C H A P T E R 22

Shareholder Return Is the Wrong Measure of Performance

MOST SENIOR EXECUTIVES these days, and the boards of directors they report to, are likely to base their most important decisions—hiring additional staff, acquiring or divesting lines of business, entering new markets—on what they guess will be the effect of the particular decision on their company’s stock price. As one indicator of the importance of stock price to business decisions, a 2005 survey of investor relations professionals found that some 30 percent were highly involved in corporate development and strategic planning activities and 26 percent were highly involved in the analysis and planning for acquisitions and divestitures.1

Not only are management decisions ...

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