A former CEO of a large and successful public company teams up with a former chief investment strategist and a well-known academic to suggest ten practices for public companies intent on creating long-run value:
- Establish long-term value creation as the company’s governing objective.
- Ensure that annual plans are consistent with the company’s long-term strategic plan.
- Understand the expectations embedded in today’s stock price.
- Conduct a “premortem”—and so gain a solid understanding of what can go wrong—before making any large capital allocation decisions.
- Incorporate the “outside view” in the strategic planning process.
- Reallocate capital to its highest-valued use, selling corporate assets that are worth more to or in the hands of others.
- Prioritize strategies rather than individual projects.
- Avoid public commitments, such as earnings guidance, that can compromise a company’s capital allocation flexibility.
- Apply best private equity practices to public companies.
- CEOs should work closely with their boards of directors to set clear expectations for creating long-term value.
These practices, as the authors note in closing, “are meant to provide a starting point for public companies in carrying out their mission of creating long-run value—and in a way that earns the respect, if not the admiration and support, of all its important stakeholders.”