Increasing shareholder value: Bank of Russia’s recommendations for companies
The Bank of Russia recommends that issuers whose shares are traded on the exchange and future IPO candidates devise strategies for increasing their medium- and long-term shareholder value. This will allow investors and shareholders to form their expectations regarding the price of shares and dividend payments. The recommendations provide for a unified approach to the development, structure, content, approval, and disclosure of such a document.
The strategy should be brief and clear. The document should include information about the company’s general business, products and services, key financial reporting and operational performance indicators, market capitalisation data, dividends stated and paid over the past three to five years, as well as issued securities and those in circulation. The total shareholder return may be used as the strategy’s key target indicator. The indicator combines the dividend yield and the yield received by investors from a positive revaluation of shares.
Companies should set their development objectives for a period of three—five to ten years based on the assessment of the current shareholder value. The objectives should be ambitious but realistic. In case of deviation from the targets, companies should explain the reasons for this and describe the measures they plan to take to return to the target path.
Furthermore, the recommendations focus on the issues of communication between issuers and investors, primarily retail investors who dominate the secondary stock market. This will enhance their confidence in companies’ strategies and plans.
The efforts of public companies to raise their shareholder value will increase capitalisation of the Russian stock market.