Friday, April 27, 2007
Cool infographic
I love infographics...
And kudos to the New York Times for coming up with a doozy!
I wouldn't break out the torches and pitchforks, though. Some businesses are inherently cyclical, and some are more cyclical than others. Sometimes you might need a terrific CEO to minimize your expected losses, or manage volatility.
You also don't want to give CEOs incentives to minimize dividends to shareholders by retaining more earnings that cannot be profitably reinvested at above the market rate of return. Why keep dividends which can be reinvested in a mature business growing at 4% IRR when those dividends can be put to use by shareholders at 8%, after taxes (and even more than that for those who hold stocks in tax-advantaged accounts)? But if we get too crazy with lynching the wrong CEOs, they will do anything to achieve marginal growth - at the expense of opportunity cost for shareholders.
The executives who need to be lynched are the ones who stay in the upper left quadrant throughout an entire business cycle, and who lag their industry peers by significant margins.
Splash, out
Jason
And kudos to the New York Times for coming up with a doozy!
I wouldn't break out the torches and pitchforks, though. Some businesses are inherently cyclical, and some are more cyclical than others. Sometimes you might need a terrific CEO to minimize your expected losses, or manage volatility.
You also don't want to give CEOs incentives to minimize dividends to shareholders by retaining more earnings that cannot be profitably reinvested at above the market rate of return. Why keep dividends which can be reinvested in a mature business growing at 4% IRR when those dividends can be put to use by shareholders at 8%, after taxes (and even more than that for those who hold stocks in tax-advantaged accounts)? But if we get too crazy with lynching the wrong CEOs, they will do anything to achieve marginal growth - at the expense of opportunity cost for shareholders.
The executives who need to be lynched are the ones who stay in the upper left quadrant throughout an entire business cycle, and who lag their industry peers by significant margins.
Splash, out
Jason
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