Managing multiple shareholders’ interests
As the independent Chairman you are regularly faced with the challenge of achieving the best outcome in the face of shareholders groupings with differing expectations.
NZ commerce is characterised by SME’s and family owned companies, many of these businesses are significant and have all of the complexity of smaller listed corporates. Governance in these circumstances is therefore, a mix of standard company disciplines and the extra dimension of a closely held shareholding and all of the internal family dynamics and personal interests.
These factors are challenging to manage as companies mature, founders are replaced by subsequent generations, the business strategy and personal ambitions and drivers can be at conflict.
Shareholders should expect a fair return from their investment in a company, however if the rate of dividends and other shareholder returns are set at a level that the company cannot judiciously invest in the future, the enterprise is placed at risk.
Earlier in my career one of my mentors characterised the approach of successful companies that survive and have progressed over longer periods.
‘There is balance between enhancing short term profitability and investing for the future. A Board could resolve to cut back on training, research, market development, skill acquisition and capital expenditure and thereby improve short term profit. However, for most businesses not progressively investing in the future will lead to long term business failure’.
The Board is primarily tasked with managing the company for the benefit of all shareholders over the longer term. While accountable to its shareholders, their position should be secondary to the Board’s primary role of successfully overseeing the future of the company.
The Board must ensure their longer term strategy and business plans keep the Company relevant to its customers, profitable and focused on the creation on sustainable wealth creation.
In my experience the Board and in particular the independent Chairman has to create the dialogue between shareholders/stakeholders on the strategic needs and aspirations of the company. Most industries are challenged by the pace of change and including ‘digital disruption’ that is changing whole industries and traditional ways of conducting business. Communicating with shareholders on the Board’s response to these challenges becomes a vital exercise in gaining and maintaining support and understanding. Shareholder presentations work well in sharing key information and responding to shareholder information requirements.
Where the Board is dominated by major shareholder interests’ the Independent Chairman's role becomes even more important in ensuring issues critical to the company take precedence over individual shareholder objectives. Management of Board agenda’s, having a robust Shareholders agreement and a modern constitution are very important in setting the framing work for the Board to operate in the best interests of all shareholders.
The Independent Chairman may need to mentor individual Directors and shareholding groupings to manage individual expectations and the realities of the longer term success of the company. Adopting an approach of openness, maintaining confidences and intellectual honesty generally allows common sense to prevail.
Where there are alternative ownerships structures, in particular Co-operatively owned companies managing shareholder interests can be particularly problematic. This generally requires strong leadership and experience by the Chair to effectively manage owners personal agendas and self-interest.
In my experience, board composition, diversity of thought, goodwill and common sense are all important components of longer term success.
Colin Theyers CA. G.Dip(Finance).CFInst.D.