Are Companies Getting The Share Price They Deserve?

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Are Companies Getting The Share Price They Deserve?

Sometimes "bad" share prices happen to good companies. The question is why?

One might think that a decade of re-engineering and restructuring would have delivered a world where share prices correlated to performance. And maybe it has. Except that "performance" has been redefined. Today's CEOs face the unique challenge of achieving appropriate valuations in a Wall Street climate ruled largely by high-octane portfolio managers driven by near-term horizons.

An anecdote shared by John Castle, chief executive of Castle Harlan, may sum it up best. While Castle was sitting on a Boston-bound shuttle plane awaiting takeoff, his seatmate, a stock analyst, used his cell phone to check in with the office. "He's on the phone talking about the stock of the company he visited the day before," recounted Castle. "And he's saying, 'Well, things look a little shaky over the short term. But in the longer term, say, three months, I think the outlook is excellent.'"

While the story, told at a roundtable held in partnership with KPMG, won laughs from the CEO participants, it also touched on a concern voiced repeatedly during the discussion. As Andrew Carter, chief executive of Hyperion Capital Management, put it: "It seems to me that the investment community is forcing chief executive America to behave in an inappropriate, short-term way." Others expressed frustration over wild fluctuations--often seemingly unfounded--in company stock prices. "Our company was $80 a few years ago; it was down to $36 a few months ago, and now it's back up to $58," said MBIA Inc.'s Gary Dunton, adding, "You feel like you're a yo...

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