Hi everyone, thank you for coming back to my blog. I hope you found my last blog interesting and useful, where I covered ‘Warren Buffett’s Investing Advice for Non-Professional Investors’.
In this blog, I’m going to cover the importance of the role of being a shareholder because many shareholders don’t understand how crucial their role is. Most investors purchase shares of companies because they feel this is a profitable way to invest their money, but do not realise that the money they spend on shares will be used to finance the different activities of this company.
As a shareholder, you get to have a say in how the money you invest is spent. Shareholder advocacy is about drawing attention to the practices you perceive as problematic so the companies you invested in consider changing their behaviours.
Purchasing shares of a company makes you an owner. This doesn’t mean you get to run the company or that your opinion will be sought before making important decisions. However, you have the right to express your opinion and the board of directors or CEO are required to listen to you.
Drawing attention to negative practices such as, outsourcing production to sweatshops, implementing practices with disastrous consequences on the environment, or explaining why employees or customers are not treated fairly is a good start.
Shareholder advocacy can also lead to ousting the current management of a company, especially if there is evidence that the company isn’t run in an ethical manner, or if the management is making decisions that expose your investment to unnecessary risks.
The most efficient way to draw attention to an issue is to work towards getting a resolution passed. A resolution (sometimes referred to as a proposal), is a document that presents an issue and a solution to change the company’s behaviours or reduce its exposure to risks.
You can create a resolution by yourself, but it is quite common for groups of shareholder activists to get together to create proposals. Working with other activists is a great way to share ideas and learn from their experiences.
You can present a company’s board of directors with a resolution as long as you own $2,000 worth of stock in that company. You also need to own the shares for at least a year before you can present your resolution.
Filing a resolution is about opening up a dialogue between a company’s board and the shareholders. If you or a group of shareholders filed a resolution to draw attention to an issue, chances are many other individuals share your concerns.
After a resolution is introduced to a board, a vote must take place during the next annual meeting. Shareholders get to vote on whether or not the resolution should be adopted.
Companies typically pay attention to a resolution as long as it receives at least a 10% support when shareholders vote.
The company might decide to take action before the annual meeting to present shareholders with their progress instead of holding a vote. If there is a real problem with unethical practices, it is usually best for the company to work on resolving the issue instead of taking the risk to project a negative image.
Unfortunately, in most cases, resolutions are not legally binding. The purpose is to draw attention to the issue and make the board realise how their unethical practice is casting a shadow over the image of the company.
A good resolution should present the board with strategies they can implement to solve the issue instead of merely criticising the company’s behaviours.