably objective criteria--the measures that accountants use. The difficulty is that the criteria are inadequate and downright misleading, however, much hallowed by tradition. What they do not necessarily reveal is the rising or declining level of the cash in the cigar box. Thus, net income--the so-called bottom line, which in turn is translated into earnings per share (EPS)--has long been elevated to supreme importance, not to say deified by most security analysts and the financial press. As a company's EPS grows, its share price is supposed to rise, on the assumption that its price/earnings (P/E) ratio remains relatively constant. There is an agreeable simplicity to this shorthand valuation, but it is as fallacious as it is ubiquitous.

To work their way to the bottom line, accountants make several calculations on a company's profit-and-loss statement that distort economic reality. The distortions err on the conservative side, thereby understating the true value of the enterprise. For example, since 1975, standard accounting procedure has been to "expense" research and development (R& D) outlays--that is, deduct them from revenues in the year in which the disbursements are made, even though the impact of such R& D is likely to be beneficial for many years in the future. The alternative would be to regard R& D as an investment and "capitalize" it--that is, put it on the balance sheet as an asset and write it off gradually over its expected useful life. The effect of expensing R& D is to understate the company's true profit for the year (and also, of course, lower its tax bill).

Details zur Ausgabe

• Verlag: Wiley & Sons
• Erscheinungsdatum: 2001
• Sprache: Englisch
• ISBN 10: 0471405558
• ISBN 13: 9780471405559
• Einband: Gebundene Ausgabe
• Auflage: 1
• Anzahl der Seiten: 250
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: Nicht verfügbar