The Strategy Skills Podcast: Strategy | Leadership | Critical Thinking | Problem-Solving

558: Founder of McKinsey's Strategy and Corporate Finance Insights Team on Measuring and Managing the Value of Companies

Jun 9, 2025
Tim Koller, co-author of Valuation and a corporate finance expert, explores vital strategies for capital allocation in today's economic climate. He discusses how share buybacks can reflect disciplined decision-making, not failure. Koller highlights the risks of diversifying without a competitive advantage, drawing on historical missteps in various sectors. He emphasizes the role of CEOs in direct capital allocation and warns against neglecting long-term investments in favor of short-term gains, advocating for transparency and learning from prior project failures.
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INSIGHT

Disciplined Cash Return to Shareholders

  • Companies generating excess cash may lack profitable reinvestment options, especially in mature industries.
  • Returning excess capital to shareholders via buybacks shows disciplined capital allocation, not strategic failure.
ANECDOTE

Diversification without Advantage Fails

  • Some capital-rich companies waste cash on unrelated businesses they don't understand, leading to value destruction.
  • Historical failures by utilities and oil companies show the risks of diversification without a competitive advantage.
ADVICE

CEO's Hands-On Capital Allocation

  • CEOs must engage directly in granular resource allocation decisions across business units.
  • Delegating all capital allocation can lead to underinvestment in high-return growth areas and poor incentives.
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