The shareholder data your board needs.
Which pop culture characters have the most robust relationship? For mine, it's Lenny Leonard and Carl Carlson from the Simpsons for the simple fact that for over 30 seasons, they've never not trusted one another. Trust is a precursor to longevity, collaboration, and performance. Lenny and Carl have that in spades.
When it comes to running your company, the relationship that you have with your board is critical. You want to be as tight as Lenny and Carl. After all, the CEO is the one who has to run the company day-to-day and make the tough decisions, so you must have a board that you can trust and rely on for support (and vice-versa!).
But in one area of governance, there is a blocker hindering most CEOs' ability to build trust: data. For a board to be effective, they need access to the correct information; otherwise, decisions rely on anecdotes and false signals. And one of the most essential pieces of data boards need is information about your company's capital markets performance. Unfortunately, there isn't a lot of information that is readily available about this for boards. This can lead to confusion, frustration, and/or assumptions, which can jeapordise the CEO's relationship with the board.
Don't despair, though. There is a lot of data available from your registry that you can provide to your board that will help them understand your company's capital markets performance. In today's article, I'll list the shareholder data your board should know about and explain why it's crucial. Hopefully, this will help you build better relationships with your board and increase the impact of your board and your management team.
The board relies on the synthesis of information to perform
Whilst I have not sat on a board in a while, I have a lot of board experience. As a CEO with my own board to report to, with experience in multiple M&A transactions, and spending most of his days with MDs, CEOs, and board members, I get a lot of exposure to the pains, gains, and needs of a board member. And from where I'm sitting, it is clear that directors need more data.
This quote from McKinsey's survey of over 700 board directors summarises it best, "CIOs and technology professionals should furnish boards of directors with concise reports that detail considerations in each area of inquiry we've identified rather than offering giant collections of unstructured data."
Boards need accurate signals representing a company's capital markets performance more than just the share price. Right now, share price is the only concise form of capital markets performance measurement that is universally used across boards. Something needs to change.
The challenge of communicating capital markets performance with a board
As a CEO, giving your board of directors the correct data about your company's performance in the capital markets is essential. But this is easier said than done.
Share price is an essential indicator of performance, but it isn’t always fair and can be influenced by many things outside your company's control. It's like having a row of hotels on the Monopoly board, and everybody hits the damn Chance tile; despite your best efforts, sometimes the market zigs when you zag.
Some companies measure their success through annual shareholder growth, but that's not relevant to every strategy.
And while some board members watch the buying and selling of the top 20 shareholders as a proxy for capital markets performance, this can be very time-consuming. Not all board members are exposed to or supportive of this metric, which can also cause tension in relationships.
The best solution is to find a good set of metrics (inclusive of share price) that gives your board a more accurate understanding of your company's capital markets performance.
Shareholder data that should be provided to the board
Board members can use a lot of data to make informed decisions about a company's capital markets performance. We've spent a few years separating the signal from the noise, and I have a few recommendations to get you started.
Firstly, your share price is still relevant (it's just not a silver bullet). Influential CEOs include relative measures in their share price reporting to provide further context. This most commonly looks like your share price compared to the overall market or specific competitors. Being 50% doesn't look bad when the market is also down 50%, and your competitors are down 75%!
Shareholder growth ratio is an excellent way of showing your change in shareholder base. It's a simple churn formula we have adapted from the startup world. It measures the overall growth of your shareholder base and is calculated using registry data (acquisition / churn = SGV). We find that it is most useful as an early indicator of shareholder engagement and IR success.
Available dry powder is another number worth paying attention to. Ultimately, your board wants to be sure that if and when the time to raise occurs, you can raise the required funds with minimal dilution. I know that most companies have a CFO or a financial controller with their own method of calculating available dry powder, so it's likely data you already have access to. Introducing it to your board is all that's left!
Distribution of shares amongst your shareholders is another critical metric to track, as it highlights what risks and opportunities your company is exposed to. For example, a long tail of shareholders presents different risks to a highly concentrated distribution of shareholders. Many boards are unaware of their distribution pattern and, therefore, their risks.
Finally, comparing these metrics to previous quarters and years helps frame the long-term impact of any capital markets performance optimisations you may have made. Too often, I see CEOs shooting themselves in the foot by focusing on short-term reporting when their long-term story is more impressive and more likely to be the result of their leadership. People underestimate what they can do in a year and, as a result, typically forget about their achievements - you're probably one of those people.
How these metrics go beyond the board to help you and your management team
The main benefit of having a suite of accurate signals is that you've mitigated the risk of being led by irrelevant noise, anecdotal evidence, or opinion. With a more precise signal, you, your team, and your board can significantly impact shareholder engagement, acquisition, and retention. You are also better positioned to raise more capital with less dilution.
It is also easier to make strategic adjustments for you and your board. Suppose, for example, that your shareholder acquisition is high, but your churn is high. In that case, you have the data to justify adjusting your IR strategy to focus more on shareholder engagement.
Good data also makes it easier to make vendor and personnel decisions. Suppose your shareholder engagement is good, but a broker's terms aren't great, for example. In that case, you can leverage your attention to renegotiate terms with your broker (we've seen this happen recently with an InvestorHub customer).
Finally, you can use data to get more out of your board. The McKinsey report I referenced earlier showed a correlation between high-impact boards and time spent supporting the company, with low-impact boards spending half as much time as high-impact boards. Good signals make it easier to identify how your board can support you. Whether engaging shareholders, leveraging their networks, or supporting strategic adjustments, the data can help you effectively identify and communicate the need to your board.
