Why shareholder management is essential to innovation 2023

Microsoft, Apple, Amazon, and Netflix have been the best-performing companies for years. Industry giants like Broadcom and Nvidia have had huge share price rise recently, making them fantastic capital growth opportunities.

However, gadget makers may be slowing innovation. The expense of flagship smartphones and the fact that previous handsets are nonetheless functionally comparable explain the rise in second-hand smartphone sales.

Shareholders urge firms to innovate to boost sales while society’s thirst for new innovation declines. Indeed, stockholders typically shape a corporation. They earn and lose the most each quarter, and firms need a good connection with shareholders to implement new technology.

Shareholders—help or hindrance?

AIM-listed Eleco CEO Jonathan Hunter says investors are crucial to corporate success. “If you take the build tech sector, there’s a huge amount of businesses entering the space that need capital, investors, and shareholders to enter the market and expand when they need to,” he tells ITPro.

Shareholders can voice their opinions, vote on the company’s direction, or sell their shares and leave. Thus, leaders must be open and upfront with stakeholders, communicate, and set expectations so investors may make smart investment decisions.

Withdrawing money is harsh and only done in extreme circumstances, but it might hurt the firm. David Newns, Entrepreneur and Investor, notes that managing shareholder expectations affects the entire firm.

He argues public businesses must balance commercial operations with shareholder promises. As a business owner, you will do whatever to keep that commitment.

“Cutting short-term or long-term investments is something you would consider. If a company cuts half its R&D staff, they may not ship a product for five years, but some employees will maintain their employment.

shareholder expectations

Businesses cut jobs. Balanced books precede awkward shareholder calls.

However, these are disagreeable features of running company, and shareholders can withdraw their money anyway.

Hunter recommends good communication and treating all stockholders equally to negotiate this.

“Fortunately, a lot of shareholders think long term so they know and understand companies better, and we find that new investors will meet a couple of times before taking the holding,” he says. Management must develop trust. Communication and following through build trust.”

Idea exhaustion

Communication and trust are limited. Many tech stockholders have lost trust in the company’s path.

From being a publicly listed business to Musk carrying a sink into HQ, commercialization has plagued Twitter. Due to the expenditure required and its advertising business’s upheaval, Meta’s metaverse project has been put on hold.

Such decisions by firms make shareholder value a toxic term, and headlines and opinion pieces blaming internet titans for not keeping the course fuel resentment. Meta’s metaverse u-turn shows that investing in innovative technologies must have a limit, Newns says.

“When Mark Zuckerberg said the future is in the metaverse and spent a lot of money trying to chase this opportunity, initially everyone was interested and gave him the space to pursue it,” he adds. After years and billions, nothing much happened. Lower consumer spending and ad income threatened the main business.

“I think Zuckerberg got a lot of leeway when it came to the amount of money and time he spent on the metaverse, and I think the decision to step back was more to do with the metaverse, rather than how they innovate as a company.”

How shareholders affect innovation

Many feel items developed by firms lose relevance when shareholder wealth is emphasised. This calls into doubt the industry’s health.

Newns believes investors’ behavior reflects market mood, even if withholding money might hinder innovation. “The synthetic meats market is an example of sentiment dropping and prime investors asking ‘If there are no requirements for this stuff, why would we invest?’

“I think that’s happening to the metaverse now, and that affects everyone in the ecosystem, including startups. However, if you’re creating a ChatGPT solution, everyone will invest. It’s dynamic with many factors.”

Hunter said comforting shareholders requires communicating the company’s value and direction. He says investors may remain or go. “As a business, we must communicate the value we add and why we make our decisions.

It’s about wide communication. This year, we exited a business that wasn’t strategic and wasn’t providing value.

“Stockholders liked what could have been a negative because we told them.