CORPORATE GOVERNANCE

In the area of corporate governance, aligning the interests of managers with owners can be tricky, according to Morin. "How do you know the interests of the managers, who are essentially agents of the shareholders, will coincide with the shareholders? How do you ensure that managers won't confiscate the profits of the company, using them up on perks or expensive governing?" Morin believes the way to do that is through compensation, by turning employees into owners and shareholders themselves through stock options. "Linking compensation to value-creating performance is critically important," he said. "Managers and workers have to have their skin in there."

Communication with Wall Street and investors is another important cog in the corporate governance machine, according to Morin. "Publicly held companies are engaged in a constant tug of war with the capital markets in monitoring and mutual signaling. The company provides a steady stream of information to the markets through its annual reports, filings with the Securities and Exchange Commission, regular meetings with the investment community and press releases.The market assimilates this and other information and incorporates its own perceptions of the company's prospects into the stock price." When that stock price is less than management's estimate of the value of a company, the business may become a target for takeover.

One result of the value boom is that members of boards of directors are now heavily recruited from outside management's pool of friends, bringing qualified, fresh perspectives to the strategy-making body of a corporation. BusinessWeek publishes an annual list of the Best Boards in America, and management consulting companies like Egon Zehnder Internationai are studying board practices and policies. In the first such survey in 1998, the Board of Directors Global Study, researchers examined boards from 24 countries, representing 188 companies in six industry sectors, The companies in the study averaged $1 1 billion in market capitalization, $6 billion in annual revenues and $32 billion in assets. Well over half of the survey's respondents, some 57%, considered their company to be global.The vast majority of these companies were publicly traded (86%), with 26% of their shares held by foreigners. Respondents believed that a global company's board should differ in composition from the board of a domestic company.

That belief resonates with Bill Dahlberg's actions as he steered the Southern Company's transformation from a regional to an international electrical power company. "We decided to reach outside our area to find members for our board of directors, particularly focusing on people who had expertise in transitioning from a regulated to a deregulated industry," Dahlberg said. "We adjusted the board to meet the needs of the company. Interestingly, now that Mirant has spun off to direct the national and international aspects of the business, the Southern Company may look for more regional directors for its board."

A VALUABLE CULTURE

The Coca-Cola Company was one of the first to use a value-based management approach, applying it from senior management to line workers with great success. In its 1997 Guide to Implementing Value-Based Management, CocaCola defined the concept as ''a way of thinking, a set of principles that allows one to manage value at all levels of the business: It becomes the philosophy we work with daily. It becomes the framework for everything we do."

Other companies have adopted shareholder value philosophies and are publicly endorsing the approach. These include: Berkshire Hathaway, Quaker Oats, General Electric, Wells Fargo, AT&T, Emerson Electric, Walt Disney, United Parcel Service, Lloyds Bank BellSouth, Equifax, PepsiCo, Merck, Borg-Warner, Hillenbrand and Marriott, among many others. Even a mere announcement of a move to value-based management is rewarded by the stock market, Morin said, and the value-managed companies have performed better than their peers by at least 5%. In turn, the managers who run these companies also do well, earning raises, promotions and stock options when their companies excel.

Value-based management is a holistic approach rather than a patchwork of specialist perspectives. It is a system that honors the connections between the different aspects of business, bringing closer the insights of marketers, financiers, engineers and accountants. "Business research has become so hyper-specialized that we've lost the tracks between our disciplines," Morin said. "But they exist. There are connections between everything. It all fits together."

In many ways, adding value throughout an organization to create shareholder wealth makes common sense. It is often the simplest of ideas that leads to dramatic changes in culture - in this case, a business renaissance fueled by value.

By Rhonda Mullen