S. David Young
Professor of Accounting and Control
The move toward value-based management in large corporations is based on two assumptions. The first is that the main aim of any business in a market economy is to maximize shareholder value.The second is that markets are too competitive for companies to create such value by accident. They must plan for it and that means having the right culture, systems and processes in place so managers make decisions in ways that deliver better returns to shareholders. At the very least, corporate functions must be informed by value-based thinking - planning, capital allocation, operating budgets, performance measurement, incentive compensation and corporate communication.Economic value added, or EVA, is a tool for achieving this. EVA measures performance, but its uses extend further. When implemented properly, and especially if tied to management compensation, it is a powerful way to promote shareholder value.