Summary of Key Points
After the Shanghai Stock Exchange (SSE) launched an upgraded version of its "Improving Quality, Enhancing Efficiency, and Focusing on Returns" 2.0 initiative, many listed companies encountered difficulties in quantifying indicators and customizing their plans according to their specific circumstances. To address these issues, the SSE provided specialized training and held discussion sessions to clarify the direction for indicator design, key considerations for plan preparation, and the overall objectives of the initiative. The SSE also plans to release a set of exemplary cases to encourage listed companies to improve their quality in various areas such as operations, governance, and profitability, thereby enabling investors to better understand the value of these companies.
Detailed Analysis
1. Common Challenges Faced by Listed Companies
Many companies face the following challenges when preparing their plans:
- Common Issues: They are unsure about which indicators to choose and how to quantify them. For example, some ask whether non-operational (financial) indicators can be used due to industry-specific restrictions. Others worry about what to do if they fail to meet their future targets due to unforeseeable events such as pandemics or policy changes. The key is to find a balance between ensuring that investors understand the company's performance, the feasibility of the goals, and a positive market response.
- Specific Challenges: Companies in declining industries are concerned about negative financial data affecting market confidence. Companies with confidentiality requirements (such as those in technology) are hesitant to disclose detailed business metrics while still needing to inform investors about their development.
2. SSE's Solutions
The SSE has offered practical advice to address these challenges:
- If indicators cannot be met due to force majeure (e.g., natural disasters or sudden policy changes), companies should adjust their plans promptly and explain the reasons to investors without being overly rigid.
- Plans can be flexible, adapted to the company's actual situation, rather than following a fixed template.
- Companies should avoid making vague promises and instead provide concrete, quantifiable goals (such as annual dividend ratios, frequency of investor interactions, or timelines for improving governance systems).
3. A Comprehensive Set of Indicators
The 2.0 initiative includes three main categories of indicators that companies can choose from:
- Financial Indicators: Such as return on equity (how much profit is generated per dollar invested by shareholders), gross margin (the difference between sales prices and costs), and compound annual growth rates for revenue and net profit.
- Non-financial Indicators: Progress in research and development (e.g., the stage of new drug trials), number of new products launched, and production and sales volumes.
- Customizable Indicators: Companies can add indicators that reflect their unique needs (for example, the number of store expansions for chain businesses).
4. Key Considerations When Preparing Plans
Companies should avoid the following pitfalls:
- Avoid making exaggerated claims; plans must be realistic. For instance, if a 50% annual revenue growth is significantly beyond the company's capabilities, it should be acknowledged, and potential risks should be highlighted.
- Don't try to capitalize on current trends (e.g., hastily linking the company to emerging technologies like AI or renewable energy just to boost stock prices).
- Ensure compliance with regulations; plans should not be used to manipulate stock prices or engage in insider trading (e.g., sharing plan details with relatives and friends in advance).
5. The 2.0 Initiative as a Long-term Tool
The SSE emphasizes that this initiative is not a temporary task but part of a continuous process to enhance company value:
- It is integrated into daily operations rather than a separate additional requirement.
- It does not impose an extra burden on companies; it simply focuses on tasks that they are already committed to, such as improving profitability and distributing dividends.
- It complements market value management efforts by enhancing investors' trust in the company, which can lead to a higher valuation.
- The initiative goes beyond just dividend distribution and repurchases; it includes concrete actions in areas such as operations, governance, information disclosure, and corporate social responsibility (e.g., improving internal systems and regularly communicating with investors).
Next Steps
The SSE will release a set of exemplary cases to serve as templates for companies. It will also integrate these requirements into its regular supervision processes, checking the implementation of these plans to ensure that listed companies truly achieve the goals of "improving quality, enhancing efficiency, and focusing on returns."