Similarly, the new CEO—who is chosen because of her exemplary performance in running the business—should not be given the task of managing the surplus capital that the business generates. Instead, the CEO’s performance should be evaluated after considering the cost of capital that is required for running the business. That way the CEO will only use the capital in a way that justifies the cost. The cost of capital, in turn, can be decided by another person who has his interests completely aligned with the shareholders. Such a person would set the benchmark cost of capital based on what the expectations of shareholders are.

Source: Mint October 24, 2017 11:26 UTC