Peter Crow
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The small question of control: A new "shareholder spring"?

24/5/2014

3 Comments

 
The question of who calls the shots in companies has been vexed for many years. On paper, the shareholders should have the final say, after all they own the company. However, the reality of what really happens is not so straightforward. Company ownership is widely held in many cases—particularly amongst publicly-listed companies—so forming a common view amongst shareholders is difficult at best. Consequently, boards and CEOs have considerable scope to seize control, in order to pursue their own aims.

My observation is that shareholders are relatively happy to accept this situation when the going is good. However, when times are tough, or when the board or management pursues strategies that are not popular with shareholders, shareholders need to become more active. Shareholders need to ensure that boards represent their interests and that they deliver the results that shareholders want. It seems that some shareholders are starting to do just that, for a new "shareholder spring" appears to be occurring. Will it make a difference? Who knows. One thing seems clear though: passive shareholders will get their comeuppance.
3 Comments
Michael Sampson link
27/5/2014 02:29:13

How large a shareholding do you think an individual shareholder needs to have in a firm before this would work?

Reply
Peter Crow
27/5/2014 02:42:13

Hi Michael

The easy answer is "a majority", because then the shareholder can wield their power through the director nomination and election process. However, this is also a rather adversarial response. Better answers are "I don't know" and "It depends".

The issue at hand is one of influence. Someone that owns 500 shares in a pool of 50 million shares has, and should expect to have, limited power. In contrast, a shareholder with 2–10 per cent holding in a widely held company may have much more influence. Larger shareholdings are move likely to be directly represented in the boardroom, although not always.

Regardless of the actual shareholding, I suggest that all shareholders who are actually interested in the direction and performance of their asset should at least:
1. attend, ask questions and vote at annual meetings
2. write to the chairman if they have concerns, with supporting information and ideas (not just complaints!)
3. talk with other shareholders, because several may have similar views and it may be possible for a "voting bloc" may coalesce and exert influence

The American phenomenon of "activist shareholders" another response. I'm not sure how well it works though.

Reply
Michael Sampson link
27/5/2014 23:08:01

Thanks Peter - it is helpful to see your thinking on this.




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