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Prof Joel Stern
Staff, students & guests listening attentively to Prof Stern
Prof Stern making a point
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The essential facts about the innovative Economic Value Added programme
On 12 August 2009, Unisa staff, students and guests interested in management and accounting were treated to a delightful and witty presentation by Prof Joel Stern, CEO and Chairperson of Stern Stewart & Co, a worldwide management consulting firm founded in New York in the early 1980s.
The company is popularly known for developing the Economic Value Added (EVA) programme, which is a measure of the true economic performance of a company and a strategy for creating shareholder wealth.
During his presentation, Prof Stern offered ways to properly implement EVA in order to better align the interests of managers with those of shareholders and give companies a clearer picture of the value they create. Using diagrams and graphs, he spoke about how important it is to learn how to measure the performance of a company so that the market values are above the asset values. The goal is to increase EVA and there are three ways to do this: growing the capital; improving on performance and existing capital; and by harvesting the capital. These three actions enhance enterprise value and the share price, and so are compatible with a company’s goal to maximise enterprise value.
Four properties essential to the success of the programme are objectivity; significance; motivation, as this ensures increased performance; and ensuring the measure of performance is simple enough for anyone to understand. Stern Stewart & Co has advised more than 740 organisations since 1993, including basic manufacturing firms, retailers, wholesalers and distributors. Some of their biggest clients are the Tata Group and Coca-Cola.
Prof Stern indicated that while EVA has been very successful, it can fail due to lack of commitment from management. If the management team does not champion the programme, it will not work. "EVA will also not succeed if the CEO does not have respect for people who are not on the same level as him or her."
Prof Stern is a strong promoter of efficient markets and almost all of his contributions in the field of finance have used the market model of economics to improve operating performance in organisations. He also teaches as a professor at six universities worldwide, including the University of Cape Town. |
