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The Board’s Relationship With Shareholders & Investors

The relationship between the board and it’s shareholders and investors 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 board of directors, there are very structured responsibilities to shareholders and investors that the board should always be cognizant of and adhere to. This relationship should be mutually benefit and should be one conducted with the utmost respect. However, there is also a set of responsibilities that shareholders and investors have to the board of directors and the company itself.

This relationship is most typically outlined in the corporate charter, shareholder agreements and other shareholder provisions. In public and private organizations, investors and shareholders have the same common rights which helps to bridge this established relationship with the company and the board. 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.

The relationship between the board and shareholders and investors is a two-way street. There are always going to be defined roles, 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 relationship is one of the cornerstones of good corporate governance and the open and clear communication helps ensure that shareholders and being understood in their larger concerns around their investment and relationship with the organization.

What Are The Board of Directors’ Responsibilities To Their Shareholders?

As mentioned above, there are very strict rules regarding the relationship between the board and shareholders. It is necessary to better understand this relationship to ensure that shareholders feel heard, which is one of the best ways to ensure that there are no activist shareholders trying to win a board seat. Additionally, a more open relationship with shareholders will also speak volumes in regards to board directors maintaining their seats and the investors feeling confident in the 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 better understand how to build the framework for that relationship, it is important to know how corporate governance also applies to relationships outside of the boardroom.

What To Know About Director & Shareholder Communication

A healthy relationship with shareholders is built off of strong communication. The relationship between the board and shareholders is a tightrope walk and understanding how to properly communicate with shareholders is the way to keep that rope taut. This starts with a clear agenda and ends with accurate meeting minutes, however, what happens in between is what bolsters this relationship.

Transparency is also the backbone of a healthy relationship with shareholders. The Corporate Governance Reform and Transparency Act of 2017 was put into effect to increase transparency in the shareholder proxy systems. This law put into effect by the SEC helps to create a framework to disclose potential conflicts of interest and codes of ethics within the boardroom. Understanding the ins and outs of this law will better allow boards to understand the shareholder relationship and their role in maintaining it.

Handling Shareholder Activism

To understand how to handle shareholder activism, it is important for the board of directors to understand what motives an activist shareholder and to have the ability to fully trace back to the catalyst of the situation: essentially, what caused the shareholder to become upset at the actions of 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 of what the issue at hand really is. A large part of this, as mentioned above, is a healthy relationship with shareholders and investors and making sure that it stays that way.

Trend in Shareholder Activism

If history proves anything, activism typically occurs at companies that fit the “mega-cap” range, however, this does not mean that a shareholder will push for a board seat at a smaller public company. It is important for board’s to create an environment 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.