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Shareholders own a significant stake in the companies with which they’re associated. And their position as active investors can help inform how corporations operate. Today’s shareholders do far more than sit passively and hope for a company to grow. Instead, they’re wielding power to discourage mismanagement and build better internal cultures.
Shareholder activism has provided a stronger layer of corporate accountability to ensure companies are operating with transparency and meeting regulatory guidelines. Read on to learn more about how shareholders are transforming corporate oversight.
Inspecting Company Records
Shareholders have the legal right to look at a company’s financial books and documents. If there’s ever a doubt about above-board actions, shareholders can look at a company’s internal records to evaluate the situation. Companies should be aware that their emails and meeting agendas or notes are all available for any shareholders to see.
These documents have the potential to reveal missteps or misconduct, as well as neglected responsibilities or business model issues that should be addressed. This level of access helps hold companies accountable for their actions. And, ideally, the surveillance will inspire them to run their operations more responsibly.
Filing Derivative Lawsuits
Despite the best efforts to maintain open communication between shareholders and other key stakeholders in a company, sometimes plans do not go as expected. A CEO may commit fraudulent behavior, for instance. Or the board may fail to execute its required duties, leading to poor management outcomes and financial losses. In these situations, derivative lawsuits, which can be filed by shareholders, may be the best course of action. A shareholder may believe that the company is suffering as a result of a leader’s actions, and they can take action by suing them on the company’s behalf.
A derivative lawsuit can lead to positive changes, including money that can be invested back into the company. Attorneys experienced in corporate governance law can help shareholders investigate their legal options if they suspect a problem. And they can help guide an organization through a messy lawsuit situation so that it can seek governance reforms, like new compliance programs, that help prevent future problems.
Shareholders can pursue direct lawsuits, too. These can challenge a company’s actions while protecting a shareholder’s interests. A company may behave inappropriately during a merger, for instance. And a shareholder can challenge that behavior through a direct lawsuit.
Embracing Bigger Cultural Shifts in Corporate Governance
Modern shareholders want more than a financial stake in a company. They want to be connected to organizations that embrace transparent actions, inclusivity, and positive cultures. Companies that invest in greener practices and maintain ongoing communication with their stakeholders are ones that are less likely to encounter lawsuits down the road.
Shareholders can help maintain a watchful eye to ensure compliance. They can challenge questionable decisions and review internal records as a form of accountability. In short, shareholders can hold companies to a higher standard. And, in doing so, they can help shape healthier organizations that prioritize integrity on the job.
