The top executives of the large, mature, publicly held companies hold the conventional view when they stop to think of the equity owners’ welfare.

In short, stock market performance and the company’s financial performance are inexorably linked.

They assume that they’re using their shareholders’ resources efficiently if the company’sperformance—especially ROE and earnings per share—is good and if the shareholders don’t rebel.

So companies investing well grow, enriching themselves and shareholders alike, and ensure competitiveness; companies investing poorly shrink, resulting, perhaps, in the replacement of management.

They assume that the stock market automatically penalizes any corporation that invests its resources poorly.