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Saving Capitalism From Short-Termism: How to Build Long-Term Value and Take Back Our Financial Future Hardcover – 1 Sep 2011

4.3 out of 5 stars 7 customer reviews

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Product details

  • Hardcover: 256 pages
  • Publisher: McGraw-Hill Education (1 Sept. 2011)
  • Language: English
  • ISBN-10: 0071736360
  • ISBN-13: 978-0071736367
  • Product Dimensions: 16.3 x 2.2 x 23.6 cm
  • Average Customer Review: 4.3 out of 5 stars  See all reviews (7 customer reviews)
  • Amazon Bestsellers Rank: 274,389 in Books (See Top 100 in Books)
  • See Complete Table of Contents

Product Description

About the Author

Alfred Rappaport is the Leonard Spacek Professor Emeritus at Northwestern University’s J. L. Kellogg Graduate School of Management. He is the author of the business classic Creating Shareholder Value and coauthor with Michael Mauboussin of Expectations Investing. Rappaport has been a guest columnist for The Wall Street Journal, The New York Times, Fortune, and BusinessWeek. He created the Wall Street Journal Shareholder Scoreboard, an annual ranking by total shareholder returns of the 1,000 most valuable U.S. corporations, published annually from 1995 to 2008.


Customer Reviews

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Format: Kindle Edition
Professor Rappaport states that this book is aimed at:

'corporate executives, board members, institutional investors...employees, management consultants, investment bankers, public accountants [and] corporate governance activists' (Introduction, P XIX)

I'm afraid I don't really fit into any of those categories, although perhaps the last comes closest to my interests. However, I was an employee of a FTSE100 company for a number of years and have witnessed, in that time, the developing trend towards 'short termism' that Professor Rappaport identifies.

Rappaport sees the development of this 'short termism' as linked to the move away from 'entrepreneurial to agency capitalism', when 'owners managed and managers owned' (P7) towards, at the start of the 20th century, a corporate model. Still, up to the 1970s, most shares were owned by individual investors who looked for dividends, leaving managers free to concentrate on longer-term management and growth. But:

'[t]he rise of institutional ownership ushered in the era of 'agency capitalism'.' (P11)

In other words, a 'layer of agents' was interposed between the owners of capital and the businesses in which this capital was invested. And Rappaport suggests that:

'[s]hort-termism is a rational choice for investment and corporate managers whose job security, labor-market reputation, and compensation are tied to near-term performance.' (P12)

There is thus an overwhelming concentration on short-term (usually quarterly) goals and share prices.
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Format: Hardcover
Alfred Rappaport can hardly be faulted for capturing the mood of the markets on the issue of short-termism. His recommendations for reducing the phenomena, in part two, are more lengthy than his documentation of the problem in part one. That said, at least he does try to give insights. In his own words "its one thing to know what the problem is and another thing to figure out what to do about it." His basic premise is that corporate incentives result in a focus on short term profits at the expense of value creation. Many have said this before, and it behoves an academic to provide stronger scientific proof for such a broad statement.

As can bee seen in my above comments, I personally would have liked to see much more data evidencing the problem, and far less subjective observation and generalised remedy. Critiscing the performance measurement industry, for example, is simply shooting the messanger. It is not really addressing the problem.

I can't get over the feeling that the book is put together hastily. There is, for example, no real linkage between the chapters on corporate short termism and investment management short termism other than that of incentives.

It was good to see that the author drew on international examples and work on the subject. He mentions, for example, the excellent work of the Marathon Club in the United Kingdom. It is this broad summary of the research and thoughts on the subject, rather than any literary merit, which will make this a must read book for regulators and financial reformers.
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Format: Hardcover
At a time when capital market participants are looking to either point the finger or absolve themselves from blame for the financial crisis this book serves as a timely reminder of the shortcomings of the entire financial system. The book provides a thorough and in-depth analysis of the incentives and structures that pervade every day decisions by investors, participants and actors in the financial world. Unfortunately, as the book outlines, the majority of these are unfit for purpose and have led to distorted results and failed to deliver on what their end objectives should be. A substantial overhaul is required if we are to build a more sustainable and proper system for capital allocation. This book provides a series of considered debates on where the problems are and, if nothing else, will hopefully form the basis for a starting point on what every market player needs to do to beginning repairing a failing system. Analysts, accountants, senior executives and anyone generally interested in finance would be well served to read this book as a basis for a debate that will hopefully continue to gain momentum.
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Format: Hardcover
Professor Rappaport reclaims and salvages his much misappropriated term shareholder value, spells out the shortfalls of financial myopia and provides a range of ideas to lengthen the time horizon for decision making behaviour. His insight into remuneration practices deserves particular attention. Perhaps upon reading Remuneration committees, their consultants and institutional investor bodies might like to revisit the apparent embedded philosophy that incentives only reinforce rather than influence corporate behaviour. Overall a recommended read for investors, executives, remuneration committees and corporate advisors.
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