My company became part of a public company when we were purchased last October. As we all know, being part of a public company brings with it a substantial increase in reporting and compliance and, with regards to the company’s shareholders, a much higher level of outside accountability. I was able to observe this first hand when I attended my first shareholders’ meeting recently. The great thing about the meeting was that it occurred at the New York Stock Exchange and I was able to participate in the ringing of the opening bell. For a financial nerd, this is a bucket list item that I never anticipated I would do. It will certainly go down as one of the more memorable experiences I have had. You can see this experience by following the link to the video.
But the other thing about this experience was participating in and observing the shareholders’ meeting. It provided an opportunity to listen to what these shareholders wanted to know, and to think about the way a company presents itself and its business plans and goals in a way that those outside the company can understand. Since the company had announced a significant loss from one of its subsidiaries that morning which contributed to a consolidated loss for the year, I had suspected most of the discussion would center on that. However, that was really not the case.
There was a focus on why the loss occurred and what alternatives were being considered, but the majority of the conversation and questions related to a desire for more transparency as to how management looks at the company and more guidance on company value. The presentation took on a “sum of the parts” focus in an attempt to provide an overall understanding of how management determines company value. The shareholders were also presented with more information regarding future investments or acquisitions that might be made and how those would align with the company’s stated goals. It was surprising to me that these investors were willing to take a thoughtful approach to understanding enterprise value.
Although this is certainly not a large sample size, it could be an indication that investors are willing to accept aberrations and current losses from a company with a clear understanding of long term direction, as long as there is a plan for the future and an explanation as to how an organization looks at and justifies its strategic and operational goals. If so, this would be a positive move away from judging on current results to a longer term proposition. I feel we would be better off with this view, and companies would be able to pursue an approach to optimize value that, hopefully, the market ultimately rewards.
Gale Sommers is President and CEO of Professional Warranty Service Corporation in Chantilly, Virginia and a Global Advisory Board Member of The CFO Alliance.