What's actually more important: Longer-term value creation or shorter-term gains?
Big box retailer, The Warehouse Group, is experiencing a bit of turbulence just now. The company has had a dream run over the past couple of decades. From its genesis as a single-store, The Warehouse Group has grown to become New Zealand's largest retailer. However, some tensions are starting to emerge. Some investors (actually, funds managers) are not happy.
The company is currently rebuilding its business model to meet emerging customer and market demands. In 2011, the company embarked on a five-year 'turnaround' strategy under Group CEO Mark Powell. The strategy, which involves both acquisitions and a major refit programme in existing stores in order to provide enduring longer-term returns and capital growth, was approved by the board and it was well signalled to shareholders and the market. Yet some shareholders are making their expectations of ongoing share price growth and dividend returns quite clear.
The emergent tension has the potential to be a major distraction for the board and management. Clearly there are two views on the table. The pressing priority for the company is that the shareholders, board and management are united in their pursuit of one agreed strategy. So, which view should prevail?
I'd like to suggest that the longer-term view needs to prevail, because that's the agreed strategy and it's probably the option that better suits the best interests of the company. However, I am not a funds manager trying to eek the most out of my 'product', the investment in the business. Ultimately though, if they are not satisfied with the performance of the business, the funds managers have several choices available including these three (amongst others, no doubt):
What do you think is an appropriate course of action, and why?
Leave a Reply.
Thoughts on corporate governance, strategy and the craft of board work; our place in the world; and, other things that catch my attention.