The owners of a company are called shareholders because they each own parts – or shares – of an organisation, which provide them with a right to a portion of the profits. Shareholders are both private individuals and institutional investors who may buy shares through the stock market, as well as people who have a direct connection with the company such as employees and founding members.
In large companies, most shareholders are removed from the
day to day decision-making process and their interests are represented and protected by a board of directors who are paid to manage the company on their behalf. The board has a legal, or statutory, responsibility to ensure they run the business effectively and create long-term value. They must also ensure they represent the interests of all shareholders.
This case study focuses on Cadbury Schweppes, a major global company which manufactures, markets and distributes branded beverage and confectionery products in over 200 countries. To meet the need to create long-term value for its shareholders, Cadbury Schweppes has introduced a business process called Managing for Value, which now underpins every business decision made and unites every business unit within the group behind this objective.
The interests of shareholders
Having made an investment in a business, shareholders are concerned with assessing the profitability of their investment. The decisions made by managers determine what they can expect in terms of dividends, profits, and capital growth, both of which are reflected in the share price.
Therefore, when shareholders look at the Annual Report of a company in which they have invested, they will be mainly concerned with measures, for example, historically, earnings per share, price/earnings ratio, intangible and tangible assets and dividend yield. A basic method of evaluating investments and making a judgement about the competence of the organisation in which they have invested is to make comparisons across similar companies.