It’s time for shareholders to change their perspective
There’s a problem in business, and it’s a serious one. No, it’s not about the difficult customers, or the disillusioned employees.
It’s about the shareholders.
Shareholders, we know, are the supreme entity in business. They put their money at risk, and stand to lose it all if things go wrong. They are therefore entitled to be demanding; they own the enterprise, after all. And they must see a good return on their investment.
That’s all well and good; ownership does bestow the right to call the shots, and to take returns out of the business as deemed fit. But this right starts to get blurred when we consider where we are in Africa’s economic evolution.
Kenyan shareholders have a long-standing habit of demanding immediate returns and regular dividend payouts. Many, especially smaller ones, even depend on the stream of dividends for income to meet their regular needs. The bigger ones – anchor, principal, or institutional shareholders – can be even more unforgiving, demanding their pound of flesh relentlessly at the end of every financial year, and placing great pressure on executives to deliver it.
In the past, this wasn’t much of a problem. Big businesses in Africa were generally stable, with assured revenue streams and predictable costs. They could plan to reward shareholders at an agreeably steady rate, without too much difficulty.
That world is gone, I’m afraid. African business now faces the most disruptive period ever seen, and the coming few years may reinvent many of the businesses we have taken for granted. This is because of two overwhelming forces: technological connectivity; and Africa’s unique demographics.
Africa has the world’s youngest population; half the people of sub-Saharan Africa are below 18 years of age. Those youngsters will increasingly be equipped with powerful mobile computing power, and will be connected to one another and to the world out there pretty much all the time. This always-on connectivity has caused huge disruption already in more mature markets.
Once-dominant Western companies are now ailing or no more; and many more titans will fall. But that might seem like a picnic compared to what’s coming in Africa; the sheer number of connected young people, liberated by education and technology, is going to cause far-reaching change. Add to that Africa’s still-painful teething problems – dysfunctional politics and weak institutions – and it should be evident that the patterns of employment and consumption we have been used to will change dramatically.
Back to our big businesses. Will they cope? Only if they can grapple with, and overcome, great uncertainty. I can’t think of a single business now that can simply extrapolate from its past and prepare five-year strategic plans with any level of comfort. Today’s hit product is tomorrow’s binned failure; today’s competitive advantage may become tomorrow’s millstone.
At a time like this, the one thing companies cannot do is practice ‘business as usual.’ Shareholders and their fiduciary agents, board directors, must smell this strong coffee quickly. It is going to be an era of reinvention and reimagination for many industries, when the old must give way to an unpredictable new.
This is a time for risk-taking and making fresh bets on the future, in short. Many bets, many of which may never pay off. But those who fail to experiment and innovate are the most likely to fail. Creative experiments must be permitted and supported, and profit streams delayed while fresh strategies and products take root. Shareholders who impose too demanding an immediate profit-growth target risk creating unimaginative, innovation-shy managers.
Wise shareholders must see this coming. If they keep milking the cow rigidly and severely, all they will end up with is a dead cow. This is a time for vision, foresight and the courage to attempt new, unfamiliar things. If your board meetings and AGMs are more about today’s profit payout than tomorrow’s creative strategy, then I fear for your future.
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