Should Your Succession Planning Guarantee Return on Shares?

Are returns on shares guaranteed in your succession planning? No.

Should they be? No.

However, the board of directors should have targets or goals for return to shareholders.

Every year the Board of Directors needs to make careful decisions about how to best distribute the profits of the company.

The company cannot be required to provide a specific return to shareholders because the company cannot guarantee profitability.

The company may have unforeseen fiscal challenges that require they not pay a return on shares in some years.

For example, during a recession the company may have to scale back operations and may not be producing profits that allow for distributions to shareholders.

Making a certain return to shareholders mandatory could cause financial stress to the company at the worst times.

The board of directors is obligated to serve all shareholders and some years their best decision could be a difficult one of not providing a return to shareholders in order to secure the financial well-being of the company.

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