1.    Introduction 

When we talk about shareholders, we refer to individuals or entities that have invested in a company through share ownership. In actual fact, they are the owners of the company and are interested in long-term success. Shareholders get involved in the company that they have invested in for the purpose of protecting their investment and also to promote good governance. Their involvement pushes the board of directors to act in the best interests of shareholders thus protecting their investment from mismanagement.

When it comes to protecting their investment, the shareholders do so through monitoring performance, holding the management accountable for financial and operational performance.  Shareholders are critical to corporate governance since they elect directors, approve corporate actions as well as influence strategic directions of the business. Corporate governance is about a system of rules, practices and procedures through which a company is directed and controlled.  Through corporate governance the interests of all stakeholders are taken into account. Shareholders are able to influence corporate strategy through voting on key matters. They also promote good governance by encouraging transparency, ethical conduct and compliance with relevant laws, procedures and governance.

Strong corporate governance is not just a legal or ethical requirement but a strategic advantage that provides structures through which a company’s objectives are set and achieved while at the same time ensure that risk is monitored, assessed and managed. Through active oversight the risk of fraud, corruption or reckless decisions that may harm the ratings of the company can be reduced. The role of shareholder, particularly as they become more diverse and vocal, is integral to shaping governance. Companies that understand and actively engage with different types of shareholders are better positioned to navigate complexity, maintain trust, and achieve long term success.  Active shareholders are able to shift the company focus from short-term profits to sustainable long-term success.

Where shareholders are able to push companies to act responsibly, the performance and values increase.  On issues of climate change, diversity and human rights, shareholders with shared interests may collaborate to push/influence strategic, operational or governance changes. Companies that support environmental, social and governance (ESG) goals are rated highly which creates long-term value increasing the company’s reputation. A healthy balance between ownership and oversight is necessary for long-term business success.  The big question is: ‘are our shareholders engaged and empowered?’.

2.    Engaged and Empowered shareholders

a.    Engagement refers to involvement, commitment, or active participation in an event or process. It involves emotional and mental connection in the subject matter. Shareholder engagement will involve active dialogue and interaction.  As such, one would like to find out how well shareholders are engaged in the investment that they have made. Engaged shareholders are able to communicate and interact with the company to ensure that their interests are represented. Effective shareholder engagement varies from voting to informal methods such as dialogue. During annual general meetings (AGMs) and extraordinary general meetings (EGMs), shareholders vote on key issues and also ask questions directly to the board. They are also able to voice their concerns which influence policy.

Shareholders stay engaged by reviewing financial statements and also evaluating ESG (ESG) reports. Digital platforms are being used to enable easy voting, sending updates and hosting virtual meetings. Participating in investor relations activities such as roadshows and webinars gives shareholders updates and a chance to ask questions.

b.    Empowerment means equipping people with authority, confidence and resources that enable them act independently taking control of their own lives and decisions. Empowered shareholders actively participate in the governance and decision making for the betterment of their investment. Empowered shareholders have greater rights, tools and influence to actively participate in the company. They understand the company’s performance, risks and governance structures enabling them to have a real say on how a company is run in addition to owning shares. They are able to use their power to effect change through thoughtful voting at shareholders’ meetings. Some of the tools that empower shareholders include legal, financial and governance. They make buy/sell decisions based on corporate governance and values which give them exit options by selling or selling their shares to signal their dissatisfaction or satisfaction. This is an economic tool that affects the share price and send a warning message to the management.

Empowerment of shareholders involves strong voting rights that allow shareholders to elect or remove board members. The shareholders should also be able to propose resolutions at annual meetings. The resolutions may address disclosure, transparency and board structure among others. Shareholder empowerment is strengthened through access to accurate, timely and comprehensive data. This facilitates shareholders to make informed decisions and hold the management accountable. Empowered shareholders can engage or are confrontational demanding for improved governance or replace underperforming directors.  Shareholder empowerment ensures that:

·         Boards and management remain answerable to investors

·         Governance standards, transparency and ethical behaviour are high

·         Ensures that management align with the long-term goals

·         Reduce risk of fraud and mismanagement

c.    The connection between shareholder engagement and empowerment:  Shareholder engagement is related to their involvement in the activities of the company that they have invested. While shareholder empowerment is giving the shareholder ownership and autonomy to independently influence and direct the company. Empowerment often builds on the engagement where shareholders are able to join meetings and contribute ideas freely.  When shareholders are informed and involved, they are more likely to feel confident and are more prepared for empowerment. 

3.    The capacity of shareholders

Corporate governance can be influenced by the capacity of the shareholder. For our purpose, the term capacity refers to the type, size and power. The interest of the majority shareholders can influence strategy and to an extent dominate governance decisions.

4.    Shareholders influence governance

Shareholders influence governance directly or indirectly. The direct methods that influence governance have been discussed earlier on and include: voting rights, resolutions and fiduciary influence. Shareholders are able to do so if engaged and empowered. Shareholders influence governance indirectly through actions that shape behaviour, policy or decision making. These indirect methods include: -

a)   Buy/sell decisions: a large sell-off due to governance can drop share price affecting investor confidence. Through financial consequence, the boards are pressured to act.

b)   Dialogue: investor concerns communicated to the management and board members may bring about reforms that are meant to maintain investor confidence. This would avoid public disputes and influence trust.

c)    Public pressure: where investors speak publicly in matters relating governance can lead to reputational risk. This collective action may prompt governance reforms.

d)   Investor Coalitions: shared principles urging transparency may pressure the board to align with best practices.

e)   Ratings: evaluations are used to rate the effectiveness of a board. Poor ratings encourage a board to adjust policies in order to maintain favourable ratings and investor interest.

f)     Support for like-minded Board Members: supporting a reform-minded board candidate in a contested election signals governance direction. This helps shape board composition and direction

5.    Case Study: Unilever Shareholders 2018

a.    Background: Unilever is a multinational company whose headquarter is in London, United Kingdom. It operates in more than 190 countries where it owns over 400 brands many of which are household names. In 2018, it announced intention to move its corporate base from the UK to the Netherlands. The aim was to simplify operations, improve business agility and make it easier to merge with other companies. The decisions implied that Unilever would exit the London’s Stock Exchange.  Shareholder concerns was that UK-shareholders would lose power in corporate decisions. The benefits of the move were not clearly explained to the shareholders.

6.    Conclusion

Shareholder engagement and empowerment is the cornerstone for modern day corporate governance. When shareholders have the right tools, protections, and access to information, they can drive companies to more transparent, ethical and sustainable. Engaged shareholders shape the direction, values and success of the company invested. By promoting shareholder empowerment, a company demonstrates commitment to ethical leadership, long-term value creation, and responsible corporate citizenship. Shareholder involvement leads to stronger governance, better decision making that results in better financial and social returns