The Origin of Value Based Management: Five Interpretative Models of an Unavoidable Evolution

This conceptual paper seeks to identify the factors external and internal to growing firms that make it necessary – in fact, inevitable – to change the traditional managerial perspective that aims at profit maximization – which is valid for small firms in the immediate start-up period and for family-run enterprises – in favor of the new approach that views the production of shareholder value as the primary objective of management. The basic thesis is that Value Based Management does not respond to tendencies in the capital market, which rewards companies with higher profits, but rather is the result of intrinsic needs in expanding organizations. As companies expand in size and complexity, and as the formation of diversified business portfolios becomes more frequent, it becomes natural and inevitable to introduce Value Based Management as a normal management approach. In order to take account of this assumption we have considered five sources of explanation: the stimulus of economic growth, the genesis of the managerial firm and the separation of ownership and control, and the models elaborated by Flamholtz, Greiner and Mella.