Meet the Real Shareholders

Most companies believe that the aim of their business is to maximise shareholder value, but few stop to ask who their shareholders actually are. That is a pretty important omission, because if you don't know who your shareholders are, how can you know what constitutes value for them?

Wait a minute, you may say: most CFOs meet shareholders all the time as they wander around the financial centres of the world – they are called Fidelity, Barclays, Alliance, AXA. But these institutions, though they control many hundreds of billions in shares, are not the ultimate owners – they are the agents of pensions, insurance and other collective savings plans representing hundreds of millions of savers.

The truth is that businesses around the world are no longer owned by the wealthy few, but by a burgeoning class of citizen investors who, like it or not, are demanding fresh and often unfamiliar skills from corporate leaders. One UK company tried to calculate how many people benefited from its dividends but gave up when the count reached 280 million. Two-thirds of the UK population has direct or indirect interests in company shares.

THE IMPACT OF CITIZEN INVESTORS

Each pensioner owns a tiny sliver of vast numbers of companies. From IT pacesetters in Silicon Valley to the oil wells of Nigeria, from breweries in Mexico to the hardware retailers of America, citizens are now collectively the ultimate owners.

Companies ignore these investors at their peril. Poor corporate performance can devastate the accounts and future dreams of millions of middle and working class savers. Through their agents – pension funds and money managers – these citizen investors are learning to make their voices heard like never before.

Indeed, behind the scenes, complex pressures are turning once passive, faceless fund managers into market activists. Moreover, the marketplace is handing citizen investor funds the tools to assume the powers of ownership. Proxy voting advisory services and corporate governance rating agencies analyse everything from who is on a corporate board to whether executive pay aligns with long-term shareowner interests.

Citizen investors now have information on everything from the sustainability and quality of a company's earnings to CEO perks and the size of a firm's carbon footprint. Increasingly, activist funds stand ready to oust directors who fail to meet long-term performance expectations. The bottom line is that the owner revolution forces directors and executives to find a new way to win shareowner confidence.

MANAGEMENT FOR NEW OWNERS

What do citizen investors want from companies that we didn't have to worry about in the past? Here is the central difference: a lone owner defines what he or she wants from the enterprise while citizen investors represent society at large.

Yes, individuals own equity to make money. They save for their long-term future, including retirement. However, it makes no sense for these owners to encourage a corporation to make a great profit if they have to pay for it through other means.

So what are executives to do? The 'capitalist manifesto' (see list, below) is a set of guidelines culled from vanguard boards. It forms the lesson plan for a new school of corporate leaders who genuinely want to deliver shareholder value. Its ten points chart routes to success by treating citizen investors not as the enemy, but as an asset.

These lessons are not some random selection of 'good things to do' they are the inevitable demands of the diversified citizen investor owners to whom executives have promised to deliver value.

At first glance these seem to be simple statements. But take a closer look. You will find that they match the revolution in corporate ownership with a revolution incorporate management.

For example, the first lesson – be profitable and create value – may sound familiar, but many executives in conventional business spend money on ventures that have little prospect of creating value. Maybe you recognise the phenomenon; enthusiasm for the business gets translated into excessive optimism about prospects. Then, through the magic of the spreadsheet, optimism is turned into a complex financial schedule, where scores of untested assumptions create a plan built on sand and schemes that look brilliant on paper but don't deliver real value. CFOs, now more than ever, must ensure that all plans are well grounded, financially and strategically.

The eighth lesson – seek regulations that ensure your operations do not cause collateral damage and your competitors do not gain unfair advantage – is less familiar, yet it is clear that if companies wish to create value, they should support measures meant to prevent competitive forces generating costs for society at large.

CITIZEN CAPITALISTS

Citizen investors do not want companies to pollute, for instance, but what do you do if your competitors take advantage of your socially conscious behaviour to push you out of business? If competitors engage in antisocial behaviour, companies should, on behalf of their citizen investor owners, seek regulations or incentives that will modify competitive rules to ensure that rivals do not create collateral damage. Ideally, such rules should be voluntary and as flexible as possible, but where this is impractical, it is appropriate to encourage statutory regulation.

The 'capitalist manifesto' offers a new model for creating successful publicly listed corporations. Those who follow its recommendations will, in the end, be successful in delivering shareholder value.

The result of taking your real shareholders' opinions into consideration is a remarkable win-win situation. As former Pfizer CEO Hank McKinnell has said: 'The New Capitalists is a guide for corporate leaders who want to manage their businesses not only quarter to quarter, but also generation to generation.' The reward, according to James Wolfensohn, former head of the World Bank, is 'the chance to make globalisation safe for profit and social equity'.

As citizens increase their control over the world's largest corporations, they are starting to understand the potential of their newfound power to affect the actions of such companies for the greater good of the societies they live in. The companies that will win in this new world are those that understand their new masters and are learning how to meet their demands.

THE CAPITALIST MANIFESTO

1. Be profitable and create value.

2. Only grow where you can create value.

3. Pay people fairly to do the right things.

4. Do not waste capital.

5. Focus where your skills are strongest.

6. Renew your organisation.

7. Treat customers, suppliers, workers and communities fairly.

8. Seek regulations to ensure your operations do not cause collateral damage and your competitors gain     advantage.

9. Stay clear of partisan politics.

10.Communicate what you are doing and be accountable for it.