Saving Capitalism From Short-Termism: How to Build Long-Term Value and Take Back Our Financial Future Hardcover – 1 Sep 2011
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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.
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Top Customer Reviews
'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.Read more ›
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.
Most Recent Customer Reviews
This is one of two books I have recently read, the other being John Bogle's The Clash of the Cultures: Investment vs. Speculation. Read morePublished on 9 Nov. 2012 by Robert Morris
Rappaport gives an interesting review of how short-termism played its part in contributing to the financial crisis in 'saving capitalism from short-termism'. Read morePublished on 5 Oct. 2011 by Daniel Yates, CFA