The relationship between shareholders and directors is a very important aspect of any organization. This relationship, if not properly managed, can have many negative implications and put the standing of the organization in a precarious balance. As a member of the board of directors, there are very structured responsibilities to shareholders that the board should always be cognizant of and adhere to. Just like the directors have an obligation to fulfill shareholder expectations, shareholders have a set of responsibilities to the board of directors and the company itself.
Shareholder relations are most typically outlined in the corporate charter, shareholder agreements and other shareholder provisions. Since the board of directors is responsible for overseeing the long-term affairs and operations of the company, they must also acknowledge and protect the interests of the shareholders. This includes their fiduciary duties, duty of care, duty of loyalty and duty of obedience. This is done through a sense of transparency in the annual general meeting, which is the only time of the year that the board, executives and shareholders come together to collaborate on leadership and financial matters.
Shareholder relations are a two-way street. There are always going to be defined roles and responsibilities built around succinct policy measures. Additionally, before every annual meeting, there should be a clearly defined agenda, accurate minutes and specific topics that need to be addressed to deal with the long-term goals of the business. This makes the board of directors responsible for shareholder interests and managing shareholder relations.
It is necessary for directors to understand that they are responsible for making sure that shareholders feel heard and that their issues are being addressed. If not, your boards can be sure that this will damage shareholder relations, leading to activism among shareholders. A more open relationship with shareholders will also speak volumes in regards to how board directors maintain their seats and shareholders feel confident with their board.
At the same time, good corporate governance is the backbone of a successful board and embedded in that is managing the shareholder relationship. Keep a healthy relationship with shareholders is imperative to ensure the longstanding position of the board and to avoid shareholder activism.
To understand the impacts of shareholder activism, it is important for the board of directors to understand what motives an activist shareholder. What issue or issues caused the shareholder to feel that they needed to take action against the board. Within the realm of shareholder activism, there are always going to be some historical trends that can provide the board with a framework of understanding to the why and what behind activist shareholders. Additionally, it is important for the board to create a plan for an activist shareholder to secure board seats and reach a successful mediation. It is important for board’s to create an environment for shareholder relations where they can better listen to shareholders in order to make sure their voices are heard and where there is a direct positive impact on the direction of the organization.
- Creating More Transparency for Board Engagement and Disclosures
- U.S. Corporations Redefine the “Purpose of a Corporation”
- Shareholder Disclosure Requirements and Checklist
- Best Practices for Shareholder Activism
- Handling Shareholder Proposals
- Shareholder Engagement Policy in Corporate Governance
- Board of Directors’ Fiduciary Duty to Shareholders
- What Are the Board of Directors’ Responsibilities to Their Shareholders?
Products & Guides
- Shareholder Engagement
- Governance Intel
- Diligent Messenger
- Nominating & Governance Committee
- Nomination & Governance Software
- Environmental Sustainability Global Governance Report
- How Should You Handle a Single Negative Thinker in the Boardroom?
- Forrester Report: Boards of Directors Need to Make Better Use of Boardroom Technology