End the Religion of ROE

Harvard Business Review

Return-on-equity hurdles threaten them all. We think there's more to business success — and that something as straightforward as a simple equation could put capitalism on a better path. To an extent not widely recognized, it was an equation in the first place that gave ROE the power to dominate not just investment decisions, but an entire business culture. A hundred years ago, the focus on squeezing every drop of return out of equity capital made great sense.

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