The amount of shareholder value created is an important measure of management performance. It assists shareholders in their capital allocation decisions. Used appropriately, it helps Senior Management and Boards of Directors to focus on those business decisions that will increase shareholder value over the long term. Consider the following to determine your commitment.

Development of the system of measurement of Value Creation

• Is shareholder value creation measured? If not, why not?
• Is shareholder value creation an explicitly communicated key corporate objective?
• What stakeholders are the most significant for value creation in this company?
• Have value drivers been identified for each of the significant stakeholder groups?
• Is there a system to measure progress on these value drivers?
• Is there a system to establish specific goals and measure results against those goals with respect to the value drivers?
• Are there indicators of performance that can and should be monitored to provide for prompt response to signals of good or bad performance on the drivers?
• Does the system regularly test the validity of the chosen performance indicators as predictors of future financial performance and adjust the indicators as necessary?
• Does the system provide for prompt response to signals from the performance indicators of good or bad value driver performance?
• Does the system require timely after-the-fact analysis of the indicators so that future performance can be improved?
• Is a weighted average cost of capital calculated and used for decision making purposes? If not, why not?
• Are different costs of capital used for different business activities or investments? Should there be differences?
• How is cost of equity capital determined and what assumptions went into the determination?
• Is there a system to report cost of capital on a regular basis to senior management?
• Is there a system to benchmark the company's cost of capital against other companies within and outside of the company's industry? If not, why not?
• What are the key measures used to track shareholder value creation?
• What is the rationale for selecting the particular metrics chosen to measure shareholder value?
• If multiple metrics are being used to measure shareholder value, are all necessary?
• Is there a system in place to determine if the shareholder value metrics selected correlate with share price?
• Is there a system to benchmark the company's shareholder value measures against competitors in the industry and outside the industry?
• Is there a system to ensure that the measures are explicitly considered when making strategic and operational decisions?
• Are shareholder value measures appropriately linked to compensation plans to promote long term shareholder value creation?
• Are resources budgeted and sufficient to ensure appropriate training and communication of the meaning and importance of shareholder value creation measures?
• Is there a system to ensure that the company’s financial management has the right capabilities?

Monitoring the system of measurement of shareholder value creation

• What is performance against plan with respect to the value drivers identified? Does the performance reflect developments that also affect the assumptions?
• How does management assess whether the assumptions underlying the choice of shareholder value measures have changed in any material way?
• What progress has been made in creating shareholder value?
• What is actual shareholder value performance against planned performance? Does performance reflect developments that also affect the assumptions?
• How is performance when compared with competitors within the industry and with other industries? Does performance reflect developments that also affect the assumptions?
• What are the risks that could jeopardize the creation of shareholder value? What is management doing about them?
• Has the compensation plan motivated appropriate behavior with respect to the creation of long term shareholder value? Does the performance reflect developments that also affect the assumptions?
• Does performance reflect the need for more or different training, communication and/or career planning?