It is truly amazing how many boards and their management believe that owners are a homogeneous group who all share common objectives. And it is the belief in such common objectives that causes organisations to chase the mythical “maximisation of shareholder value or wealth” often at the expense of what shareholders actually want.

The fallacy of this belief in a unitary and generic objective can be illustrated on two levels.

Firstly, if “shareholder value” or “wealth” is represented by, say, a corporation’s net assets or dividend, and if all shareholders only sought to maximise either or both of these criteria, then even in an imperfect market, all shareholders would eventually accumulate and gravitate in those few corporations that had the highest dividend and/or net assets. Even a cursory examination of listed stock performance will confirm that this does not occur. Clearly other factors and issues impact upon shareholders that affect their investment/ownership decisions.

Secondly, research (detailed in my book) into the hypothesised homogeneous banking sector, has found that the top 20 shareholders in five banks behaved significantly differently to changes in, among other criteria, net assets and dividend. One bank’s top twenty shareholders might sell their holdings with a change in net assets while another bank’s top twenty shareholders might buy.

Interestingly also, was the fact that there was a very significant degree of overlap in ownership in the top twenty shareholders in each of the sample banks. Forty percent of the top 20 shareholders had top twenty equity in all five sample banks. Equity in some but not all of the other banks in the sample took the degree of overlap much higher as would an assessment of top fifty behaviour instead of only the top twenty.

The point here is that not only did the top twenty shareholders in Bank A behave differently to the top twenty shareholders in Bank B, but by and large, these were the same shareholders. Therefore, it is clearly erroneous to believe that all shareholders have the same generic objectives, and it is furthermore erroneous to believe that any one shareholder will have the same set of objectives across all of his/her investments.

The implications for corporations are clear. All corporations must identify what their own shareholders want from their involvement in the organisation.  Such identification must be in tangible, quantifiable and measurable terms so that boards and management can establish clear and unequivocal outcomes that the organisation undertakes to deliver.

Without a clear statement of end-of-period deliverables, effective organisational, strategic and investment decision cannot be made.

It is no longer acceptable for boards and management to use subjective judgement to determine what is a good outcome or not for shareholders.

The corporation is a “servant” of its owners. As such, and except in a purely legal sense, it does not have a life of its own outside its owner context.

Knowing exactly what its owners want, and not guessing or assuming what they want, should be a primary accountability of all boards and management.