Corporate Governance and Financial Crisis
The ongoing financial crisis has proved that Corporate America and the Corporates in other countries around the world have exhibited behavior that can be described as mismanagement and not keeping in tenets of good corporate governance. In this respect, some of the criticism that has been directed at corporate leaders and the bankers in particular…
Corporate Governance and Expectations from the Management
The field of corporate governance exists in a symbiotic relationship between the management and the board of directors. It is impossible to talk about corporate governance without taking into account the roles and duties of the board of directors and the expectations from the management. To explain this fully, it would be useful to consider…
Corporate Governance in the West and the Rest of the World
The previous articles discussed how good corporate governance is imperative to the existence of a structured and functioning economy. In this article, we look at the ways in corporate governance is practiced in the developed economies of the West and in the developing economies in the rest of the world. To start with, the ongoing…
Any public limited or private limited company has shareholders who contribute capital towards the setting up and running of the company. While in the case of private limited companies, the shareholders are usually the promoters and a few close friends or family, the public limited companies have a large body of shareholders drawn from all walks of life.
The shareholders of any company have a responsibility to ensure that the company is well run and well managed. They do this by monitoring the performance of the company and raising their objections or giving their approval to the actions of the management of the company. Whereas many shareholders act through institutional and large investors as their representatives, minority shareholders have the option of expressing either their disapproval or agreement at the Annual General Meetings of the companies.
The concept of having shareholders for the companies is to make the companies accountable for their actions. As mentioned above, the shareholders are usually represented on the board of directors and the board of directors acts as the custodian for shareholder interests.
In cases where the board is not acceding to the requests of the shareholders, the shareholders can act directly by asking the management to convene an extraordinary general meeting so that they can voice their opinions.
In past, the Indian IT bellwether, Infosys has been facing the heat from the shareholders because of its huge cash reserves where the shareholders have demanded that the company buyback some of the shares to compensate for the declining dividends and falling stock prices.
In the West, shareholder activism is usually in the form of putting pressure on the board and the management to take decisions that are in line with environmental, social and ethical norms and this is reflected in the way the global multinational, Vedanta, was forced to drop some controversial projects in India because its shareholders in the UK objected to this on humanitarian grounds.
The point here is that left to themselves, the managements of companies might act in ways that would enhance their personal benefit at the expense of the company. This is where shareholders play a crucial role in mediating between the agency problems and issues of conflict of interest along with asymmetries of information.
For instance, in the recent past, the Public Sector Coal India has been forced to explain several of the decisions taken by its management and the board of directors because of objections raised by the shareholders. The examples that have been cited in this article point to the fact that shareholders can indeed influence the outcomes that the board and the management take on their behalf.
Further, shareholders have a responsibility towards society as well since the companies that they have invested in cannot be allowed to flout ethical and social norms. Hence, the responsibilities of shareholders are many and varied and some of them have been touched upon in this article.
In conclusion, shareholders are increasingly demanding a greater say in the conduct of the companies where they have invested and this is a good sign.
Article Written by
Himanshu Juneja, the founder of Management Study Guide (MSG), is a commerce graduate from Delhi University and an MBA holder from the esteemed Institute of Management Technology (IMT). He has always been someone deeply rooted in academic excellence and driven by a relentless desire to create value. Recently, he was honored with the “Most Aspiring Entrepreneur and Management Coach of 2025 (Blindwink Awards 2025)” award, a testament to his hard work, vision, and the value MSG continues to deliver to the global community.
Article Written by
Himanshu Juneja, the founder of Management Study Guide (MSG), is a commerce graduate from Delhi University and an MBA holder from the esteemed Institute of Management Technology (IMT). He has always been someone deeply rooted in academic excellence and driven by a relentless desire to create value. Recently, he was honored with the “Most Aspiring Entrepreneur and Management Coach of 2025 (Blindwink Awards 2025)” award, a testament to his hard work, vision, and the value MSG continues to deliver to the global community.
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