How Well Do You Really Know the Shareholders You Represent?

Author:Shaw, David

A few years back, I was at a non-business cocktail party, chatting with someone I had just met. It was a great conversation, as I recall, until I learned that he was a board member of a company in which I held stock, and I shared that fact with him.

My holdings were small, comparatively, but large enough to be very relevant to me. This may have been a wonderful opportunity for this board member to ask some questions of me, get my opinions--you know, get to know one of the owners. The other parts of our conversation had been vigorous and interesting.

You can guess what happened, of course. The conversation died out quickly, and drinks needed refilling. And we didn't speak again that night, or any other time.

Fully understanding the desires and goals of shareholders is a key to good company governance, and in this regard directors at publicly traded companies can take a lesson or two from their private company counterparts, especially when it comes to the growing conversations around environmental, social and governance (ESG) issues.

At our most recent Private Company Governance Summit, held in June in Washington, D.C., I was struck by several discussions and comments that made me reflect on whether ESG and shareholder primacy are necessarily exclusive and contradictory ideas.

During a conference session on shareholder relations, it was pointed out that in a typical well-governed private company, with a board composed of a majority of independent directors, the odds are very high that board members know every shareholder/owner personally, and that a major shareholder or two serves on the board. Even if there are too many shareholders to know individually, there is often a mechanism to allow clear ownership communication with the board through an owner's council or other shareholder representatives.

While private company shareholders often want and need regular dividend distributions, the overall goal of many private companies is often their own perpetuation, usually to a new generation of owners. That kind of thinking often leads to short-term sacrifices in return for long-term gain. (I, of course, exclude many private equity, venture capital and other pre-IPO types of private companies here.)

At the summit, we also held a group workshop on the board's role in ESG and sustainability for the private company, led by senior partners of Deloitte. It made clear that private companies, especially those that are family- or employee-owned, have long...

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