In Need of Internal Capitalism

Abstract

Senior executives face a merciless treadmill from shareholders who seek an adequate return on their capital and demand increasingly higher levels of performance. These executives know the consequences of failing to meet these expectations - the share price falls and management shake-ups are possible. However, despite increasingly decentralized decision making in many corporations, market discipline and accountability is often not carried down the organization and performance suffers. To address this, executives must embrace a culture of Internal Capitalism. They should explicitly develop strategies, make decisions and assess performance inside the company to boost efficiency, growth and sustainability over time. This paper explores the need for Internal Capitalism and the steps required for embracing this owner-like culture.

Keywords: internal capitalism, value based management, shareholder value, business strategy, discipline, residual income, growth