Most businesses, that have shareholders tend to focus on satisfying the investors only. And investors love profits. This means to improve profitability, return on investment and pay back periods- the management many a times have to compromise on their commitments to the employees, customers and environment.
Make no mistake, shareholders are very important. Without them, there is no capital and without capital there is no business. But the management strategy should not be entirely focused on them. Because many a times, the shareholders may not know what is good for them in the long run.
Shareholders usually invest in a commercial business for two reason. Immediate profitability or long term profitability / appreciation. For businesses with a vision, it is essential not to have investors who are short term focused. This will prevent business from investing in itself, its people and its relationship with the customers. As all these can be construed as “unnecessary expenses” that should otherwise have been shareholder’s profit.
But without investing in people, the organisation will not have the capable team to fight the competition nor grow. Without investing in building a relationship with the customers, the future customers will diminish. Without investing in the brand, will mean no value to the firm even after years of operation. Without investing into growth, diversification and research, the
business may not survive long.
Who does all this affect? The shareholders.
So the management has the difficult of job of ensuring that the right balance is maintained while creating value for all the stakeholders (and not just the shareholders).
This situation can be made easy, if the investors are rightly chosen in the first place. Choose investors who are long term, and who believe the firm should have a good brand value.
Promoters before targeting the “right customer segments” have to target the “right investor segment”.
