Seven Steps to Maximizing Shareholder Value

Maximizing long-term shareholder value is at the core of everything that senior management and the board do. The vast majority of bankers and directors understand that implicitly. At the same time, many want that one silver bullet that will maximize the value of the bank. Should they do a stock buyback? Should they look for a merger partner? Should they buy or sell?

One or more of these options might be the right answer for a given bank at a given moment. But none of them works effectively in isolation to build the highest possible shareholder value.
In helping bankers visualize a continuous approach to maximizing shareholder value, the image of planning a journey is illustrative:

  • Where are we now?
  • Where do we want to go?
  • How will we get there?

Remember that analysis and planning are merely conversation until something actually gets implemented. To paraphrase business guru Peter Drucker: At some point, analysis and planning “degenerate” into work.
The road to maximizing shareholder value is a continuous oneu00e2u20ac”something like a lifelong journey of personal development and renewal. You never go back to where you started. Instead, build on your successes and learn from your mistakes. And keep your ultimate destination in mind as you reach each point along the way.

Maximizing shareholder value

Through a process we call “shareholder value mapping,” we are helping banks maximize their shareholder value. For purposes of discussion, we will break the journey down into seven steps. Throughout the process, many of the steps will occur simultaneously and all will be revisited as management fine-tunes the institution’s priorities and goals. As economist John Maynard noted in response to criticism that he had changed his opinion: “When the facts change, I change my opinion. What do you do?” The following includes some general comments about each step.

1. Establish the Goalsu00e2u20ac”As Yogi Berra said, “If you don’t know where you are going, you might wind up someplace else.” Before you embark on your journey, decide where you want to go, how you will get there, and how much time you have.

Keep in mind that low aim is the greatest sin of all. Set high goals, even if they stretch your institution’s current understanding of what constitutes good performance. Your overall goals can be defined in terms of total earnings, growth, or other performance measuresu00e2u20ac”for example, increasing your return on equity from 10% to 15%.
How you arrive at your goals should be decided only after analyzing alternative routes to getting there. By determining how much time you have, your institution’s tolerance for risk, and the resources that will be required, you can establish goals that are both ambitious and achievable.

A wealth of financial structure alternatives exists to be considered during the goal-setting stage. Many banks begin by consolidating their ownership through such strategies as issuing trust preferreds, buying back stock, and, if possible, forming a Subchapter S corporation. Depending on a particular institution’s situation, a variety of options are available that provide a point of departure for maximizing shareholder value.

2. Develop Strategies and Tacticsu00e2u20ac”One of my rules of thumb for strategic planning is: Respect the 90-10 rule. It means that, figuratively, 90% of your future success depends on your people and 10% depends on everything else. A vast amount of strategic planning will accomplish very little unless your institution has talented, committed people focused on making the strategies work.

In addition, remember that the single most important factor in developing your strategies and tactics is maintaining focus. Be suspicious if your management team comes up with 30 number-one priorities. Pick three or four high-priority items, create action plans to achieve them, and then focus, focus, focus.

Finally, it’s back to the basics of assigning responsibility, delegating authority, and holding your people accountable. Use time lines and measure results so that you always know exactly where you are on your journey.

3. Manage Risku00e2u20ac”In banking today, you don’t do anything without carefully evaluating what risks the institution may encounter. Risk consciousness is a business necessity, and it is a major focus of bank regulators.

Obviously, credit risk is a key concern. But given economic uncertainty, market volatility, ongoing terrorism threats, and Internet security, there are other risks that worry every banker.

In managing risk vis-u00c3 -vis shareholder value, consider all the possible types of risk that could overshadow your shareholder value-building strategies and institute risk management action plans to track and mitigate them. As is true of the process as a whole, you will need to constantly review your risk exposure.

4. Improve Earningsu00e2u20ac”First, pick the low fruit. Easy opportunities to increase revenues are there, and every month that goes by without capitalizing on them simply means profits lost forever.

Next, reach for the higher fruit. Look for all the ways to enhance revenues and decrease noninterest expenses, and make some hard choices if you must. A wide array of options are there for the picking, depending on the market and such variables as current staffing and use of technology.

One particular earnings improvement service, courtesy overdraft, bears mentioning. High-quality courtesy overdraft protection programs are helping banks increase their noninterest income. Banks we’ve worked with often increase their NSF income more than 100% within four to six months and substantially improve customer service, while staying within regulatory compliance.

5. Capitalize on Growth Opportunitiesu00e2u20ac”This is the point where your people, products, and technology come together to capitalize on the growth potential that exists for your institution in your market. Through the creation of a strategic marketing plan, you become familiar with your market, understand product and customer profitability, and tie your marketing initiatives to the institution’s growth objectives.

A variety of tools are available for determining the readiness of your people, products, and technology. For example, product and service audits tell you whether your offerings are aligned with your customers’ needs and demands.

Delivery channel assessment and branch optimization supply information on the adequacy and flow of your product and service pipelines. Staffing assessments give a reading on the “people readiness” to grow your institution.

Communication reviews provide information on how to effectively reach the customer.

A large part of capitalizing on growth opportunities is involves customers. Essential elements of customer experience management include setting and maintaining service standards, developing marketing and sales plans, tracking and monitoring results, and rewarding performance.

6. Use the Right Technologyu00e2u20ac”To maximize long-term shareholder value, you need the right technology. Technology action plans help coordinate systems acquisitions and ensure that the technology supports the strategic plan. Implementation of technology is the keyu00e2u20ac”carefully integrating your systems, hardware, and software with your employees’ capabilities and your customers’ needs.

7. Continually Build the Teamu00e2u20ac”From the perspective of maximizing long-term shareholder value, you should continuously assess your organizational structure, team members, and corporate culture to make sure that they support the totality of your efforts. This step is not the last step of your journey but rather a link in an ongoing process of team building and organizational development.

The key to building momentum is attracting, retaining, and motivating good people. I believe the best person for each position should be the long-term goal. Offer focused professional development opportunities and performance recognition to the top players, no matter where they are on the corporate ladder. Use incentive compensation to establish and reinforce the institution’s goals, and be sure that you measure and reward the caliber of performance that directly contributes to maximizing shareholder value.


Ultimately, the goal of maximizing long-term shareholder value is within the reach of every financial institution. I firmly believe that management can meet all the challenges by capitalizing on information and experience. In our increasingly complex environment, however, management will often need to look beyond the institution’s internal organizational experience for new knowledge and proven solutions.

Most important, keep in mind that it’s 90% people and 10% everything else … and winning is much more fun than the alternative.

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