knowlege base

Knowledge Base


Role of Shareholder Metrics in Improving Market Capitalisation

Dr Jack Jacoby
Managing Director - Jacoby Consulting Group

Our research into shareholder objectives has identified two key issues where by utilising shareholder metrics we can deliver significantly improved Market capitalisation. More specifically, by using conventional principles of supply and demand, we are able to significantly impact the value perceived by shareholders (and potential shareholders). By so doing, we can minimise the pool of equities on the market thus forcing prices and capitalisation significantly higher.

The associated value proposition suggests that the corporation can achieve a significant growth in capitalisation for those companies adopting the strategy.

Using innovative organisational planning and control techniques, we can simultaneously give the corporation much greater control over its portfolio of interests around the world, and in so doing, ensure that existing and potential investments are driven by appropriate objectives. The planning technique ensures that the sum total of organisational effort undertaken by all of the company's divisions and subsidiaries provides the outcomes (ie. shareholder value) intended and valued by shareholders.

The logic behind this goes something like this:

Share price is an outcome of two separate but related issues:

  • Supply and demand
  • Perceived value of the stock holding.

In order to increase the share price through supply and demand principles, the following applies:

Supply Strategies

Critical intent is to decrease the supply of available-for-sale stock. This will force the price for a smaller pool of stock higher thus satisfying the value proposition. Corollary benefit is the resultant increase in Capitalisation.

To decrease the supply of available-for-sale stock it is necessary to decrease the desire to sell by existing shareholders.

To do this one has to "convince" shareholders that the holding of the company's stock has greater "value" than selling the stock.

In order to achieve this, one has to convince the shareholder that by holding the stock, they have a high probability in satisfying their own subjective objectives (ie the shareholders personal value proposition).

In order to do this, the company must know individual shareholder perceptions of value. It is demonstrably wrong to assume that all shareholders have the same objectives. (Refer to: Shareholders)

In order to do this, the company needs to survey (not sample) all shareholders establishing shareholder metrics against value, benefit, growth and risk criteria.

Once these metrics are available, the company can ensure that its communications and strategies are congruent with shareholder objectives and sensitivities.

The company will also have the ability to communicate (through word processing and merge capabilities) to and with each individual shareholder based on the individual shareholder's key objectives. The communication will be aimed at convincing the shareholder that holding their equity in the company will enable them to better satisfy their individual objectives.

Some shareholders will receive sufficient "comfort" and "persuasion" to convince them to hold their stock rather than sell them.

This will contract the supply available of available-for-sale equities.

This will force prices and capitalisation higher.

Demand Strategies

The key determinant of the demand perspective on share price is the level of "value" seen by both existing and potential shareholders in the company's equities.

It is necessary to raise the perception of equity "value" of the company's stock as perceived by shareholders.

To do this one needs to convince existing and potential shareholders that equity position in the company provides a higher chance of satisfying certain outcomes than other stocks.

By undertaking the shareholder surveys above, the company will have an EXACT understanding of shareholder objectives.

The company therefore, by ensuring congruence between shareholder objectives and corporate objectives, has a higher probability of achieving certain outcomes than other corporations.

Therefore investors who have common objectives with company shareholders have a higher probability of satisfaction (ie. achieving their own personal value propositions) than investment in other areas.

This process changes the perceived value of the company's equity by investors by minimising investor risk, and enhancing investor likelihood of satisfaction.

This stimulates demand.

This demand will push prices higher, particularly with a contracting pool of available-for-sale equities caused by the supply-side strategies.

This will therefore satisfy the company - ie improve market capitalisation and share value.

Effective assessment criteria for overseas and domestic strategies, activities, investments and programs.

The Proposition:

If the company is able to establish an assessment criteria for their strategies, activities, investments and programs based on shareholder value, then they will be able to determine the suitability of those activities and enhance (or not detract from) shareholder value. In so doing, they will be able to better control and manage the diversity of interests domestically and internationally.

Solution Logic:

The solution is integrally related to defining shareholder value.

Current definition of shareholder value does not provide efficient or sufficient criteria against which to judge the suitability of activities, investments or operations.

Current definitions of shareholder value are subjective and often defined by directors and management.

In order to establish viable and effective value parameters that are relevant to the company's own context, it is necessary to establish what value means to the company's shareholders.

In order to do this, one needs to undertake the shareholder survey referred to in the Market Capitalisation context discussed earlier

This will establish the company's quantified shareholder perception of value, benefit, risk and growth.

These metrics represent the outcomes that are desired by shareholders from their investment in the company.

Each activity can then be assessed against those metrics and the contribution or impact that each proposed or existing initiative makes to those metrics.

An activity that contributes more meaningfully to stated and known shareholder objectives (shareholder value propositions) is more preferable than an activity that does not.

This provides the company with the assessment criteria against which to choose, review, or abort activities.

This satisfies the value proposition.

Additional Benefits from Fulfilling the Value Propositions

Ability to communicate and individually report to each shareholder based on that shareholder's personal objectives. This will be unique for any large publicly listed corporation.

Establish a unique relationship between corporation and shareholder.

Build shareholder loyalty.

Decrease negative churn on the share registry caused by disenfranchised shareholders.

Enhance the attractiveness of the company in the eyes of potential investors.

Decrease shareholder risk in investing in the company by matching overall shareholder objectives with their own objectives.

Enable more effective and easier corporate governance through the identification of 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.

More easily able to determine and resolve efficacy and appropriateness of management and board decisions and actions.

More easily able to monitor and assess the outcomes of management and board decisions and actions.

Clearer and less ambiguous expectations against which management can be held accountable.

Better able to match shareholder objectives with management objectives and strategies therefore better able to meet shareholder expectations.

Pressure share prices to rise.

Fast-track growth in Market Capitalisation.

For a detailed assessment of your company's situation and the applicability of these techniques to improving market capitalisation and share price, please contact the Jacoby Consulting Group

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