Share Price Drivers

A great business to invest in has:

  1. Game changers in key roles; &
  2. Sustainably high ROE “return on equity” – ideally due to a strong competitive advantage.

Investors love it when both factors collide.

This article is written for CEOs who have doubts about some on their current team and suspect the market has similar reservations.

Here is a simple 2-step process to correct this:

  1. How to identify the weaker species in your current team
  2. An exercise that ensures you only hire game changers

Step 1 – How to identify the weak links in your team

Think of your business as a boat. A boat full of Rowers, Passengers and Drillers.

  • Rowers keep the boat moving forward with their enthusiasm, initiative, and work ethic.
  • Passengers are just along for the ride. They do the bare minimum.
  • Drillers are actively sinking the boat with their negativity and poor attitude.

If you have drillers in the ranks, then to use the words of Jack Welch – fire fast!

Driller Checklist:

To help you identify the Drillers (and Passengers) use this checklist of low-performer characteristics.

Drillers:

  • Are negative
  • Blame others
  • Have a sense of entitlement
  • Don’t take the initiative
  • Procrastinate
  • Resist change
  • Create drama for attention

Focus your attention on anyone who ticks off on 5 or more of the above. Fire fast is the rule! Ruthlessness is the order of the day. The Drillers must go. You cannot change entrenched attitudes like negativity and feelings of entitlement easily, so don’t try.

You will also need advice from a specialist employment lawyer.

Next we turn to hiring Game Changers.  One of two crucial share price drivers.

Step 2 – Hiring the Game Changers 

If you are like most managers, your tendency is to hire on skills.

Mark Murphy in his book Hiring for Attitude, makes the point that while skills are important, attitude and coachability are far more important. He ranks the 3 qualities to look for in a new hire as follows:

  1. Attitude
  2. Coachability
  3. Skills

Hire for the right attitude. Every business has its own unique culture, so even though a potential hire has a good attitude, he may not have the right attitude. The right attitude is defined as being a match for the business’s unique culture. Certain attitudes, even if good attitudes, may work in one culture but not in another.

Here is a quick exercise that will help identify your unique attitudinal characteristics. It is called the 3-3-3 Exercise.

The idea is that you analyse your 3 best and 3 worst employees.

E.g. Tim is the CEO of a software company. He wrote down ( in a behaviourally-specific way ) the attitudinal characteristics of his 3 best and 3 worst employees over the past 3 years. The table below is a summary of what Tim came up with.

The 3 Best Employees The 3 Worst Employees
  • Can distinguish between big problems that could permanently damage the company and minor problems that temporarily irritate employees (but don’t hurt the company or customers).
  • Helps ownership make smarter strategic decisions by proactively providing important information (including bad news) in a candid and open-minded way
  • Takes responsibility for, and accomplish set tasks, constantly growing their own skill set.
  • Blames others (including other departments or even customers) or makes excuses when things go wrong.
  • Does not collaborate, preferring to fly solo and then get all the glory, even if it means ultimately generating a sub-optimal solution.
  • Overwhelmed by multiple demands and becomes paralysed, unable to accomplish anything, instead of effectively triaging and accomplishing the work.

Keep your analysis front and centre, during the interviewing process.

CEOs who go through this process swear that the effort was well worth it. It allows them to instead focus on the other part of investor love – sustainably high levels of ROE (return on equity).

Your 2 most important share price drivers are  – Game changers in key roles and a high, sustainable ROE.