Corporate Growth

Corporate growth can be defined in numerous ways and be achieved in several strategic forms. In general, the matter of whether—and at what rate—a company is growing can be highly ambiguous. A company can experience strong sales growth, but simultaneously be losing market share and experiencing financial losses. In such a case, the company’s volume is rising, but that of its competitors is rising even faster. And, on the bottom line, sales growth means little when the company cannot turn a profit.

Invester expectations

  • Earnings delivered from efficiency help meet investors’ return on capital aims. However, competitors and new technology crank down the ability to deliver those returns constantly.​
  • Growth is vital. It replaces earnings attrition and delivers enhanced total shareholder return.
  • Growth comes from well recognised sources, but breakthrough growth is often attained as a result of new ventures and other initiatives. All involve risk and embracing the new.​
  • This entails igniting the imagination and engagement of top talent, and that means reframing thoughts on executive pay to meet the aspiration. At the same time, pay must be both effective and sensitive to the wider scene, particularly the views of investors. ​
  • New challenges need new thinking, with solutions delivered in a concise and compelling way. ​
  • This must be achieved within the ambit of a sound climate and ESG agenda so that the business will thrive sustainably. ​

ALL OF THIS IS EASY TO SAY BUT HARD TO DO

Income : Growth Analysis (IN:GRid)

Shareholders ask companies to deliver two main things; INCOME and GROWTH ideally both at once and delivered SUSTAINABLY

Early stage companies are often rich in growth opportunity, but low on shareholder income. Mature companies tend to be the reverse. In fact, they often need to use income to refresh their growth profile by investment.

The IN:GRid Analysis shows a company’s position on Income and Growth at once, and historically and mapped against peer comparators. The IN:GRid Analysis does not need management assumptions. All of the figures are based on observed stock market data. IN:GRid is a disaggregated Relative TSR analysis.

It is a management tool to discuss current state and future aims. IN:GRid Analysis challenges boards to ask:

“Are we pleased with the Income Growth trade off flagged by our shareholders?”

“If not, what is our desired better position; and how do we get there?” 

Why is IN:GRid Important? 

What are your stakeholders expecting? 

IN:GRid importance graphic

Business Growth Profile the Theory

Companies tend to follow this growth curve

Business growth profile graphic

THE Growth: Income Problem: The DCF Trap

As a company matures, it often trends from a high growth low income mix, to a low growth high income mix. Shareholders should be pleased with any good mix in total, but ongoing correct delivery is difficult.

  • Staying still at high income is very hard – except for natural monopolies, Porters 5 forces erode current profits absent action
  • Income “erosion” is ongoing, and so ongoing investment from income and elsewhere is not optional.
Growth V Income graph

The Virtuous Reinvestment Circle

This compulsory investment is recognised as a flaw in normal Discounted Cashflow Model (DCF) as the no invest case wrongly assumes constant BAU cashflows.

The DCF Trap 

  • Most executives compare the cash flows from innovation against the default scenario of doing nothing, assuming – incorrectly- that the present health of the company will persist indefinitely even if the investment is not made.
  • For a better assessment of the innovation’s value the comparisons should be between its projected discounted cash flow and the more likely scenario of a decline in performance in the absence of innovation investment.

Christensen, Kaufman and Shih: Innovation Killers: HBR January 2008

THE DCF Trap:  HBR 

THE Human Capital Implications of the Approach to the IN:GRid Findings

Contact us

bec.bostock@corpgro.com

07989 337118

Robert Head

Lead Consultant

Robert works with organisations of all types as a reward consultant or interim reward professional providing reward solutions, interim management and consultancy.

Robert is experienced in working across multiple sectors (including public listed, private equity, commercial, financial, non-profit, and charity).

Robert has deep subject matter reward experience in corporate governance, executive reward, remuneration committees, reward strategy, reward policy, annual bonus, long-term incentives, transformation and change, corporate actions, mergers and acquisitions, and restructuring.

Robert is experienced in stakeholder management working closely with Chairs and executive directors including CEOs and CFOs, non-executive director members of remuneration committees, members of executive committees including business unit CEOs/Presidents, senior HR business partners and other line executives, senior management in other organisations, outside specialists and advisers, and investors.

Robert Head Corpgro

Jane Allen

Lead Consultant

Jane has over 30 years of Reward experience within listed multinational organisations and consultancy environments.

Her expertise covers Total Reward (strategy and programmes), benefits & wellness, pensions, executive compensation, Remuneration Committee support, annual and long-term incentives, VCPs (value creation plans), M&As and restructuring.

Jane has successfully established reward teams and best practices for all key reward processes, leading on complex local and international issues across UK and US listed, family owned, and PE backed ownership structures.

She has a keen interest in ESG and how this can be reflected within Executive Pay to align with the long-term sustainability of businesses. 

Jane is a Fellow of the Pensions Management Institute and a Chartered Insurer. She is an independent Trustee for The Economist Pension Plan.

Damian Carnelll

founder director

CORPGRO is a reward consultancy specialising in executive incentives particularly those connected with growth; and ESG.

Damian has extensive experience advising leading companies on all aspects of executive compensation and equity plans. He was previously with Willis Towers Watson, Aon, and Ernst and Young. 

Damian’s extensive experience in executive compensation and equity plans means he is fully familiar with Corporate Governance norms, institutional shareholder views and proxy voting both advisory and binding.

Damian Carnell Corpgro