Shareholders (also known as shareowners) and those who manage shares for others need to know their rights as shareholders in order to make informed, responsible investment decisions. This requires reasonable and timely access to sufficient information about issues affecting their investments, and an understanding of the engagement customs and legal and regulatory framework of the market(s) in which they invest.
In order to properly exercise their rights, shareholders need to know such information as any limitations on their rights, whether a company elects directors using a majority-voting standard, their eligibility to approve significant company transactions, any ability to submit dissident resolutions at an annual meeting, how to participate in share voting − in person or otherwise − and opportunities and responsibilities for shareholder engagement in such cases as cumulative and confidential voting or advisory votes on compensation.
CFA Institute has researched and presented recommendations on corporate governance and shareholder rights.
Annual general and special meetings provide shareholders with opportunities to convey their views about the governance, stewardship, and direction of their companies. Consequently, they should have ample notice of future meetings, together with sufficient information about the issues under consideration so that they can carefully consider their responses and votes. Moreover, companies should adopt systems and procedures that permit shareholders to exercise their voting rights, regardless of their presence at company meetings.
The proxy statement plays an important role in providing all shareholders with information that may affect continued investment in the company. This statement should include information on compensation, management, corporate governance changes, and other areas of interest to shareholders.
A system of shareholder rights is an integral part of any corporate governance system. These rights ensure that shareholders are able to voice their opinions on board nominees and other proxy initiatives, as well as other corporate actions that may affect the value of their interests.
Members of company boards of directors help set the strategic direction, the ethical tone, and the overall governance for their firms. As a consequence, recruitment and nomination of board members is an important part of a company’s governance. To ensure that board members represent shareholder interests, companies must make the nominations process transparent, fair, and independent, regardless of their size, domicile, or industry.
Shareholders need to be able to hold board members accountable for bad decisions. To provide this accountability, companies must ensure that all uncontested board nominees receive a majority of the votes cast before they can take their seats on the board. Shareholders also should be able to easily understand the voting mechanisms to increase participation.
The regulation of a company’s governance depends on the standard processes applied in local capital markets and on national restrictions. But as global markets converge, an evenly employed and consistent approach among regulators, self-regulatory bodies, and exchanges will benefit all issuers and investors.
Regulation of corporate governance is driven largely by three primary mechanisms: the laws developed and applied in local capital markets, local regulation, and the listing requirements of securities exchanges. These laws, regulations, and rules should be applied consistently within each market, regardless of the issuing company’s type, size, or domicile.