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Shareholder value

Shareholder value addresses the question – for whose benefit does the organisation exist?
So, as a CEO, what are our top five key performance indicators? So generally, they’re revenue generated, they’re gross margin profitability, whichever level we choose whether that be the dialler or the operator level. Cash is one of the biggest key performance indicators and also progress with our commercial arrangements. So, those are the kind of key performance indicators I have. Now the financial team will have a different set of key performance indicators, the commercial team will have different indicators and our shareholders will definitely have a totally different range of indicators that they are looking for. So, things like they appreciation of the share price over time, for example.
I think you mentioned cashflow and I think for most businesses that will be a big one as well, in relation of better equity as well. Do you prefer a ratio of two to one, which is the rule of thumb or? No, we are kind of disruptive in the way that we are operating as well. So, the reason that we floated our business in 2013 was that we wanted access to the capital markets to grow quickly.
So, if you look, and again I told you that I tend to steal my ideas from other people, but if you look at some of the great technology wonders of the current age it started in a very, very similar way and what I am trying to do is very similar to what they did. So, as the CEO I am not actually as worried about revenue and profitability as maybe the financial team is or our shareholders, what I am worried about is the progress we are making as a business and these collaborations because that’s where the future revenue will come from. That’s where my vision in five years’ time actually comes to fruition.
So, as a CEO I have to have these key performance indicators in place but the reality is my own personal key performance indicators will be vastly different to what other people are looking for. My next question was actually going to be whether there are any unique measures of performance that you have developed as a company - collaborations will be top of that list, from what I gather. Yeah, so I am looking at our technical progress, our ability to be able to address the future markets and we don’t fall in, you know, if you look at a large proportion of the companies on the stock exchange they are valued on their performance earnings.
Well, we are still burning cash; we’re still developing technology and I as the CEO and as the Chairman have to decide whether we continue to develop that technology or whether we plough our profits into the future markets or we slow down slightly and generate more profitability. I, as I said to you before, my personal belief is that the opportunities are so vast for us that actually it’s wrong to actually focus on the profitability of the business. As long as we have access to the capital markets and the reason we will have access to the capital markets is because the progress we are showing which is why my personal belief is that that’s what we should have as our performance indicator.
You’re in for the long haul? Definitely. Do you monitor the performance of companies and unrelated industries and if you do, which companies’ ideas do you adopt? So, the idea is always to try to gather as much information as we can from across as many markets, as we can to try and stop trends in things like consumer behaviour and government behaviour, technology trends, the way we are adapting to new technology. There’s very little point in spending five years developing a technology which could actually be eradicated in the future and so the CEO, as I said before should always be looking five or six years into the future and that’s what I am trying to do.
Some people give themselves grandiose titles like futurologists and I have met a few of those in my time but the reality is what we are trying to do is stop these trends. I’m trying to work out what’s going to be really, really important in your life in five years’ time.
Shareholder value addresses the question – for whose benefit does the organisation exist?
In the video, Versarien CEO, Neil Ricketts, reflects on who his stakeholders and shareholders are.
Commercial ventures exist for the financial benefit of their owners, while social ventures exist for the unmet needs of society.
In commercial ventures, the interest of shareholders takes priority over those of employees, suppliers and other stakeholders. Particularly, shareholders are investors who own shares (also known as equity) in the company and expect monetary returns for their investment. Thus, the theory of shareholder value posits that the organisation belongs to shareholders, and therefore managers have a primary duty to maximise the economic value of the firm.
The indicators of this economic value depend on the legal form and objectives of the organisation. For a publicly listed company, the appreciation of its share price and regular dividend payments are common indicators of positive shareholder value. For private companies, growth in annual profit and return on capital employed are common indicators.
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