The broad spectrum of corporate governance designates within organisational governance frameworks comprises varied participants such as directors serving on boards as well as executives tasked with crucial functions, including legal secretaries and chief financial officers. The shareholder is another key constituent within the corporate governance structure. Furthermore, as either a full or part owner of the organisation, their position is crucial for the general smooth-functioning of the establishment and for its sustained profitability (which many would argue is their principle objective upon investment in the firm). Their overall organisational significance consequently warrants a rudimentary probe into their value, their roles and their responsibilities.
Shareholders are organisational actors of import for a number of noteworthy reasons. From the perspective of ownership and control, they afford the organisation the much-needed capital for both initiation and continuity of operational activity. Capital is overly essential for firm functioning, from daily activities, and for future growth (i.e. maintaining its status as a going concern). For various undertakings, more especially capital-intensive enterprises, its influence on the firm’s capacity to source factors of production cannot be understated. Capital is also crucial for investment in numerous aspects that are used to create value, fulfil target-market requirements and ultimately to yield profits. Having contributed the said capital, shareholders earn the privilege of participating in decision-making and exercising control over the company’s affairs.
Shareholders typically have voting rights in key corporate matters. These matters may include the election of the board of directors as well as the approval of substantial corporate actions ranging from mergers and acquisitions to international market penetration. This essentially means that shareholders wield the power to chart the course and influence the direction of the organisation. They are also critical with regard to the aspect of accountability of executives and management who have the direct and immediate responsibility of navigating the charted course.
As shareholders invest in organisations with the expectation of making a financial return, they have a keen interest in organisational performance, value creation as well as profitability. It is not surprising that many a shareholder maintains active participation and intentional monitoring on the firm that s/he invests in. This assists the shareholder in ensuring that executives and management act in their best interests and that they work towards the maximisation of shareholder value.
We cannot reiterate just how much risk shareholders bear when they implement their investment decisions in a firm. The shareholders’ active engagement in corporate governance positions them well in terms of identifying and mitigating risks, be they financial, operational, hazard or strategic. This ensures the firm’s continued responsible operation in a sustainable manner.
As regards their responsibilities, it must be noted that the shareholders’ purview is not simply capped at the level of capital provision. Firstly, they play a significant role in monitoring and oversight. Shareholders must pay attention to the actions of the board of directors and management. Shareholders must consistently review financial reports, assess the organisation’s strategic progress and direction, and they must furthermore ensure regulatory compliance.
Secondly, shareholders have the responsibility of diligently exercising their rights. Respecting always that shares may exist in different classes (and consequently with different rights), shareholders generally have the right to propose pertinent resolutions, as well as amendments to bylaws that would impact organisational standing. They also have the right to propose changes to organisational policies. They can also engage in proxy voting, allowing them to vote on company matters when they are unable to attend shareholder meetings. If necessary, shareholders can raise concerns, ask questions and seek explanations from management. Their active participation in this regard goes a long way in the overall scoping and fashioning of governance frameworks.
A subsequent responsibility of import is the shareholders’ engagement with management. Shareholders can actively probe management into issues of concern through direct communication or during their attendance of Annual General Meetings, as well as other scheduled and ad-hoc meetings. The expression of their views and concerns has a substantial bearing on organisational decision-making. Where discrepancies are identified, shareholders can propose remedial paths and routes for recourse. Furthermore, long term value creation and responsible stewardship are responsibilities that underpin the shareholders’ contribution to a very large extent if they are to successfully realise their envisaged returns on investment.
Having considered the fundamental importance, roles and responsibilities of shareholders, it is important to note that companies vary in their nature and that their operational jurisdictions may have substantial influence on the shareholders’ organisational authority, as well as the particular rights assigned to different classes of shares. Overall, however, it is acknowledged that shareholders remain a crucial factor with regard to the financing, control, operational and corporate governance facets of the organisation.
For corporate training and consulting solutions, contact info@governancegroup.org. The views and opinions expressed in this article are those of the author, Dumisani F. Ntini – Governance and Strategy Practitioner
