Instant gratification or long‐term value? A lesson in enhancing shareholder wealth

Abstract

CFOs are under increased scrutiny and many companies have consequently become shortsighted, focusing on quarterly results at the expense of the big strategic picture. This approach is wrought with irony, as it inadvertently promotes practices that undermine the very thing companies are striving to achieve: the creation of long‐term shareholder value. The solution lies in a hybrid approach, focusing on both short‐term and long‐term results. Winning companies not only articulate long‐term strategies but also develop detailed implementation plans that are quite literally roadmaps to success. These roadmaps are typically marked with short‐term milestones aligned with the longer‐term direction – the short‐term targets serving as clarion calls that signal deviations from the roadmap. The challenge is complex, as CFOs (and, of course, CEOs) must truly understand market expectations, know what drives the stock price, and determine what role they can play to influence value in a positive way. It all hinges on some tough questions, including: can companies really manage the value of their business and, ultimately, tie it back to their stock price? and can they align the actions of an entire organization with the objectives of its owners and providers of capital? Indeed, many companies are implementing strategies aimed at creating increased value for investors. Sustainable value creation requires strategy, capability, information, decisions and actions to be aligned and focused on the key drivers of value for an organization. This is what will generate sources of competitive advantage over time.

Citation

McCarthy, B.F. (2004), "Instant gratification or long‐term value? A lesson in enhancing shareholder wealth", Journal of Business Strategy, Vol. 25 No. 4, pp. 10-17. https://doi.org/10.1108/02756660410547340