Shareholder Value and Shareholder Metrics

JCG is the innovator of the Shareholder Metrics discipline and has applied it successfully to scores of private companies and organisations.

Shareholder Metrics is a simple concept.

It is the quantitative representation of shareholder objectives primarily against the criteria of value, benefit, growth and risk.

Many directors and managers assume wrongly that their shareholder have common objectives, and use the top few shareholders as a proxy for all shareholders.

Research undertaken by JCG’s Principals has clearly and unambiguously demonstrated that:

  • Shareholder objectives vary;
  • Top 20 shareholder objectives vary from non-Top 20 shareholder objectives;
  • The objectives of any one shareholder in any particular stock will vary from that of other shareholder objectives in any other stock.

This creates the dilemma of either assuming all shareholders have the same objectives (clearly incorrect) or acknowledging that shareholders have differing objectives. If the latter is accepted, then the corporation must understand its shareholders’ objectives and the only way to do this is to survey them.

The purpose of quantifying shareholder objectives is to provide directors and management of the corporation the ability to:

  • Identify legitimate, recognised, owner-approved and quantified objectives which form the raison d’etre for a corporation’s existence and which define its objectives and form the context for its mission, vision, strategies and actions.
  • Provide directors with the information against which management and board decisions and actions can be made and against which their outcomes can be assessed.
  • Provide directors with the information needed to assess corporate, CEO and management performance.
  • Provide clear and unambiguous expectations against which directors and management are held accountable.

The quantifying of shareholder objectives provides existing and potential shareholders with the ability to:

  • Make more effective investment choices by identifying and thus enhancing the probability of satisfying each individual investor’s objectives.
  • Diminish investment risk for investors by matching an investor’s personal objectives with those corporations who have investors who share similar objectives. Corporations which adopt shareholder objectives as their mission have a higher chance of satisfying their shareholders than those organisations who regard shareholder objectives as incidental (despite the rhetoric) to their activities.
  • Provide a reliable and objective method for measuring the performance and competence of a corporation in its ability to fulfil shareholder objectives.

Focus is on shareholder perception of value, benefit, growth and risk

As far as shareholders are concerned, they are not so much concerned about the way the business is run; as they are about the outcomes they will receive from the “way it’s run.”

Shareholders may voice their concerns to the corporation about the way directors and managers are managing the business, but only because they are concerned about the likelihood, or otherwise of securing their desired outcomes. They are however, concerned about the value generated by the business, their benefits, growth of the business by specific criteria (e.g. assets, revenue, profit, or dividend?) and the risk to which the business will be prone (and therefore their investment.)

If you want to have a chat about this and the impacts on your organisation, contact us to arrange a convenient time.