When it comes to what shareholders want to hear from companies they’ve invested in, a few traditional elements come to mind: management policies, performance measurements, and unambiguous expectations, among others. But a recent study has pointed out that an additional element of a business’ management strategy has shareholders weighing in: succession.
The report is the AMP Capital’s Corporate Governance Report 2013. (AMP Capital is an Australian bond fund and asset management firm.) Behind the findings is the concern that shareholders bear regarding long-term futures of companies. Naturally, shareholders want assuredness of the future of a company just as much as they do the immediate value available, but it is understood that investment today in short-term projects will ideally mean long-term value. Shareholders want to be assured that succession planning is in place to ensure future quality, future leadership, and that long-term goals will not be compromised by changes in command.
Money Management quotes Karin Halliday, AMP Capital corporate governance manager on the subject:
"Simply asking directors about governance issues such as succession planning elevates the importance of these topics and encourages directors to address them…The same thing happened with CEO pay when the ‘two-strike' rule was introduced. While companies know how they will remunerate and what management skills they need, the increased scrutiny has led to constructive dialogue with shareholders.”
Money Management quotes the report as detailing the importance of internal promotion for many shareholders, as well as the benefits that come with promoting from within:
"Not only are internal candidates able to hit the ground running, but the transition tends to be far less disruptive and far less costly — unless significant cultural change is required.”
So businesses would do well to keep in mind that — not only are shareholders interested in who companies have lined up to take over senior leadership roles — they’d like them to do it from within to maintain continuity.