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How Strategic Audit Bridges Stock Market and Executive Interests

16 August 2007 - Features - Editor

It was way back in July/August of 1995 that Gordon Donaldson of the Harvard Business School espoused the cause of Strategic Audit in seminal fashion. His concern then was to strengthen the hands of Boards in reviewing company performance in critical manners, without causing affront to functioning executives. Now, in a new millennium, it is time for the stock market to take up similar cudgels.

Analysts and brokers, who represent major fund sources, have the collective clout to demand intrusive information about the goings on in a company. But what about small stock market operators? Do they have adequate opportunities to ask searching questions about what executives do with their money? Are there structured ways of making out that a company’s fortunes are set for drastic change?

A super feature of Donaldson’s recipe for a Strategic Audit is that anyone can tote up the figures from published stock market sources. Cash Flow Return on Investment, Net Economic Value Added, and Total of Shareholders’ Returns on Investment, makes a set of three ratios which yield insights about the fortunes of an organization. It would be best to discuss these numbers and their changes from year to year, with the teams responsible for operating decisions. However, even if one does not have access to these people, the figures will not lie!

The findings of Strategic Audits need not depress managers responsible for results. The ratios can be used to dig deeper in to issues such as pricing, sourcing, logistics, and funding. Small stock market players cannot participate in such actions, so they have to take their funds and move on to greener pastures. Corporations with consistent improvements in these ratios are the ones which can meet investor aims best.

Try this approach with securities in your portfolio. Hopefully, you will find that you have a judicious and optimal balance of consistent performers, but it is not uncommon in stock market circles to find that some of the most voluble executives run floundering ships! Do write in and let is know if you would like to know more about Strategic Audit, and other works of Donaldson.

 


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