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.