In the Anglo-American model of capitalism the stock market imposes a ferocious discipline on managers of quoted companies.
For a start, the movement of the share price offers a minute-by-minute critical commentary on corporate performance and prospects. Quarterly results are closely examined by stock market analysts, fund managers and journalists, and there is an ever-present threat of hostile takeover. The credibility of top executives in this system depends on their generating consistent increases in earnings. They also have to develop the art of carefully guiding analysts’ expectations and subsequently “hitting the numbers”.
Putting chief executives into a financial pressure cooker in this way has disadvantages, not least the pressure to lose their moral compass and cook the books. The underlying assumption is that companies are capable of delivering consistently rising, above-average earnings. Yet not all companies can be above average.
See full Article (paid subscription required).
Posts
