Shareholder activism is set to spike across Europe in 2022. While the most activity globally comes from US hedge funds, activist investors are still making their presence felt in Europe, expressing their discontent with underperforming companies. With its potential to destabilize and disrupt the boardroom, shareholder activism must be carefully managed with a proactive, rather than reactive, approach. And that approach starts with building a better relationship between the board and shareholders.
Why unhealthy shareholder relations must be avoided at all costsThe relationship between a company and its shareholders can be as complex as a marriage. When it is done right, harmony reigns. On the other hand, a poor shareholder relationship could result in your board losing time to non-stop disputes and challenges. Given the complexity and sensitivity of this relationship, it is easy to see how boards fall foul of their shareholders and vice versa. From the board member's point of view, the shareholder has power and influence that exceeds their position – getting a vote in the company's decision-making, goals, and future without actually getting their hands dirty in day-to-day operations. From the shareholder's perspective, board members can be obstructive, inflexible, and motivated by self-interest. A spirit of mutual animosity isn't a great foundation for board and shareholder relations. There may be periods of peace and stability, but if there isn't a solid foundation to start with, the cracks will widen over time - ultimately threatening the company's profitability. The most successful companies know that shareholder relations should be more than an afterthought. Like any good relationship, it takes work to build that base of respect, communication, and shared values.
Shareholder activism is on the riseThe past decade has seen a steep rise in shareholder activism, in part due to a growing recognition of the influence corporate shareholders can have on corporate governance. The shareholders of today aren't content to sit back and collect dividends, they're looking to make a difference and have their say. This shareholder empowerment can manifest in a number of different ways, from low-key proposals to aggressive tactics, and uses all the tools at a shareholder's disposal – withholding votes, organizing voting blocs, and forcing through changes by ousting certain board members and other means.
How to maintain a strong relationship with shareholders
Communicate effectively and often
Recognize your roles
Find common ground
published on 2021/06/12