The Marketing Leaders - Add real value for shareholders and stakeholders

Good corporate governance is too often seen from a financial perspective, leaving out the role that it can play in marketing and delivering additional value to shareholders and stakeholders alike. So why do most companies not align themselves to this basic marketing principle?

“We expect companies not simply to perform well in the short term, but to have an effective strategy for delivering long-term profitability.”

Patricia Hewitt, Former UK Secretary of State for Trade & Industry

Delivering long-term profitability, as well as value, to a company’s shareholders has long been the domain of the boardroom. The principles of corporate governance were designed to provide the background for sustained long-term profitability, as well as, clear business transparency. Legislative procedures such as Sarbanes-Oxley in the U.S. and The Operating and Financial Review in the UK provide these principles and are supposed too, business gurus tell us, lead to sustained long-term profitability for shareholders.

Type the words ‘good corporate governance’ into Google, and you will be inundated with news and reviews discussing the financial implications and aspects of complying with legislative procedures such as Sarbanes-Oxley. What about creating long-term future value for shareholders? Although many commentators would have you believe corporate governance is something only the finance department need worry about, the business picture is in fact a lot bigger.

If a business wants to add real, long-term value to the shareholders, then it needs not look any further than the marketing department. The government is expecting businesses to have a long-term strategic vision. Marketing is just the function to can provide this. It is well known the marketing director does not normally sit on the company board, which is strange as the discipline is one of those business functions that researches new business, including where value can be generated and long-term relationships can be established.

Surprisingly, most marketing departments today do not align themselves with the goal of increasing shareholder value, and what is left is a department that does not think strategically and simply becomes a marketing communications function. With no strategic impetus, marketing gets confined to the backroom, and once again, corporate governance becomes a burden of compliance and financial reporting and the focus of increasing shareholder value can be lost. Marketing is not alone in this.

Marketing gurus and alignment

They have long been talking of aligning the sales and marketing functions to increase shareholder value. Although there has been talk of this, many organisations are still failing to act. If marketing was more involved in the strategic direction of a company, assessing which potential customers are a risk, and which can generate value in the long-term, sales teams will find they are increasingly talking to those customers who can not only add value to the business, but can also increase the bottom line in the long-term.

It does not, and should not, stop there. Marketing and corporate governance is not only about better positioning of the business alone, but should enable the optimisation of company assets, by providing complete alignment of business units. It’s like asking the question:

“As a business, we have this pool of assets, but how do we use them to increase shareholder value and maximise returns?”

As the marketing function is already linking in with the various business units, it is in the perfect position to create the alignment of the businesses capabilities/resources from the back-end to the front-end. By aligning the capabilities (assets) of the business, a better understanding of how customer needs can be met will be established.

Of course this requires detailed knowledge of the business internally as well as customer needs. You have built this asset pool of information, but how do you know these are the assets and capabilities that meet customer needs. Where is the research? Where is the analysis (providing transparency)? Once this has been achieved, marketing can sit between the asset pool of the business and the needs of the customer and determine which customers will provide long-term profitability and hence increase shareholder value.

If this process is backed up by auditable evidence underpinning key decisions, those that provide accurate positioning of customer value, the principles of good governance will be achieved and shareholder value enhanced and protected.

A recent research programme looking at corporate governance and shareholder value entitled ‘Winning Companies, Winning People,’ found corporate boards are destroying rather than creating value. The research found that:

“Billions are devoted to fashionable activities and acquisitions that reduce shareholder value. They benefit professional advisors, but not investors, customers or employees.”

Corporate governance initiatives are often a symptom rather than a cause of board effectiveness, the research report included.

Being involved in the future strategic direction of the company also means marketing can also be better prepared in managing risk for a business. If a company board were to use marketing as a tool to provide direction for the long-term, the board will be able to assess which potential customers are going to provide long-term value to the business, and those who provide a risk in doing business with.

This concept of using marketing to manage risk is now beginning to ring true with some of the nation’s academics. Terry Kendrick, marketing guru and MBA programme manager at the University of East Anglia, discussed this new way of thinking with the Chartered Institute of Marketing (CIM). Speaking to the CIM, Kendrick stated:

“Financially driven boards often feel that it is preferable to have a portfolio of customers and brands that offer stable, rather than very variable cash flows. If given the chance of how to meet a specific profit it often seems better to have long-term consistent purchasers. Marketing is in sympathy with this customer retention approach but it is often the first to spot when this is likely to impede growth.”

“For example,” continues Kendrick, “a segment may look a good bet currently but in three to five years we could find ourselves fighting for an increasing share of declining part of the market. Unless we take risks to move into other segments of the market, where currently our competencies and capabilities are under developed compared with competitors, we face the very real prospect of not protecting cash flows from vulnerability or volatility. As such, a business may stand accused of poor risk management.”

“In this respect, marketing should be used like a business compass, to ensure the strongest assets of the company are aligned to the needs of the market place. Not only will value for shareholders be created and long-term profitability achieved, but weaknesses in the business portfolio will be highlighted as well as assets that no longer create value or competitive advantage and hence are no longer of use to the company.

Additionally, this marketing compass should be used to ensure the company is pointing towards the strongest point of the marketplace, minimising risk and maximising returns.”

This aspect of corporate governance and marketing is often overlooked by many businesses, which is surprising, as alignment of business assets to customer needs can be the key to long-term profitability. This way of thinking is likely too have a massive impact on marketing’s role in the boardroom.

The concepts discussed in this article are just as important in the governance arena than the compliance aspects of good governance. In a sense, the issues of alignment and managing risk form the ‘corporate’ part of corporate governance. Hopefully, this article will stimulate debate and thinking on how corporate governance should not be treated as a hindrance to a business, but should be embraced as a new method of creating, maintaining and enhancing shareholder value.



		Add real value for shareholders and stakeholders
		> Articles (back to magazine)