Do Shareholders And Businesses Share The Same Interests?
The reason I ask is that we have seen plenty of examples of “activist shareholders” who have the potential to inflict irreparable damage to a company’s future. I’m thinking particularly of the hedge funds, which have bought significant shareholdings and think that this gives them the right to dictate company direction.
Sorry folks, this is why you have a Board of Directors whom you as shareholders entrust with the stewardship of the company to ensure that it remains a viable business. Their job is not only to look at how much can be squeezed out in dividends, but to decide in which way the business goes. Hopefully, they understand it better than you do (that’s why they’re directors).
Hedge funds in particular have been seen to focus solely on “returns” in order to satisfy their investors (after all, that’s what they're paid for).
Apart from shareholders, business also has “stakeholders”. These can be shareholders, but also includes:
- Employees
- Management
- Auditors
- Legal advisers
- The local (and perhaps, international) community
- Environmentalists
- Others
Most of us can see already that there’s a direct conflict between shareholder interests and, say, employee interests if shareholders insist on disproportionate dividends that limit the company’s ability to invest for the future (and maintain its competitive edge). Equally, if there’s technology out there that will make the company more competitive, but means loosing workers, some might say that the company’s future depends on being able to shed workers who are no longer required, despite the hardship this entails.
Equally, environmental concerns may mean costs of disposing of certain types of waste increase, reducing profits (and thus dividends payable - to the detriment of shareholders).
To put not too fine a point on it, shareholder and stakeholder interests will often be at variance. The question that shareholders need to ask is: why I investing in this business? For high dividends or long-term capital growth?
With some shareholders, it’s often the former. For employees, the latter. If one considers that any business has a corporate and social responsibility as well as a duty to shareholders, then the latter may have to step back.
One remedy that is always available to shareholders is to exercise their collective power to remove a Board of Directors that they consider is not up to the challenge. This they do at their own risk…
I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to offer solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services. For strategic questions that you should be asking yourself, follow me at @wkm610.
Labels: Leadership, Strategy
posted by William Martin @ 08:28
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