Closer scrutiny of corporate governance has to be good news, especially in
view of increased merger and acquisition activity across numerous sectors.
Shareholders have a vital role to play in ensuring the success of such
One doesn’t have to look very hard to find major mergers that have failed to
deliver anything like the promised returns, yet such deals routinely go ahead on
the recommendation of boards with little scrutiny from investors.
In Germany, the authorities are actively trying to fuel greater shareholder
involvement. Turnout at German AGMs averages just 46% – partly because of long
speeches by small investors and partly because of a trading freeze on investors
planning to vote. From November, new German laws should cut short the speeches
and unlock shares, making it simpler for large investors to have their say.
Investors who vote may also get a higher dividend.
These sorts of measures should be implemented more widely, but there are
other forces at work.
Most shareholder apathy originates from investors who see themselves as
interacting with the stock market rather than with individual companies whose
shares they buy and sell. The ease with which shares can be traded encourages
But at root this approach is both risky and irresponsible. The heart of a
well-governed company should be an explicit pact between a board and its
shareholders. And just as a board is accountable to shareholders, so
shareholders must take an active role.
Initiatives like Sarbanes-Oxley will make it easier for shareholders to know
what is going on because they require better governance and transparency from
Shareholders who neglect their side of the governance bargain will have only
themselves to blame if their investment collapses in the next corporate scandal.
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