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Helping Family Businesses
Prosper Across Generations®

Understanding Shareholder Motivations and Needs

By John Ward, Ph.D.

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We often say that a critical distinction between family and non-family owned companies is that the former thinks of shareholder values, while the latter thinks only of shareholder value. Perhaps there’s another, related, way to think of the distinction. Consider that there are three kinds of stock investors---traders, holders and owners.

Traders have a very short-term orientation. They focus on the company’s current financial results relative to recent analyst and press expectations. They focus on WHAT – what’s happening.

Holders have a medium-to long-term orientation. Large pension funds, mutual funds, venture capital funds, and private equity funds are increasingly becoming shareholders, as their investment positions are increasingly more difficult to change in the short-term. Their concerns are the strategic strengths of the business and the risks the business takes. They focus on HOW – how is the business being managed.

Owners, like the typical owners of long-lasting family firms, have long-term or even indefinite time orientation. They feel part of the business; their reputation and pride are invested, not just their money. Therefore, their attention is on the business’ durability and on its values and they focus on WHY – why the business does what it does. Owners care about the mission and purpose of the business, in addition to the business’ strategies, risks and performance.

Make sure you understand those who hold shares in your company. Are they traders, holders or owners? Be sure to provide them with the information and mission they most prefer!

Who Time Horizon Critical Interest* Focus
TRADERS Short - very short financial performance vs. market expectations WHAT
HOLDERS Medium - long strategic position and risk profile HOW
OWNERS Long - indefinite mission, values and purpose WHY

 

*Holders are also interested in current financial performance as are owners who also are interested in strategic position and risk profile. The “critical” interest is the make or break criteria for remaining an owner of company stock.

 

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