Tuesday, August 16, 2005

Shareholder Value

If there’s one thing, and one thing only, that should matter in corporate development, it’s the enhancement of shareholder value. Now before I get beat up as some kind of neo-Hobbesian, let me stress that shareholder value is a complicated concept. It’s not, as some narrow-minded types would have it, wringing the last cent of value out of every interaction or transaction. It’s looking at the big picture and determining whether a given decision or course of action enhances or detracts from the overall value of the enterprise.

Now, every company is different, and will typically view itself as being positioned in the market in one of four basic ways: The customer service leader, the technical leader, the price leader or the quality leader (and there ends most of what I know about marketing . . .). This positioning will obviously impact the factors that influence shareholder value, but here are a few universal factors that influence shareholder value:

Positive to Shareholder Value:
Growing revenue and increasing margins
Treating employees well and paying them fairly
Attention to customers
Good media relations

Negative to Shareholder Value:
Suing your competitors (most of the time)
Treating employees as fungible assets to be “squeezed” for efficiency
Creative accounting
Over-reaching defense of trademarks
Many, many mergers

One thing that has always perplexed me about corporate life is how little focus most employees, even at relatively senior levels, give to enhancing shareholder value. I think this is also a problem that grows with the size of the company. If your company has more than $10 billion in annual revenue, ideas (or extra work) that “only” enhance revenue by $1 million or less, or “only” save a couple hundred thousand dollars in expense can get rationalized as not worth the time to work on. I don’t get that. Early in my career, a colleague in the finance group made a comment that has stuck with me: His goal, he explained, was to save the company each year at least 2X the amount of his salary. Often times it can be a matter of simply spending 1-2 hours on something that will save the company $50,000 or more. Is that not time well spent?

At the end of the day, corporate development work doesn’t have a creative or artistic aspect to it that one can fall back on if you’re not focused on shareholder value. So you might as well use your creativity to find ways to make the business hum that much faster.

1 comment:

Parkite said...


I am looking forward to learning from your blog. I noted from an earlier post that you were involved with the ATT Wireless sale. Given that this post is about shareholder value, with all due respect, was shareholder value really maximized in that transaction? Seems like the CEO from ATT Wireless just wanted to liquidate the company, given the abysmal customer service, so his lucrative compensation plan would kick in. I can't recall the figure the CEO walked away with but I remember shaking my head in disbelief. I am assuming you can't comment on the above, but since this a blog where open communication is the order of the day, I figured I would post this to see if you'd care to respond.