c. Strategic Performance Management Flashcards
Why is it inappropriate to use targets for share price growth and dividend growth as formal planning targets and measures of actual performance.
Share prices can be volatile and affected by stock market conditions outside the control of a company’s management.
Dividend policy is under the control of the board of directors and can be manipulated. Dividend payments do not have to move in line with changes in profitability or longer-term financial expectations of profit.
The primary objective of financial performance in a corporation
maximizing shareholder wealth.
Focusing on financial performance for the benefit of shareholders aligns corporate strategies with long-term value creation, which ultimately strengthens the company’s competitive position and financial healthy
How OWNERSHIP & CAPITAL PROVISION impacts shareholder wealth
Shareholders are the owners of a company and have invested their capital in it. Their expectation is to receive a return on this investment, typically in the form of dividends and capital gains. Financial performance, measured through profitability, growth, and efficient capital use, directly impacts their returns.
How MARKET VALUATION impacts shareholder wealth
Shareholder wealth is closely tied to the company’s stock price, which reflects the market’s assessment of its financial health and future potential. By maximizing financial performance, companies signal strength and profitability, increasing demand for their shares and driving up market value.
How RISK AND REWARDS impacts shareholder wealth
Shareholders bear the highest risk since their returns are contingent on the company’s performance. In contrast, creditors and other stakeholders may have fixed claims (e.g., interest payments, salaries), irrespective of profitability. Therefore, focusing on financial performance and shareholder value aligns with the principle that those bearing the greatest risk should receive the highest reward
How SUSTAINABILITY OF OPERATIONS impacts shareholder wealth
A company that focuses on maximizing shareholder wealth is often incentivized to improve operational efficiency, expand into profitable markets, and optimize resource allocation. This creates a virtuous cycle of growth and profitability, benefiting not only shareholders but also employees, suppliers, and other stakeholders over the long term.
How CORPORATE GOVERNANCE & ACCOUNTABILITY impacts shareholder wealth
In most corporate governance frameworks, management is held accountable to shareholders through mechanisms such as annual general meetings and board oversight. By emphasizing financial performance and shareholder returns, management can demonstrate effectiveness and alignment with the interests of the owners, thus securing their continued support.
What are key factors to support the growth and sustainability of business
See notes in
What is Negotiated Target Setting
Negotiated target setting involves setting financial or performance goals through discussions and agreements between different levels of management or between managers and employees. This collaborative approach balances top-down directives with bottom-up input, ensuring that targets are both ambitious and achievable
