Wealth Creation. A Systems Mindset for Building and Investing in Businesses for the Long Term. Wiley Finance

  • ID: 2217026
  • Book
  • 208 Pages
  • John Wiley and Sons Ltd
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Praise for Wealth Creation

"Bart effectively illustrates that neither unprincipled opportunism nor endless regulation can lead to business success and societal well–being. Instead, such universal benefits can only derive from a relentless focus on creating real, long–term value."
Charles G. Koch, Chairman of the Board and CEO, Koch Industries, Inc.

"This book is for investors, but public policymakers take note. Its message for both is that wealth is created from within, not top down or outside in. For investors there are practical guidelines to identify firms early in their life cycle that demonstrate a high capacity for innovation and integrity, and that listen to and serve their customers. Policymakers must nurture this business environment for all to prosper."
Vernon L. Smith, Economic Science Institute, Chapman University, Nobel Laureate in Economics, 2002

"We use the life–cycle framework explained in Bart Madden′s book as the linchpin for analyzing companies and diversifying clients′ portfolios. Before voting for leaders in Washington, we should quiz them on how well they understand the principles laid out in Wealth Creation."
Christopher C. Faber, founder, IronBridge Capital Management, LP

"An imaginative [book] that integrates a dynamic approach to business systems with the fundamentals of wealth creation."
Douglass C. North, Nobel Laureate in Economics, 1993

"This enlightening book helps the reader understand what is needed to get a free market economy to function ideally, and identifies significant shortcomings in current arrangements. Particularly illuminating is the emphasis on an absence of incentives for management to focus on long–term performance of the firm, and the failure of directors to provide effective oversight."
William J. Baumol, author of The Free–Market Innovation Machine: Analyzing the Growth Miracle of Capitalism

"Madden′s competitive life–cycle framework will provide insights that help forecast life–cycle patterns of economic returns that the firm will generate for its investors. I recommend this book to every long–term value investor."
Ravi Jagannathan, Chicago Mercantile Exchange/John F. Sander Professor of Finance, Kellogg School of Management, Northwestern University

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Preface xi

Acknowledgments xvii

CHAPTER 1 A Systems Mindset 1

How We Know What We Think We Know 2

The PAK (Perceiving–Acting–Knowing) Loop 3

Purposes 3

Perceptions 4

Cause and Effect 6

Actions and Consequences 7

Feedback 8

Knowledge Base 9

Examples of Systems Thinking and Problem Solving 10

High–Reliability Organizations 10

Eli Goldratt, Business Theorist 12

Colonel John Boyd, Military Theorist 14

Correlation, Causality, and Control Systems 15

Summary of Key Ideas 17

CHAPTER 2 The Wealth–Creation System 19

The Perception of Free–Market Capitalism 20

The Housing and Credit Crisis of 2008 2009 21

Government Regulation and Unknown Risks 25

The Standard of Living 28

Summary of Key Ideas 33

CHAPTER 3 The Ideal Free–Market System 35

Components of a Free–Market System 36

Consumer Wealth, Producer Wealth, and Competition 39

Efficiently Providing What Consumers Want 41

Summary of Key Ideas 43

CHAPTER 4 The Competitive Life–Cycle View of the Firm 45

Competitive Life–Cycle Framework 45

Firms Competitive Life Cycles and Dynamism 47

Company Examples 51

Eastman Kodak 53

IBM 55

Digital Equipment 58

Apple 59

Bethlehem Steel 62

Nucor 63

Kmart 67

Medtronic 69

Walgreen Company 71

Donaldson Company 73

Life–Cycle Observations 75

Summary of Key Ideas 76

CHAPTER 5 The Life–Cycle Valuation Model as a Total System 79

Efficient Markets versus Behavioral Finance 80

Valuation Model Principles 81

Measurement Units 86

Forward–Looking, Market–Derived Discount Rates 89

Problems with CAPM Cost of Capital 91

Improving the Valuation Process 93

Investor Expectations: The Wal–Mart Example 96

Critical Accounting Issues 99

Reply to Critics 102

Summary of Key Ideas 104

CHAPTER 6 Business Firms as Lean, Value–Added Systems 107

Lean Thinking and PAK Loop Components 108

Knowledge Base 108

Purposes 111

Perceptions 113

Cause and Effect 114

Actions and Consequences 115

Feedback 116

A Lean Transformation Example: Danaher 118

Summary of Key Ideas 121

CHAPTER 7 Corporate Governance 123

A Systems View for Corporate Governance 123

Corporate Governance Needs Repair 124

A Standard of Performance for Boards 127

A Successful Cultural Transformation Example: Eisai Co., Ltd. 128

Shareholder Value Review 130

Valuation Model Selection 133

Value–Relevant Track Records 135

Business Unit Analyses 137

Reply to SVR Objections 138

SVR as an Evolutionary Process 140

Summary of Key Ideas 141

CHAPTER 8 Concluding Thoughts 143

Benefits for Public Policy Makers 144

Benefits for Business Managers 146

Benefits for Investors 148

Notes 153

References 159

About the Author 167

Index 169

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Bartley J. Madden
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