Railtrack shareholders were primarily interested in short-term returns like dividends and long-term share value increases. However, Railtrack management focused too much on paying high dividends, offsetting profits with funds meant for infrastructure maintenance. This led to deteriorating infrastructure quality and safety issues, culminating in Railtrack being placed under government administration due to debts, accidents, and lost public confidence. Recommendations included allocating more funds to maintenance, learning from foreign railway models, implementing accident inquiry recommendations, and monitoring funds usage more closely.

1. Railtrack
Shareholders Perspective
Group C
1) Munazza Akhter Zakaria
2) Chuleepun Jidjamnong (Sandy)
3) Mohammed Fazlur Rahman
4) Srimannarayana Ikkurti

2. Objectives
 Analysis of Railtrack Shareholders
perspective.
 Identification of the key issues at the board
level.
 Recommendations for strategic diagnosis of
the core issues.

3. Shareholders
 Shareholders perceive organisations as a legal instrument for
wealth maximisation and higher returns (Letza et all 2004).
 Profit maximisation can be achieved even in short term
while shareholder wealth-maximization takes long term
efforts, hence both are not same. ( Arnold G 2005).
 Corporate success is traditionally measured in terms of
wealth creation for shareholders, however too much focus in
this area can be suicidal (Clarkson 1995).

4. Shareholders in Railtrack
 Institutional Shareholders:
A Consortium of 22 banks led by Barclays invested £2.35 bn
in Rail Track (Economist 1st June 1996).
 Equity Shareholders:
Equity shareholders funds amounted to £2.5 bn , 58% of all
shares (Haubrich 2001) during financial year 1995/96
(Railtrack Annual Report 1997 ).

5. Stakeholder Mapping: Power/Interest
High Interest Low
Key Players Keep Satisfied
Railtrack Institutional Shareholders
High Board of Directors
Govt.
Power
Keep Informed Minimal Effort
Low
Equity Shareholders Consumers
Staff

6. Railtrack Shareholders Perspective
Agenda :
Shareholders agenda includes short term, long term
returns and security for investments. To a certain extent
also as a “Long term commitment to national
infrastructure”(Riley 2001)
Short Term returns / Dividends:
Dividends satisfy the short term expectations and sums up the
long term hopes and security concerns of share holders.
Rail track management under influence of financial analysts
paid up higher dividends to share holders offsetting profits with
maintenance funds. (Crag and Dyck 1999).

7.  Long term returns (Higher share value):
Majority of individual and institutional shareholders are
interested in higher share value for the long term.
The ill fated measures of offsetting profits with
maintenance costs resulted in short term rise in share value
from 390p (floating price in 1996) to £18 in 1998 and an
eventual fall at rock bottom price of 280p in 2000.
(Economist 13 Oct.2001).
 Security:
The assets, working capital, cash flows and prospective
growth probabilities are some of the factors considered by
share holders. The govt. involvement and hidden assets were
perceived by Railtrack share holders in terms of security.
(Martin 2001)

8. Conclusions
 According to the CEO of Railtrack Mr.Gerald Corbett,
“There is a tension between shareholder interests and public service
obligations. The only way we can make profits is by not doing the
things we should do to make the railways better.” (BBC Radio
today Dec.17 1999)
 Railtrack’s Regulatory regime had a focus on fixed
revenues (Economist 3 July 99). The higher rate of return
(8%) was targeted, at the time was 6% higher than govt.
borrowing rate (Kay 2001) to achieve the same
infrastructure funds were used to pay dividends.

9. Railtrack key problems:
 46 deaths in 5 years. (Railtrack annual reports 1994-2001)
 Millions paid in compensation. (BBC 21 June 2004)
 Heavy debts.
 Infrastructure maintenance funds and Govt. funds used for
paying dividends in 2001. (Wikipedia 2008)
 Shattered public confidence.
 Placed under Govt. Controlled administration.(BBC 8 Oct. 2001)

10. Recommendations
1) Railtrack is a service oriented company, hence funds
allocation for routine maintenance of infrastructure, renewal,
health and safety should be allocated. Lessons can be learned
from American railroad deregulation during 1980, where
prices were decided by the market not regulators and there
was freedom to choose own routes. (Murray, Adam smith
institute 2005)
2) Lessons can also be learned from privatisation of rail
network in Japan where since 1987 whole network is run by a
private entity with a good level of efficiency. (Crozier P
2001).

11.  3) Railtrack should have implemented the
recommendations of inquiries into previous accidents
(This is London 29 Oct 2001) instead of employing 300
staff to argue over delays and encourage blame game
activities (Financial Times 7 Oct.2001 & Economist 17
March 2001)
 4) Key stake holders (Railtrack board of directors,
Railtrack Regulatory regime, Govt., Institutional and
Individual share holders) should have raised concerns
about decreasing infrastructure maintenance costs,
operating profits, turnover, earnings per share against
rising dividends on one hand and increasing accidents on
the other. (Railtrack annual reports 1994-2001)
These pressures would have encouraged Railtrack towards
maintenance, health and safety investments.

12.  5) Rate of return for investors should be declared
according to the projected growth as well as prevailing
financial market conditions, govt. borrowing rate and
financial feasibilities. There has to be an equilibrium
between share holder interests and health & safety
measures necessary.
 6) Former personnel previously sacked should be
welcomed back to gain from their knowledge and expertise
in administration and maintenance activities. (Murray,
Adam smith institute 2005).
 7) New shares to be issued for acquiring new funds which
should be monitored by a third party (adjudicator) who
will look after the amount of funds used for infrastructure
maintenance and payment of dividends.