"If I were Euromoney editor, I would beat up on institutional investors for the insanity they've been creating," says Allan Kennedy. He has written a book, The end of shareholder value, about the embracing of this ethic and its adverse aVect on business practices. Kennedy has seen the "insanity" spread at close quarters. He held a top position with McKinsey.
Arguing that "something destructive is happening" to companies, Kennedy sounds familiar warnings about managers focusing on raising the share price to a maximum in the short term, disregarding the long-term impact on the rest of the business. Kennedy cites General Electric, much lauded under the stewardship of CEO Jack Welch as a generator of returns to shareholders, as a company that has suVered from this practice. When GE was the market leader in walkie-talkies it cut funding on R&D, and has since excluded itself from the lucrative cellular phone market.
Although enshrining shareholder value as a company's single guiding principle may satisfy investors, Kennedy contends "it was the wrong idea and the wrong time driven to enormous excesses which we will all pay for".The most prominent manifestation of this excess, he says, is the "bubble" in the US stock markets.