A recent article by Forbes contributor Steve Denning reviewed Roger Martin’s new book, Fixing the Game. It was a good review and I plan on reading the book.
The gist of the article is that managers of public companies focus too much on the expectations behind their stock price, and in turn “maximizing shareholder value.” [1] According to Martin, the causes stem from misaligned incentives and the business culture that has developed over the past 30 years. This focus on shareholders usually comes at the expense of customers and employees. “If you try to take care of shareholders, customers don’t benefit and, ironically, shareholders don’t get very far either.” When managers are working in the expectations market, they’re much more likely to make short term decisions that benefit only themselves and a (vocal) subset of shareholders—traders. This includes seemingly harmless activities like giving quarterly or annual earnings guidance, or for retailers reporting monthly same-store sales figures.
Martin proposes a few remedies to the problem, like improving board governance and eliminating both safe harbor provisions and stock-based compensation. These would go a long way to nudge corporate behavior in the right direction. But for managers who want to take it upon themselves, here’s my proposal: think of your company as a Dynamic Pie.
1. Sears Holdings (::yahoo(“SHLD”)::) — Fairholme Fund, Pabrai Investments, Pershing Square — More super-investors realizing that Sears isn’t your traditional retail investment. Real estate and brand liquidation values provide downside protection (as opposed to being Lampert’s “strategy” as some claim). There are many possibilities for upside, but here are a few: (1) The sale or monetization of coveted assets; (2) A successful turnaround of the retail stores; (3) The allocation of capital from poor-performing cash generators (Kmart) to higher return divisions (Lands End) or new investments.
4. Kraft Foods (
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