The Approach

‘Equity governance’ pursues managing the equilibrium between customers, employees/suppliers and shareholders (‘micro view’) and considering economic rationality and corporate social responsibility as equal objectives of entrepreneurial behaviour (‘macro view’) for long-term oriented value creation by placing an emphasis on bringing the dialogue of management and board of directors to live. The approach promotes the philosophy of understanding businesses as investment cases, which adds time value of money and fungibility (even if not required) as evaluation criteria and makes corporate governance (‘governance yield’) more measurable – a good entrepreneur requires to be a good investor and vice versa.

‘Equity governance’ assumes that the board of directors as the owner representatives and the management shape the agenda and draw the lines of responsibility to make the investment case happen. The approach distinguishes between decision-making, organisational execution and financial management as management dimensions.

The key value driver formula, viz. EV = FCF / (WACC – g), serves as basis for the ‘market-to-equity’ algorithm with its elements (1) understanding industry dynamics, (2) creating portfolio momentum, (3) limiting capital intensity, (4) increasing productivity, and (5) providing debt capacity. By improving the ‘market-to-equity’ algorithm, ‘equity governance’ aims to increase governance yield measured against the yard sticks such as (market) value, competitiveness and team performance.

The ‘equity governance’ approach targets anchor investors who consider continued ownership as meaningful and prevail active ownership, i.e. should suit enduring family businesses, private equity funds and longer term oriented activist shareholders.