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CHAPTER 4. STAKEHOLDER MANAGEMENT - Coggle Diagram
CHAPTER 4. STAKEHOLDER MANAGEMENT
Overview
Infrastructures
Legal
rights established by law
availability or ease of legal resource for any violation of rights
Contractual
shaped by contractual arrengments
company and stakeholders help define and secure rights of both parties
Organizational
internal systems
governance procedures
practices adopted and controlled by the company in managing its stakeholder relationships
Governmental
regulations imposed on companies
.
Balancing interests
Focus on a broader range of stakeholders relative to the more shareholder-driven Anglo-American systems in...
France
Germany
Japan
Movement among regulators to more effectively balance the interests of all stakeholders
Companies Act 2006 in UK
introduced "enlightened shareholder value"
requires directors to consider the interests of all stakeholders- not just shareholder
such stewardships adopted in Japan and UK encourage more active engagement of institutional investors with companies
Mechanisms of Stakeholder Management
General meetings(assembly)
enables shareholders to
participate in dicussions
vote on major corporate matters and transactions that are not delegated to the board of directors
required to hold an annual meeting(AGM) within a certain period of the end of their fiscal year
present shareholders annual audited financial statements
provide overview of the company's performance and activities
address shareholder questions
elect directors
in some countries
approve financial statements
discharge directors of their duties
appoint external auditors
vote in the remuneration of the board/management
Extraordinary general meetings
by the company or the shareholders
when significant resolutions requiring shareholder approval are proposed
these resolutions might relate to proposed material corporate changes, such as
amendments to the company's bylaws
rights attached to a class of shares
M&A
sale of significant corporate assets or businesses
Voting
decisions that are more material in nature may require a supermajority voteç such as 2/3 or 75% to be passed. F.e
ammendments to bylaws
voting on a merger or takeover transaction
waiving pre-emptive rights
Methods
Proxy
shareholders who are unable to attend a meeting to authorize another individual to vote on their behalf
most common form of investor participation in GMs
Some minorities attempt to strenghten their influence at companies via proxy voting, although most resolutions pass without contreversy
Cumulative
enables each shareholder to accumulate and vote all his shares for a single candidate
mandated in Spain
not allowed in
Germany
Japan
Singapore
Turkey
Minority shareholders rights
Minority shareholders are often granted rights to protect their interests in acquisitions.
Companies in EU member states are required to adopt sell-out rights. These rights allow minority shareholders who have voted against a merger offer to force a bidder with more than 90% of the target's voting rights to buy their shares at a fair price upon the deal's approval.
Board of Director Mechanisms
In companies with complex ownership structures and operations, it is impractical for shareholders to be involved in strategy formulation and day-to-day activities. Shareholders thus elect a board of directors to provide broad oversight of the company.
The board, in turn, appoints the top management of
the company.
The board is accountable primarily to shareholders and is responsible for the proper governance of the company; in this regard, the board is the link between shareholders and managers
The Audit Function
examines the company's operations and financial records
represents
systems
controls
policies/procedures
internal audits
conducted by an independent internal audit function/department
external audits
independent from the company
conduct an annual audit of the company's financial records to provide reasonable and independent assurance of the accuracy of financial statements and their fair representation of the financial position of the company
The board is required to receive and review the financial statements and auditors' reports and confirm their accuracy before they are presented to the shareholders for the approval at the AGM
Senior management is also required to review and provide assurance of the effectiveness of the internal control systems
Audit function limits insiders' discretion with regard to the use of company resources and to its financial reporting.
It's also designed to mitigate incidents of fraud or misstatements of accounting and financial information
Reporting and Transparency
Shareholders have access to a range of financial and non-financial information concerning the company
annual reports
proxy statements
disclousers on the website
investor relations departmenr
social media etc.
These are essential to
reduce information asymmetry between shareholders and managers
assess the performance
make informed decisions in valuing the company, buying, selling etc
vote on key corporate matters or changes
Policies on related-party transactions
Often these policies require such transactions or matters to be voted on by the board/shareholders excluding the director/shareholder holding the interest
Remuneration policies
aligning the interests of managers with those of shareholders
Profit sharing, stocks, stock potions
however, granting of stack-based remunaeration doesn't serve its purpose if managers can improve their personal gains at the expense of the company while limiting their exposure to weak stock performance
As a result, companies are designing incentive plans that discourage either "short-termism" or excessive risk taking by managers
Some plans include granting shares, rather than options and restricting their vesting or sale for several years or until retirement
Clawback provisions
allow a company to recover previously paid remuneration if certain events, such as financial restatements, misconduct, breach of the law, or risk management deficiencies are uncovered
Say on Pay
Say on Pay
enables shareholders to vote on executive remuneration matters
first introduced in UK in early 2000s
implemented in US as part of Dodd-Frank Act 2011
Countries
Canada
non-mandatory and advisory(non-binding) system
shareholders signal, not impose their views on proposed remuneration
US, France, SA
mandatory but non-binding
board is required to enable shareholders to vote on remuneration plans or packages, but the board doens't have to abide by the reuslt of the vote
Netherlands, UK, China
binding
Criticism
shareholders have limited involvement in a compnay's strategy and operations
They argue that the board is better suited to determine remuneration matters
Conversely, by allowing shareholders to express their views on remuneration-related matters, comapnies can limit the discretion of directors and managers in granting themselves excessive and inadequate remuneration
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Mechanisms of Stakeholder Management vol 2
Contractual Agreements with Creditors
Indenture
is a legal contract that desvribes
the structure of a bond
the obligations of the issuer
rights of the bondholders
Covenants
to limit creditors' risk during the term of a bond(loan), debtholders may choose to impose convenants within indentures or contracts
terms and conditions of lending agreements, enabling creditors to specify the actions an issuer is obligated to perform or prohibited from performing
Collateral
is used for guaratee repayment, representing assests or financial guarantees that are above and beyond an issuer's promise to repay its obligations