the board & shareholders
DESCRIPTION
The Board & Shareholders. Their relationship and attendant issues. Nature of Relationship. Shareholders are the owners, but directors’ duties are to the company – not to any particular class of stakeholders. - PowerPoint PPT PresentationTRANSCRIPT
Their relationship and
attendant issues
1
Shareholders are the owners, but directors’ duties are to the company – not to any particular class of stakeholders.
While directors’ duties are to the company, it cannot be ignored that shareholders are the owners of the company.
NATURE OF RELATIONSHIP
2
Institutional shareholders
Small private shareholders
Large private shareholders
Corporate Shareholders
TYPES OF SHAREHOLDERS
3
Mutual funds
Pension Funds
Insurance Companies
Investment institutions
In UK, it is believed that institutional shareholders hold, on an overall basis, a majority of shares of all listed companies.
INSTITUTIONAL SHAREHOLDERS
4
• Long term interest in share value growth• Current returns are still important
• They have the power and ability to influence Boards• But do they have the time to pay attention to every single
company• Monitoring systems for danger signals
INSTITUTIONAL INVESTORS
PERSPECTIVE
5
Individuals
Only interest in share price change
No long term interest
Only a little interest in earnings
Reactive buyers/sellers
Biggest losers when things go bad
No influence over Boards
SMALL PRIVATE SHAREHOLDERS
6
Individuals (but may be acting through trusts, private limited companies, etc.)
Have long term interest in the company
May have great influence on the company
May provide bulk of executive directors
In Pakistan, these people are the focus of corporate governance activities.
LARGE PRIVATE SHAREHOLDERS
7
Group, or holding companies.
Differ from institutional investors.
Have a long term interest in the company.
Can influence the Board most.
Tax structures often inhibit holding companies.
How SBP/SECP rules are creating groups
CORPORATE SHAREHOLDERS
8
10% of EDs in European companies do not know who their top 50 shareholders are.
25% of their CEOs had met only half of their top 50 shareholders
In Pakistan, most listed companies have majority held by a family or group and they do not seem to attach any
importance to any other shareholder.
SOME INTERESTING FACTS
9
Rules on disclosure of shareholding pattern.
Important changes in shareholding pattern are required to be notified to SEs (The 3% level for UK).
Register of Directors’ interest in shares or debentures of the company (UK)
CONCENTRATED SHAREHOLDING
10
Accountability of the Board
Transparency / communication
Minimizing conflicts of interest between directors and shareholders
Good management leading to:
Good returns
Capital growth
Fair division of spoils
WHAT DO SHAREHOLDERS EXPECT?
11
Shareholders must approve:
Class 1 transactions
Large size relative to size of the company
Related party transactions
Financial statements
Audit report is for shareholders
Directors remuneration
SHAREHOLDERS HOLD ON BOARD
12
Direction: One way reporting or Two way communication
Nature: Formal or Informal communication
Scope: All or some shareholders
Frequency: Regular or irregular, need based.
COMMUNICATION BETWEEN
SHAREHOLDERS & BOARD
13
Between Board and institutional investors
Large companies: many institutional investors
Small companies: not enough attention from Institutional Investors
Between NEDs and major shareholders
Chairman is often an NED
Role of SID
PLANNED MEETINGS
14
Chairman’s Statement
OFR (including analysis)
Compliance Statement (with CCG)
CSR – Sustainability reports
NON-FINANCIAL REPORTING
15
Combined Code says:
Encourage attendance
Let them ask questions
Separate voting (avoid grouping issues)
Vote counting:
Show of hands / one vote per share
Proxies
Electronic voting
THE AGM
16
Dialogue with companies
Evaluating their disclosures
Judicious use of vote
ROLE OF INSTITUTIONAL INVESTORS
17
Refers to stand taken by shareholders against recommendations of the Board.
Do they have adequate rights or power?
Result less important than show of dissent.
Can work only if institutional investors participate.
Do institutional investors have a duty to communicate with other shareholders?
SHAREHOLDERS ACTIVISM
18
Re-election of directors
Re-appointment of auditors
Approval of accounts and reports
Approval of directors’ remuneration
Justification for past payments
Proposed Schemes
Dividend recommendations
Changes in share capital
AREAS OF SHOW OF DISSENT
19
Monitoring performance
Intervention
Evaluation of performance
Reporting direct to other stakeholders
AREAS OF ACTIVISM BY I.I.
20
Association of British Insurers (ABI)
National Association of Pension Funds (NAPF)
Institutional Shareholders Committee (ISC)
International Corporate Governance Network (ICNG)
BODIES SUPPORTING ACTIVISM
21
Residual rights to property and profitsRight to equitable treatment
Protection against inside trading and market abuseDisclosure and transparency
RIGHTS OF EQUITY SHAREHOLDERS
22