Shareholder Alignment
Term of the week
What: Shareholder alignment encompasses all factors that ensure that company management creates economic value and lets it accrue to shareholders.
Why: Companies exist to create economic value on behalf of their owners – the shareholders.
How: In addition to possessing the necessary skills, professional experience and performance track record, shareholder-aligned management should act with integrity (transparency above and beyond legal requirements, honest communications). Proper incentives (compensation, share ownership) then help ensure that management supports the interests of shareholders.
Conclusion: If blue chip investors want to achieve attractive long-term returns over extended investing time horizons, they should thoroughly evaluate the company management’s shareholder alignment.