Those of you who are familiar with my work and writing, will know that I am an advocate for the shareholder. Not a fanatical and myopic advocate that promotes shareholders over every stakeholder regardless of the circumstance; but rather one that recognises that a corporation exists for the benefit of those who invest in it - i.e. its owners.

Shareholder "satisfaction" is about optimising circumstance and opportunity to deliver reasonable shareholder expectations in that context.

My published research on shareholder primacy focused on management subjectivity and the way their decisions, ill founded but well intentioned, dictate organisational behaviour and the ability, or not, for shareholders to be satisfied.

My writings to date have only superficially dealt with directors and their role in the shareholder versus corporation debate. Two recent incidents have forced me to broaden my focus to include the powerful influence that directors have in aiding or thwarting the proper destiny of the corporation. Up till now, it has been managers who have got most of the blame for shareholder dissatisfaction.

Incident One

I was recently nominated to a listed board by over twenty of its shareholders. Although the board had vacancies and had performed poorly, and my credentials to serve were sufficiently strong as to have secured the nomination of nearly 10% of the shareholding, the  board refused to support my nomination. Their argument was essentially, that the appointment  was unnecessary. The ultimate vote in support of my nomination exceeded 20% of shares held.

The company had clear, visible, public and negative relationships with many of its shareholders and shareholders who supported my nomination were keen to see my shareholder-centric methodologies and philosophies incorporated into board deliberations and practices.

What we saw here was a small group of directors subvert the desire of a significant (albeit minority) group of shareholder desires.

Incident Two

I contacted a leading director organisation offering to have a chat with them about one of their governance principles relating to the responsibility of directors to align the corporation to shareholder "value" expectations. I mentioned that the rhetoric was nice, but there was no independent and quantifiable measure that was used to ensure that this principle was complied with. The operationalisation of this principle is entirely a subjective decision of the board and its directors. 

I proposed an independent Shareholder Certification / Accreditation body and invited the organisation to participate in its establishment in order to demonstrate thought leadership and practical application of their own principle.

The response from them was that "there is no appetite for further accreditations, or certification of companies."

This is a self-serving attitude that avoids accountability of the board and its directors to its shareholders.

Implications

I am of the view that the majority of directors have gained their corporate experience and credentials through their management roles over the years. They have achieved their elevated positions of director by "playing the corporate game", i.e. by thinking as management do - complete with its subjectivity, biases and arrogance.

To expect directors to suddenly change their views and beliefs the moment they enter the board room is unrealistic and unlikely.

In order for directors to take their own rhetoric seriously, rather than merely a sop to placate shareholders; directors, boards and corporations should be forced to align to their shareholders.

There are two ways to do this: either through legislation or through market forces.

The former is unlikely because of the short-sightedness and 'weakness' (read "gutlessness") of the government.

Therefore the only practical way for corporations' directors and managers to be brought into line is to have the corporation punished for non-compliance through an independent Shareholder Certification/Accreditation scheme.  

Shareholder Certification

A Shareholder Certification body would deliver the following benefits:

For Shareholders/Investors/Owners

a. Decreased risk in making investment decisions by matching an organisation’s overall shareholder objectives with their own objectives.
b. Informed investment decisions through the provision of independent and quantified representation of shareholder objectives for each participating company.
c. Enable more effective investment choice by allowing investors to select from a range of shareholder objectives of different companies. The investor would select the investment that provided the greatest probability of fulfilment.
d. Provide a reliable and objective method for measuring the performance and competence of a corporation and its C.E.O.
e. More easily identify areas of poor performance or under-performance and a greater ability to scope the impact of such under-performance.
f. More easily able to “gather the evidence” to justify a change to the Board as a result of poor performance.

For Boards and Management

a. More effective and easier corporate governance through the identification of legitimate, recognised, owner-approved and quantified objectives which form the raison d’etre for a corporation’s existence and which define its objectives and form the context for its mission, vision, strategies and actions.
b. More easily able to determine and resolve efficacy and appropriateness of management and board decisions and actions.
c. More easily able to monitor and assess the outcomes of management and board decisions and actions.
d. Better able to assess corporate, C.E.O. and management performance.
e. Clearer and less ambiguous expectations against which directors and management are held accountable.
f. Better able to match shareholder objectives with management objectives and strategies therefore better able to meet shareholder expectations.
g. Ability to communicate and individually report to each shareholder based on that shareholder’s personal objectives.

For Brokers, Analysts and the Public
a. Better able to gauge investment options for clients using the Investor Profile tool.
b. Better able to provide effective investment-specific performance measures which will assist in identifying performing and underperforming investments.
c. Better able to decrease broker/client risk by increasing the frequency that broker advice will satisfy client expectations.
d. Better able to decrease the perception of risk in the investor community and thereby bring otherwise risk-averse investors into the market.
e. Decrease the “speculative” character of investments.
f. Increase the opportunity of enhancing the relationship between investor and broker through a better understanding of the character of client objectives.
g. Enhance the opportunity for brokers to develop their own owner profile methodologies which mirror Owner Accreditation, and which enable account relationships to be personalised and enhanced.

For Regulators, Legislators and Government
a. Sees that the onus for corporate governance is accepted and exercised by shareholders.
b. Sees the initiation of an effective non-government regulatory process that is equally applicable for all organisations.
c. Avoids accusations of “big-brother” regulation.
d. Sees leading edge and world first corporate practices introduced into Australia.
e. Relieves some pressure from the Australian Securities Commission, Australian Stock Exchange and others to enhance regulation.
f. Enables Australian commerce to be seen as less risky for investors.
g. Will attract capital into Australia.
h. Supports new corporate structures and philosophies which will avoid a repetition of the heady days of the 1980s and the recent GFC.