Transcript The Board & Shareholders

THE BOARD & SHAREHOLDERS
Their relationship and
attendant issues
1
NATURE OF RELATIONSHIP
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.
2
TYPES OF SHAREHOLDERS
Institutional shareholders
Small private shareholders
Large private shareholders
Corporate Shareholders
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INSTITUTIONAL SHAREHOLDERS
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.
4
INSTITUTIONAL
INVESTORS
PERSPECTIVE
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
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SMALL PRIVATE SHAREHOLDERS
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
6
LARGE PRIVATE SHAREHOLDERS
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 endeavors.
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CORPORATE SHAREHOLDERS
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
8
SOME INTERESTING FACTS
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.
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CONCENTRAT
ED
SHAREHOLDI
Rules on disclosureNG
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)
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WHAT DO SHAREHOLDERS
EXPECT?
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
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SHAREHOLDERS HOLD ON
BOARD
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
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COMMUNICATI
ON BETWEEN
SHAREHOLDE
Direction: OneRS
way reporting
or Two way communication
& BOARD
Nature: Formal or Informal communication
Scope: All or some shareholders
Frequency: Regular or irregular, need based.
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PLANNED MEETINGS
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
14
NON-FINANCIAL REPORTING
Chairman’s Statement
OFR (including analysis)
Compliance Statement (with CCG)
CSR – Sustainability reports
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THE AGM
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
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ROLE OF INSTITUTIONAL
INVESTORS
Dialogue with companies
Evaluating their disclosures
Judicious use of vote
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SHAREHOLDERS ACTIVISM
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?
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AREAS OF SHOW OF DISSENT
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
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BODIES SUPPORTING ACTIVISM
Association of British Insurers (ABI)
National Association of Pension Funds (NAPF)
Institutional Shareholders Committee (ISC)
International Corporate Governance Network (ICNG)
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RIGHTS OF EQUITY
SHAREHOLDERS
Residual rights to property and profits
Right to equitable treatment
Protection against inside trading and market abuse
Disclosure and transparency
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