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Perverse incentives

Shareholder value and stock options for senior managers have ruled big business since the 1990s. But they have led to costly mistakes and endless scandals

Little more than a decade ago, the US corporate world was suffering a crisis of confidence. American businesses were losing market share. Management experts vaunted the superiority of Japanese managers, with their emphasis on long-term planning and consensus. Today, the situation is reversed. Despite the ending of the long bull market and the collapse of the technology bubble, Americans retain a strong belief in the superiority of their business practices. These, we are told, have not only been responsible for the longest period of growth in US history, but also the briefest of recessions. The cause of this great turnaround…

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