In 2022, AXA and its CEO Thomas Buberl faced new types of challenges, including systemic risks such as climate change, geopolitical instability, public health crises, and social tensions caused by economic risks. AXA was one of the world's largest insurers. Since becoming CEO in 2016, Buberl had led a transformation to rebalance its portfolio toward property and casualty (P&C) insurance, reducing its exposure to financial-market risk. At a September 2022 Management Committee offsite, Buberl focused management's attention on AXA's "S" strategy-i.e., its social and societal role. The case includes a history of AXA's growth and transformation prior to and under Buberl's leadership, including its adoption of the purpose: "to act for human progress by protecting what matters" and the vision "to transform AXA's value proposition 'from payer to partner.'" Also covered are AXA's green business strategy to mitigate and adapt to the risks posed by climate change, new innovations, such as data platforms in commercial and health insurance, and AXA's attempts to extend coverage to customers in emerging markets and low-income customers in developed markets.
Total shareholder return (TSR) has become the definitive metric for gauging performance. Unlike accounting measures such as revenue growth or earnings per share that reflect the past, TSR is based on share price and thus captures investor expectations of what will happen in the future, which is its chief attraction. The problem is that TSR conflates performance associated with strategy and operations with that arising from cash distributions (dividends and buybacks). In this article, the authors discuss the distortions embedded in TSR and propose a new metric, core operating shareholder returns, that emphasizes operational performance. It also provides a comprehensive assessment of the buyback revolution--and the verdict is quite damning.
How should historic social injustices be addressed? Survivors of the 1921 Tulsa Massacre and their descendants, including Representative Regina Goodwin of Tulsa, believe they should be addressed through reparations and have consequently continued to push the government of Tulsa to pay reparations for the massacre. In 2020, after no direct reparations and largely symbolic governmental efforts, proponents of reparations wondered if that call would finally be answered. The upcoming centennial of the massacre, the resurgent Black Lives Matter movement, and discussions within the U.S. about reparations broadly have made the issue more salient. The case guides students to consider the specific issue of reparations for the Tulsa Massacre, the idea of reparations generally, and the use of reparations to respond to the effects of slavery and racist governmental policies in the U.S. The student also considers the role of business in responding to racial justice issues. We are offering this important product free for all readers
In March 2012, Hon Hai Precision Industry Company, Ltd. (Hon Hai) announced its investment in the Sharp Corporation (Sharp). The deal was structured in two parts: the first had Hon Hai investing in Sharp, and the second involved Hon Hai founder and chairman and CEO Terry Guo personally purchasing a stake in Sharp's unprofitable Sakai manufacturing plant. This case explores the dynamics of the deal and specifically focuses on valuation of the investment in the Sakai plant as well as the structure of the deal. It presents a vehicle by which to consider net present value (NPV) calculations and corporate deal structuring.
This case explores the decision-making process that small, private businesses must undertake when considering an expansion and when selling equity to outside investors. In the process, students are asked to complete two exercises: a break-even analysis and a valuation exercise.
By the end of 2013, Apple had $137 billion dollars in cash and marketable securities. This case explores how companies can generate such large amounts of cash and how and if they should distribute it to shareholders, especially in the face of shareholder pressure. In the process, students are asked to undertake fundamental financial analyses, including ratio analysis, a financial forecast, and a cash distribution analysis.
Helps students to understand how the characteristics of a business are reflected in its financial statements. This case consists of an exercise in which students are given balance sheet data in percentage form and other selected financial data for companies in 14 industries. The specific task assigned to the student is to use the balance sheet data along with their basic knowledge of the operating conditions and characteristics of these 14 industries to match each industry to the correct data.
The U.S. corporate tax code is broken. High rates and perverse incentives drive capital away from the corporate sector and toward other uses and countries. This is bad news for U.S. workers, because corporations aren't making investments that would increase productivity and real wages. And while one might think higher rates lead to higher revenues, the U.S. actually collects less in taxes (as a percentage of GDP) than most other developed nations. Desai, a professor at Harvard Business School and Harvard Law, believes a handful of changes could fix all that. A significant rate reduction and an end to foreign-income tax would encourage U.S. multinationals to keep more money at home. Any revenue lost could be offset by a small tax on noncorporate business income, which is now exempted. Closing the chasm between how income is reported on taxes and earnings are reported to investors would also raise revenue--and end public perceptions of unfairness. These reforms could actually turn the U.S. tax system into an asset. But they won't be effective if managers don't change their mind-set. Rather than shirking their tax obligations, they need to start viewing them as an important social responsibility.
The past three decades have seen American capitalism quietly transformed by a single, powerful idea--that financial markets are a suitable tool for measuring performance and structuring compensation. Stock instruments for managers, high-powered incentive contracts for investors, and the rise of alternative assets have dramatically altered the nature and level of incentives and rewards in our society, on both sides of the capital market. These changes have contributed significantly to the twin crises of modern American capitalism: repeated governance failures, which lead many to question the stewardship abilities of American managers and investors, and rising income inequality. When risk is repeatedly mispriced because investors enjoy skewed incentive schemes, financial capital is being misallocated. When managers undertake unwise investments or mergers in order to meet expectations that will trigger large compensation packages, real capital is being misallocated. And when relative compensation is as distorted as it has been by the financial-incentive bubble over the past several decades, one can only assume that human capital is being misallocated, to a disturbing degree. Awakening our monitors to their responsibilities and to the flaws of market-based compensation provides the best hope for correcting these imbalances and strengthening the U.S. economy for the challenges of this century.
As corporations go global, capital markets open up within them, giving companies a powerful mechanism for arbitrage across national financial markets. But in managing their internal markets to build an advantage, CFOs must balance the opportunities with the challenges of operating in multiple environments. By exploiting their internal capital markets, CFOs can create value in three functions: Financing. A CFO can reduce a group's tax bill by, for example, borrowing in countries with high tax rates and lending to operations in countries with lower rates. But the global CFO needs to be aware of the downsides of strategic financing. Saddling the managers of subsidiaries with debt, for instance, can cloud their profit performance. Risk management. Instead of managing currency exposures through the financial market, global firms can offset natural currency exposures through their worldwide operations. Doing so, however, can obscure the performance of local units, making it harder for headquarters to assess local managers and easier for financial managers to take purely speculative positions. Capital budgeting. CFOs can add value by getting smarter about valuing investment opportunities. But adopting an overly formal approach may tempt managers to game the system and can lead to an outcome at odds with the company's objectives. CFOs can help their global finance operations make the most of their opportunities by inventorying their capabilities and ensuring their adaptation to institutional variation and their alignment with organizational goals. To achieve this, a global finance function must locate decision making at a geographic level where other strategic decisions are made, rotate finance professionals through various institutional environments, and codify practices that can be adjusted to suit local conditions.
Explores the concept of economic value added (EVA) and its practical applications as a management control system for performance measurement and incentive compensation. Explains how EVA is measured and explores some of the adjustments to financial statements that are required to measure EVA. Provides a fully worked example of a firm's measurement of its EVA, both before and after adjustments to its financial statements. Describes several types of EVA bonus schemes and discusses both the benefits and limitations of EVA.
Provides a framework for understanding different types of international tax regimes. Examines how alternative tax regimes tax the foreign income of their citizens (including corporate citizens); how tax regimes define foreign and domestic income; and how foreign tax credits and deductions are used in worldwide tax regimes to mitigate double taxation. Discusses in detail the current U.S. system of worldwide taxation and the managerial incentives created by the U.S. tax system.