Some brainstorming on required rate of return

We often hear investors say that they are seeking a 15% return and almost as often we hear managers says that their objective is to achieve at least this level of return, so much so that this figure has become almost mythical. What's going on here?
In current market conditions, the required rate of return from a stock with average risk is about 9%, i.e. the 10-year yield on government bonds (about 4.1%) plus a risk premium of about 4.5%. So 15% is really too much to ask, isn't it? Not for companies with a beta coefficient of at least 2.4. But fewer than 0.2% of major listed European companies have such a beta!

How can a company achieve and sustain this 15% level?

In fact, economic theory and common sense tell us that, over a given period, ROCE corresponds to the return that is required under normal conditions, given the level of risk. And this is increasingly the case with deregulation and technical advances, which are doing away with barriers to entry faster and faster. Major groups who are leaders in their fields with patents, well known brand names, strong market share and powerful distribution tools on mature sectors only manage to make back their cost of capital or slightly more. These include ENI, Bayer, Air Liquide and… Coca-Cola.

A company creates value when it invests in projects that, at average risk, return, nowadays, 7 to 9%, and not 15% and above. To demand 15% is to miss out on lots of value-creating investments!
For an investor to demand 15% at an average risk level would be just as unreasonable as to demand an immediate 50% jump in the minimum wage or a 33% cut in the working week at the same salary. Even Karl Marx wouldn't be that unreasonable!
At an average level of risk, a 15% return is unsustainable and is unjustifiable from a theoretical point of view and therefore is no more justified than the Coué method. Obstinately demanding 15% can push managers into dangerous behaviour, such as excess debt and aggressive deconsolidation. Let's hope that the managers who set this 15% target do so on equity that has been subject to one-off write-downs or goodwill, in fact achieving just 9% on total shareholders' equity. If they do so, then we can forgive them!