When we think of corporate governance, we usually think of a board of directors or a family board. Both are important, but there is another group that is no less, if not more, important than the board of directors that works for them: the shareholders. Actions are often passed as a tax strategy. In some cases, there are so many shareholders that it is unclear who they are. For many, this means much more than earning a nominal or significant financial return on the businesses they own. Shareholders who are not educated, involved and informed do not remain shareholders for a long time.
Shareholders own the company and are responsible for approving changes that will affect the organization at large, such as electing or removing directors, reviewing the bylaws, conducting mergers and acquisitions, changing the capital structure and organizational culture. This does not mean that the shareholders define the strategic vision for the company, as it is the board that does this. Nor do they get involved in day-to-day operations as management does. But shareholders can influence company affairs through monitoring.
Talking about responsible shareholders involves a conversation about shareholder rights and responsibilities. While the shareholder is entitled to the expected return on the capital invested in the company, he needs to know how to interpret a balance sheet, cash flow and income statement, to be able to engage in a conversation about possible liquidity needs for capitalization, for example.
While the shareholder has the right to information and transparency, he must make an effort to comply with meeting schedules and read the materials provided by the company. Shareholders are also involved in the selection of members of the board of directors, as they represent them in decision-making. As such, they need to understand the role of the board, create job descriptions and prospectus, helping to ensure that suitable members are selected. In addition, elected members who represent the shareholder group and educate new shareholders as they join, allow the entrepreneur's mindset and family values not to be lost from one generation to the next.
Shareholders are also entitled to transfer of ownership in accordance with the agreement. Creating and funding ways for shareholders to transfer their shares clearly allows those involved to remain, ensuring that the company does not experience financial difficulties during transfer periods.
It is necessary to keep in mind that responsible shareholders are not just listed. They create reciprocal relationships with the board of directors or family. Being a shareholder is also keeping yourself informed of the company's affairs. Receptive shareholders don't show up overnight. But with time and effort, they can add real long-term value and help with good governance.
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