Own the Future: 50 Ways to Win from The Boston Consulting Group

Chapter 30

The CEO as Investor

Gerry Hansell and Dieter Heuskel

Of the many roles played by the modern CEO, one of the most important is among the most neglected: the role of the CEO as investor.

A company's investment choices constitute a critical and underestimated part of the CEO's agenda. These choices have extremely high stakes: typically, a company allocates investment cash flows equal to half or more of its market capitalization over a three- to five-year period. These choices are extensive in scope, encompassing not only decisions about reinvestment to drive the business (capital expenditures, acquisitions, and brand and technology investments) but also decisions about the company's deployment of its cash flow other than for operations (for example, for dividends, share buybacks, and capital structure adjustments). At first glance, some of these may not seem to involve much choice—just being in a business requires some reinvestment. But taking a passive attitude toward portfolio exposures and managing reinvestment “democratically” is, in itself, a choice—and in many cases, a poor one.

Many CEOs and senior teams struggle in the investor role. Strikingly few companies have a coherent process for managing their investment choices and linking these choices to the company's value over time. Investment failures are surprisingly common. More than one-third of the $8 trillion of invested capital in the S&P 1500 does not earn the cost of capital. Over a five-year period, half the ...