New recommendations for better corporate portfolio management

September 25, 2008

New York, N.Y. - September 24, 2008 - Divesting the right businesses at the right time is critical to maximizing shareholder value. However, even the most sophisticated companies encounter substantial barriers to good corporate portfolio management.

In the "Corporate Portfolio Management Roundtable" that appears in the Spring 2008 issue of Morgan Stanley's Journal of Applied Corporate Finance, a distinguished group of professionals review the main hurdles facing better portfolio management and identify some innovative best practices.

It's difficult to create value in mergers, acquisitions and divestitures, and rigorous corporate portfolio management can help companies identify and preserve the good while ridding the bad. Public companies face barriers to exit, explaining why many firms seem slow to sell businesses that are reducing their value. There is a tendency of individual investors to wait too long to respond to changing market conditions.

Many boards and CEOs need to revamp organizational structure and compensation systems to ensure managers think more like investors, creating value via internal investment and M&A, as well as by pruning businesses that are worth more to different owners.

Among suggested best practices, Robert Pozen, Chairman of MFS Investment Management, proposes the establishment of an independent group within companies to function like a "SWAT Team" to support objective portfolio management. This SWAT team should consist of people who work in existing corporate units and do not have a vested interest in the status quo.

Additionally, companies can create an annual strategy offsite for the board to fully explore alternatives for driving shareholder value, including divestitures and capital structure changes. Also, information systems can be put in place that allow transparent analysis of each business unit's true economic returns and capital employed.

"Deep inside all of this, I think, is a set of lessons about the need for especially diversified companies to think hard about the prospects of the business that they have invested in: manage them for value and, if necessary, have the courage to exit when they have more value under new owners," Bob Bruner, Dean of UVA's Darden School of Business, notes in closing. "I think today's roundtable has been effective in helping all of us to think carefully about how to do that."
-end-
This study is published in the Journal of Applied Corporate Finance. Media wishing to receive a PDF of this article may contact journalnews@bos.blackwellpublishing.net.

Jeff Greene is affiliated with Ernst & Young LLP and can be reached for questions at Jeffrey.greene@ey.com.

Published since 1988 and reaching a broad audience of senior corporate policy makers, this highly regarded quarterly brings together academic thinkers and financial practitioners to address topics driving corporate value. The Journal covers a range of topics, including risk management, corporate strategy, corporate governance and capital structure. The Journal also features its popular roundtable discussions among corporate executives and academics, on topics such as integrity in financial reporting.

Wiley-Blackwell was formed in February 2007 as a result of the acquisition of Blackwell Publishing Ltd. by John Wiley & Sons, Inc., and its merger with Wiley's Scientific, Technical, and Medical business. Together, the companies have created a global publishing business with deep strength in every major academic and professional field. Wiley-Blackwell publishes approximately 1,400 scholarly peer-reviewed journals and an extensive collection of books with global appeal. For more information on Wiley-Blackwell, please visit www.blackwellpublishing.com or http://interscience.wiley.com.

Wiley

Related Business Articles from Brightsurf:

3D printing -- a 'dusty' business?
3D printers are becoming increasingly popular. They can be used to create a wide variety of three-dimensional objects based on computer templates.

Business-to-business customers expect personal service in online chat
Companies engaged in business-to-business (B2B) sales are also increasingly moving their activities online, but their online chat services and customer interaction have not been studied much yet.

Entrepreneurs have different storytelling styles for presenting business
New pioneering research shows that entrepreneurs communicate to strengthen their professional image and stakeholder relationships -- and avoid blaming others.

Gender quotas in business -- how do Europeans feel?
Despite years trying to bring more women to the top boards of business, the proportion of women on the committees of companies is tiny.

Carbon dioxide capture and use could become big business
Capturing carbon dioxide and turning it into commercial products, such as fuels or construction materials, could become a new global industry, according to a study by researchers from UCLA, the University of Oxford and five other institutions.

How NASA is becoming more business friendly
A new case study demonstrates the steps being taken by the US National Aeronautics and Space Agency (NASA) to make it easier for small businesses and entrepreneurs to understand its needs and do business with it.

Finding the 'Goldilocks' level of enthusiasm for business pitches
Georgia Institute of Technology researchers found how long an entrepreneur displays the highest level of excitement during a pitch also plays a major role in predicting success in receiving funding.

Bosses who put their followers first can boost their business
Companies would do well to tailor training and recruitment measures to encourage managers who have empathy, integrity and are trustworthy -- because they can improve productivity, according to new research from the University of Exeter Business School.

Bacteria rely on classic business model
The pneumonia causing pathogen Pseudomonas aeruginosa has developed a twin-track strategy to colonize its host.

Even small gifts boost business
If a sales agent brings their customer a small gift, the customer is much more likely to make a purchase, a study by the university of Zurich has shown.

Read More: Business News and Business Current Events
Brightsurf.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.