A Star to Sail By?

The Economist

Were Siemens an American firm, the news that it is making the creation of value for its shareholders its top priority would be loudly applauded. But in Germany, where fans of “stakeholder capitalism” argue that their interests should be balanced with those of employees, suppliers and customers, its decision to become the first firm to adopt a measure of shareholder value known as economic value added (EVA) will provoke jeers as well as cheers.

Karl-Hermann Baumann, Siemens's chief financial officer, says that the trains-to-telecoms giant, which will switch to EVA in October, is now convinced that focusing on shareholder value is the best way to ensure its long-term prosperity. A growing number of other companies in Europe, Asia and Latin America, have reached the same conclusion – and are turning to consultants offering “performance metrics” to measure how much value is being created (or destroyed). Measures such as EVA are already well established in America, where a growing number of Wall Street stockpickers, not to mention many large companies, including Coca-Cola, Monsanto and Procter & Gamble, swear by them.

Inevitably the measures are also a big business for consultants. Stern Stewart, the New York firm that developed EVA, is the leader of the pack. But in recent years it has faced competition from the Boston Consulting Group (BCG), Braxton Associates, McKinsey and others. Many consultancies produce league tables of value added and go to ...

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