Shareholder Relations

January 24 2022

Corporate Governance Under the Biden Administration

Fiona Lu Board Governance, Board Structure, Corporate Culture, Corporate Governance, Executive Management, Shareholder Relations

The transition to the Biden administration is expected to have a significant impact on corporate governance. This impact is due in part to specific governance related proposals that will pass through the administration, and in part to how Biden’s policies will influence state legislation, governance best practices, and board conduct. During his campaign, several proposals with a significant impact on corporate governance were brought up by progressive candidates such as the Affordable Capitalism Act, the Ending Too Big to Jail Act, and the Corporate Executive Accountability Act. Looking forward, more specific proposals will likely establish basic goals and requirements for board diversity, gender equality, and worker representation.

Biden set the tone for his approach to board governance during his campaign when he claimed the age of shareholder primacy would come to an end during his presidency: “It’s way past time we put an end to the era of shareholder capitalism. The idea the only responsibility a corporation has is with shareholders: that’s simply not true. It’s an absolute farce. They have a responsibility to their workers, their community, to their country. That isn’t a radical notion”. In accordance with this sentiment, Biden will work towards fair taxation of corporations and ensure that they put their workers and communities before their shareholders.

Biden’s approach aligns with that of Elizabeth Warren, who had the most developed set of corporate governance policies during her campaign. These policies included pledges to place workers on boards, as well as the introduction of “charter companies” which would be dedicated to stakeholder interests rather than shareholder interests.

Kamala Harris has been similarly outspoken about the need for change in corporate America, stating her commitment to restore the corporate taxation level to 35% and augment diversity in the boardroom: “When our country’s corporate leadership looks more like the rest of the country, it ensures that a wider array of perspectives are heard in meetings and board rooms and that the needs and interests of more people are considered. We must do more to hold companies accountable for living up to their own diversity goals and make sure we have reliable data about their progress”.

Kamala Harris similarly proposed a new law that would compel companies of one hundred employees or more the prove that they pay men and women equally or face a fine of one percent profit per one percent of pay disparity. In this way, Kamala looks to take the burden off of the working woman by holding corporations accountable for paying their employees fairly.

While Biden and Harris are not as radical as Bernie Sanders and Elizabeth Warren in their intentions for changes in corporate governance, advisors have begun warning companies to prepare for new regulations. These regulations will likely turn corporate attention away from their shareholders and towards their stakeholders and enforce greater boardroom diversity. Moreover, companies should be prepared for the administration to raise corporate taxes, especially for companies that shift jobs overseas, and to require the disclosure of the racial, gender, and ethnic makeup of their boards.

March 30 2020

Representing Shareholders Best Practices

Fiona Lu Board Strategy, Corporate Governance, Shareholder Relations board culture, board directors, board of directors, board of directors best practices, board strategy, corporate governance, Institutional Shareholders, shareholder relations, stakeholders

Corporate governance is an important topic of interest to many investors because it represents a key metric for a company’s future sustainability and success. Both shareholders and stakeholders alike are keen to notice strong governance and a comprehensive board strategy, leading corporate governance to become a paramount determinant of corporate reputation.

Best Practices for Improving Shareholder Relations

Establishing a strong foundation of governance principles the board should operate by is the first step to establishing a good reputation with the public. Strong values are intrinsic to forming trust with a company’s shareholders and can lead to a higher valuation of the company. Setting the right values and tone also ensures transparency and provides guidelines that hold the company accountable for any potential abuses of power or fraud. Creating a sense of corporate liability within the board is a key component of board culture and effective leadership, which prevent scandal outbreaks such as Enron’s downfall.

When shareholders see that a company has a clearly structured framework of guiding principles and values, they are more willing to invest in the company. This is important for raising a company’s Earnings Per Share (EPS). Thus, company’s should keep their investors’ values in mind when forming such a framework. A robust and flexible set of shareholder rights must be established at the forefront to protect their stake in corporate ownership. Investors want to know that their investments are being protected against security and system risks.

Once the basis of corporate guidelines is formed, boards must remain vigilant of the changing consumer landscape, digital trends, and market demands to be able to consistently update and improve upon their principles. Modern governance must evolve and adapt to technological advancements, current events, and information spread. Maintaining a fresh perspective on current affairs is necessary for understanding shareholder interests.

How Much Control Should Shareholders Maintain?

The post Sarbanes-Oxley corporate climate defines a clear distinction between ownership and control. Security laws of the 1940s set up checks and balances to ensure that management operates in the best interest of all parties. The shareholders have ownership of the company, management controls the operations, and the board of directors are responsible for overseeing the operations and representing shareholder interests.

Board directors are responsible for making nonpartisan judgement based on the company’s established principles to reign back management’s decision-making power. They act as agents of the shareholders and must have a strong understanding of policies that create long-term shareholder value. Shareholders typically have limited power to influence how a company is run; but if company performance drops, shareholders exercise their right as the owners to ask questions, examine board practices, and elect a new board should the existing one fail to meet their fiduciary duties.

Board members are elected by shareholders based on the expectation that they will equally represent all shareholders, regardless of their ownership stake. During the annual meeting, all shareholders should have their opinions voiced by the board in terms of company values, goals, and vision. Board members must abide by a code of conduct which mandates there be no conflicts of interest between ownership and management. Should such conflicts arise, boards must ensure that management sets aside their personal gains for the interests of the company.

These practices ensure that a company is operating with integrity, honesty, and corporate responsibility. Board members must maintain a transparent relationship with shareholders and be prepared to answer their questions to demonstrate that their investments are safe.