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What are the Different Types of Shareholder Management?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 26 January 2020
  • Copyright Protected:
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Shareholder management describes a range of strategies and systems that a company can employ to deal with the relationship between itself and its shareholders. This can include attempting to work to improve shareholder value rather than simply increasing profits. It can also mean taking into account other groups such as employees or customers.

Shareholder value management, sometimes known as value based management, is the concept that the management of a company should concentrate solely on increasing the value of the company to stock holders. Technically, this is already a legal requirement in that companies must act in the best interests of their shareholders. This type of shareholder management, however, means that this idea becomes the primary and dominant focus of a company.

The key to shareholder value management is that increasing the company's value is not always the same thing as increasing a company's revenue or profits. For example, illegally using workers paid below the minimum wage will likely boost profits in the medium term. If and when this is discovered, though, the company could face financial penalties and risk unfavorable media coverage that might deter customers in future.

The concept of value-based shareholder management also relates to stock issues themselves. A company could raise capital by issuing new stock and using the proceeds to fund capital investment that helps increase future profits. This does not increase stockholder value, though: by diluting the stock, it instead reduces the value of the company to individual stockholders.

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Another form of shareholder management is known as stakeholder value. This involves pursuing the combined goals of increasing the company's own revenues and profits while making life better for employees and contributing to society as a whole. The name comes from the idea that there are multiple groups that have a stake in the company rather than just stockholders. Critics of this method argue that it is hard to quantify value beyond pure financial results, and that the issue of the proportions in which a company should serve these different groups is too subjective.

Shareholder relationship management is the idea that a company can gain a benefit from shareholders beyond simply accessing their capital. This could involve businesses getting ideas from shareholders, shareholders being encouraged to use the business's goods or services, or shareholders promoting the company's brands to others. It can also attempt to exploit the idea that a large group of people, such as a company's shareholders, may be able to combine individual pieces of expertise, knowledge and judgment to produce more informed decision making.

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