Managing Shareholder Value Through Planning.

• Author: MacGregor Serven, Lawrence B.

Is there a link between your planning/budgeting process and your company's stock price?

Absolutely.

What drives shareholder value? On any given day, a company's stock price may go up or down based on just about anything, including the fickle mood of the stock market itself. It appears, at least in the short run, that there is little correlation between what a company does and its stock price. But that does little to explain what drives a company's stock price in the long run.

To help answer the question, a research program[*] on "what really drives shareholder value" queried chief financial officers and members of the New York Society of Securities Analysts, stock analysts who track and rate companies. Through the society's Website, 1,500 members were surveyed; some were later interviewed by telephone to bring statistical results to life. Responses were compared to results received from corporate CFOs. Here is the conclusion on which both sides agreed:

Investor confidence in a company is what drives its stock price. Management's ability to make and keep meaningful promises is the foundation of that confidence.

While there is nothing startling in that conclusion (or in the host of economic and statistical data from leading business schools that support it), it carries serious implications for planning and budgeting.

First, a definition. Planning can be described as "knowing where you are today, deciding where you want to go, determining how to get there and monitoring your progress along the way." This definition can apply to all aspects of planning, from the highest-level strategic planning all the way down through departmental budgeting. In each case, someone needs to determine a destination, a way forward and then monitor progress.

While the term "planning" itself implies strategic and operational planning, it also encompasses performance management, reporting and even rewards. These are all necessary components to ensure that what gets planned gets done, and the more fully and completely these components are integrated, the greater the likelihood of ultimate success. In other words, it's really about managing expectations through better business planning.

With this definition as backdrop, it's worth exploring four vital link ages between planning and share holder value.

Linkage #1: Communicating Annual EPS Projections. As any publicly traded company knows all too well, stock analysts are hungry for earnings projections. While the quarterly breakout of earnings is a necessity, the "big promise" is, of...