A New Paradigm for Managing Shareholder Value

managing current operations, is often
not the competency they urgently need,
getting a handle on future value.
We have found, for example, that as of
May 2003, 7 future value accounted for
77 percent of market capitalization and
59 percent of the enterprise value 8 of
the companies on the Russell 3000, an
index that covers 98 percent of all
listed US equities (see Exhibit 1).
Exhibit 2 shows that for some industry
groups, the proportion of their value
that is due to future value is even more
staggering. 9 Future value as a percent
Industry
Group
Energy
Materials
Capital Goods
Commercial Services & Supplies
Transportation
Automobiles & Components
Consumer Durables & Apparel
Hotels, Restaurants & Leisure
Media
Retailing
Food & Drug Retailing
Food, Beverage & Tobacco
Household & Personal Products
Health Care Equipment & Services
Pharmaceuticals & Biotech
Banks
Diversified Financials
Insurance
Software & Services
Technology Hardware & Equipment
Telecommunication Services
Utilities
Totals Totals
Source: Russell 3000 data, AssetEconomics, Inc.
No. of Companies
#
113
134 134
187
145
52 52
40 40
122
79 79
97 97
166
28 28
70 70
22
212
169 169
288
64 64
92 92
206
311
49 49
99 99
2,745 2,745
of enterprise value is extremely high in
the technology sector, with software
and services, media, and technology
hardware and equipment at or above
100 percent. It is also high in
telecommunication services (87 percent),
and automobiles and components,
utilities and transportation (between 60
and 75 percent). Of the 22 industry
groups, 12 have an enterprise value
that is more than 50 percent reliant on
future value. In fact, in terms of absolute
value, the $7.6 trillion of future value
represented in the Russell 3000's $13.0
trillion of enterprise value (59 percent)
is greater than the Gross Domestic
Exhibit 2: Future Value by Industry Group (Russell 3000, May 2003)
Current
Value (CV)
$ million
$346,888
$263,747
$518,050
$164,674
$102,405
$88,607
$186,960
$146,795
($47,143)
$479,462
$145,014
$573,139
$142,871
$317,986
$407,249
$630,742
$478,710
$296,581
($374)
($273,259)
$89,295
$274,684
$5,333,083
Future Value
(FV)
$ million
$394,896
$298,577
$416,639
$186,930
$287,745
$192,749
$36,215
$66,140
$776,438
$381,682
$46,173
$172,745
$144,054
$281,780
$667,742
$124,255
$167,958
$98,891
$519,025
$1,285,411
$610,300
$481,348
$7,637,693
A New Paradigm for Managing Shareholder Value
Product of every country other than the
United States, 10 and even greater than
the US federal debt. 11 Obviously, then,
those companies that are in these
industry groups—many of which are the
growth sectors of the US and world
economy, and those which aspire to
being the lead companies in more
stable sectors—have good reason to
manage not only for today but for
tomorrow, and to spend as much time,
effort and expertise on positioning
themselves for capturing growth
opportunities as for managing current
operations.
Enterprise
Value (EV)
$ million
$741,784
$562,324
$934,689
$351,604
$390,150
$281,356
$223,175
$212,935
$729,295
$861,144
$191,187
$745,884
$286,925
$599,766
$1,074,991
$754,997
$646,668
$395,472
$518,651
$1,012,152
$699,595
$756,032
$12,970,776
FV as a
Percent of EV
%
53.2%
53.1%
44.6%
53.2%
73.8%
68.5%
16.2%
31.1%
106.5%
44.3%
24.2%
23.2% 23.2%
50.2%
47.0% 47.0%
62.1%
16.5%
26.0%
25.0%
100.1%
127.0% 127.0%
87.2% 87.2%
63.7% 63.7%
58.9%
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