CFOs and strategists: forging a common framework.

Companies have become increasingly polarized into two divergent camps: those who consider shareholder value the key to managing the company and those who put their faith in gaining competitive advantage. Indeed, that age-old debate between investing for the long term and showing outstanding short-term results is back - only this time the camps are flying banners with the new buzzwords of corporate America: competitive advantage and shareholder value. In this article, Alfred Rappaport attempts to settle the debate once and for all, arguing forcefully that establishing competitive advantage and creating shareholder value both stem from a common economic framework. In fact, long-term productivity is the hinge from which both sustainable competitive advantage and consistent results for the shareholder hang. But many managers refuse to accept this theory and cling to the mistaken belief that the market does not actually value the long-term productivity of their company but judges it only by its short-term performance. They then jump to a second mistaken conclusion: assuming they must depart from the shareholder-value model to improve their competitive position. Rappaport attacks these mistaken beliefs, showing that the stock market does value the long-term productivity of a company and that it is not necessary to depart from the shareholder-value model to improve a company's competitive position. Maximum returns for current shareholders will materialize only when managers maximize long-term shareholder value and deliver interim results that attest credibly to sustainable competitive advantage.