Role Play 2: "Shareholder Expectations"

Shareholder expectation generally revolves around the meeting of targets, primarily revenue and profitability targets that ensure either a dividend flow (private companies and utilities) or sustained growth in the share price. Senior managers, "C-Suite" executives and Directors know this and know that their bonuses and futures (in this company and in any others) depend on a track record of delivering to shareholders' expectations.

Welcome to the mid-year session of the Exco as it prepares for the upcoming earnings release season. Things seem to be on track, and the 1st Qtr results were in-line with expectations. The share price has responded roughly as expected. This quarter however, could be a little more difficult. Trading conditions are worrying the Marketing director, while internal costs are not dropping as quickly as budgeted. The new system is going to be at least two months late, possibly three, pushing benefits into the 4th Qtr.

You now have to make some decisions:

1. The COO. You have numbers to make, promises to keep. The numbers that you received from your senior managers are promising, but you don't believe them "I've seen numbers like these before, and they are always overly optimistic". Your CIO is constantly late with delivery, system outages have become too frequent, and the IVRs never seem to match the problem. To compound things, someone in IT changed the “404” error page to redirect to the Dictionary.com definition for “liars”.

2. Head of Corporate Communications. When dealing with crises and missed targets in the past, your motto has been "Bad news is good news, good news is no news" and the spin spin spin. But you feel things are reaching a point where your own credibility is coming into question. If things continue as they are, you're afraid the only professional option left to you will be to apply to become the Director of Communications at the White House in Washington.

                

3. CFO. You've managed to, just, get the numbers right for the 1st Qtr results, but this quarter will take a small miracle, and missed targets have been shown to severely limit the longevity of CFOs. The numbers expected by the markets (or owners) are possible, but there better not be any down-side surprises. There are costs that can be shifted into out-quarters, and revenue that can be brought forward, if we tweak our revenue recognition policy.

4. CIO. You know that the existing systems need replacing, that infrastructure is supporting the users, but the Security guy(s) are telling you that a serious architecture review is needed (again, "review" means they know there are problems but are too afraid to tell you everything), and the company simply cannot continue to avoid significant new investment. Your proposals for Security investment themselves will increase the overall IT budget to the equivalent of 12% of revenue from the current 10% of revenue, a level that is already at the high end of the scale for this kind of business.

Time to have your conversation, and come to an agreement that the CEO will be able to defend at the next earning call/shareholders meeting.