Shareholders with minority interests (50% or less) are subject to the power of majority shareholders, without whom other remedies are available to minority shareholders. If a minority shareholder wants to influence a particular resolution at a shareholders` meeting, they should try to get the support of other shareholders so that those who hold more than 50% of the equity powers can act together. In short, set up the business to protect yourself, get to know the structure so that you can achieve your goals, and if it becomes necessary to use the power you have, prepare carefully and with competent advice in advance. And if you know you have power, you`ll often never have to use it: you can reflect the saying of Theodore Roosevelt, who quoted an old African proverb: «Speak quietly, but carry a big stick. Shareholders have the right to access and consult the company`s records and information on the governance and financial performance of the company. In publicly traded companies, much of the operational and financial information about a company must be reported to the public by filing with the Securities Exchange Commission. Companies must also share this information directly with shareholders in widely standardized reporting documents. Private companies, on the other hand, do not provide information publicly. In addition, there is no special obligation to disclose regularly to shareholders. As a result, shareholders of non-public institutions are generally required to submit requests for information.
State law provides for the substantive and procedural rights of shareholders to access and review company records. In California, majority voting controls shareholder votes. So if a shareholder has fifty-one percent of the shares, that person effectively controls the company. This is probably the most important single cell that the business owner needs to learn: in terms of control, it doesn`t matter if you have ten or forty-nine percent. The person who has fifty-one percent can elect a majority of directors, and they can in turn appoint officers and managers. Although some rights exist to protect minority shareholders in some areas discussed below, the simple fact is that the shareholder who controls 51% of the shares is able to manage the company as he wishes. In most States (and under the Model Law), company law allows for dissenters. Dissenting rights are a special set of rights designed to protect shareholders of companies that are not actively traded in the market. In a widely used publicly traded company, shareholders who disagree with fundamental corporate governance or governance issues can sell their ownership shares. This is usually not an option for shareholders of private and private companies. Dissenting rights allow these shareholders to force the company to buy back their shares at their fair value.
But a majority of shareholders actually voted not only 39 of these companies, mainly as a result of large declines in stock prices or negative profits; In only a few cases, large increases in executive salaries appeared to be incompatible with performance. One interpretation: shareholders are quite capable of expressing their dissatisfaction with companies that perform extremely poorly. But they`re not that good at it – or interested in distinguishing good wage packages from bad ones. Shareholders are entitled to quarterly and annual financial reports. A shareholder cannot go to a company`s office and demand to see its books, but the fact that a company must report its audited financial results to shareholders maintains direct management in its financial operations. Voting agreements are simply agreements between two or more shareholders whereby they agree on how to vote or agree on when a supermajority vote will be required. In addition, shareholders can agree on when a unanimous vote on certain types of decisions is required to protect the minority shareholder. There are various restrictions on authorized voting agreements set out in the Companies Code, but most voting restrictions aimed at protecting minority rights are allowed.
Paying too much attention to what shareholders say they want can actually make things worse for them. There is growing evidence (e.g., Rosabeth Moss Kanter`s «How Great Companies Think Different,» HBR November 2011) that the companies that are most successful in maximizing shareholder value over time are those seeking goals other than maximizing shareholder value. Employees and customers often know more about a company and have a longer-term commitment to a company than shareholders. Tradition, ethics and professional standards often do more to limit behaviour than incentives. The argument here is not that managers and board members always know the best. It`s simply that widely dispersed short-term shareholders probably won`t know any better – and a governance system that relies on them to keep companies on the straight and narrow line is doomed to failure. For many shareholders, although they technically have ultimate control over the company, there is no practical authority. Perhaps the greatest power of shareholders is the control of the composition of the board of directors. However, many companies will ask management (i.e., officers) to appoint directors and give shareholders the opportunity to vote «yes» or abstain, but not to vote «no» by mail. While the SEC is looking to make changes to this practice, the truth is that directors and officers exercise much more control over the company than shareholders, whose role is usually passive.