Cooperate governance

Once a company becomes large, and certainly once it is listed on a stock exchange, the people who own the company (shareholders) are usually not the ones who run it on a day-to-day basis (directors).

The directors should make decisions which maximise shareholders’ wealth in the long term and in a sustainable way.

They, they therefore, must be accountable for their decisions and be able to demonstrate that they were made in shareholder’s best interests. So, for example, to ensure that the directors do not reward themselves too lavishly, there is a remuneration committee of NEDs to determine directors’ remuneration.

Long term shareholder value generally means increasing share price and dividends – in the long term. Short term dips can be tolerated provided the long term results are good. Similarly almost any fool could increase profits for a year, but that means little. The trick is to improve year after year after year.