CFA: Shareowner Rights across the Markets: A Manual for Investors

PDF file of Shareowner Rights across the Markets: A Manual for Investors

On 16 April 09, CFA Institute Centre for Financial Market Integrity has launched a manual "Shareowner Rights across the Markets: A Manual for Investors" to help global investors to understand their rights in 22 of the largest markets, namely:

Australia
Brazil
Canada
China
France
Germany
Hong Kong
India
Indonesia
Italy
Japan
Malaysia
Mexico
Poland
Russia
South Africa
South Korea
Switzerland
Taiwan
Turkey
United Kingdom
United States

This Manual for Investor is indeed useful, especially now that investors can invest globally but face with lack of information and means to seek help when potential frauds/mismanagement happen in companies invested.

For each country, it comes with these sections:
1. Summary of Current Shareowner Rights
2. Current Engagement Practices and Shareowner Rights Developments
3. Legal and Regulatory Framework
4. Key organizations with information relevant to shareowner rights in the country.
Indeed a very good resource for shareholder activism.

Surprised though, couldn’t find Singapore in the lists of 22 largest markets.

In the Introduction, there is also an insightful section which states GovernanceMetrics International (GMI) criteria to determine whether a board member is to be classified as independent board member. We can use this criteria to determine and "clean up" the pseudo-independent board members as a start.

If you find this post useful, you may check out my other posts on shareholder activism.

Resources for shareholder activism - Hermes Principles and the example of People’s Solidarity for Participatory Democracy (PSPD)

In this time of recession/financial downturn, we see lots of frauds on listed companies, majority shareholders trying to buy out and delist companies at cheap price, actions by majority companies that are detrimental to minority shareholders’ welfare etc..

Ever wonder, can minority shareholders do something to protect themselves from onslaught of these companies’ management ?

Shareholder activism is the answer.

European Corporate Governance Institute (ECGI) has a good write-up and resources on shareholder activism. There are proponents and opponents on shareholder activism. Some research reports are available in the website which argue on different angles.

Hermes (which is also featured in ECGI website above) has come out with Hermes Principles for corporate governance.

These are the principles concerning requirement that companies be run in the long term interest of shareholders. Read the PDF files for details. Its principles are on:
1. Communication
2. Financial
3. Strategic
4. Social, Ethical and Environment.

These principles can be a guideline for minority shareholders to ask companies’ management to adhere to.

In reality, companies’ management often doesn’t heed the opinions of minority shareholders.
What then should minority shareholders do ?

We can take a look at Korea’s shareholder activist group :
People’s Solidarity for Participatory Democracy (PSPD)
One of its articles in the website mentions some basic methods for shareholder activism: (read the article as it comes with examples and resources)

Participating in the Corporate Decision Making Process
1. Attending Shareholders Meetings
2. Shareholder Proposals
3. Proxy Solicitations
4. Convening Extraordinary Shareholders Meetings
5. Policy Recommendations

Preventive Measures and Monitoring the Behavior of Management
1. Inspection of Books and Records, Appointment of Inspectors Demands to Cease Illegal Activities
2. Injunctions to Prevent Illegal Acts of Management
3. Policy Recommendations
4. Holding Management Accountable for Their Conduct

Shareholder Derivative Actions
1. Criminal or Administrative Complaints
2. Demanding the Dismissal of Responsible Officers.
3. Policy Recommendations

Shareholders, unite ! :)

Corporate Governance, Shareholder’s Rights (1)

I have attended few shareholder’s meetings (AGMs) in Malaysia.

My general feel is that many, if not most shareholders,
do not uphold their shareholder’s rights.

In the AGMs, many shareholders merely attend to collect gifts, have meals,
become "Yes man" during votings and obstructing critical questions being asked in Q&A sessions. Unjustifiable praises are hailed on the management and Board of Directors even during cases when they should be criticised. Ridiculous questions are being applaused. Good, critical questions (sometimes being raised towards the end after finally getting their turns) are being jeered at.

One important concept is Board of Directors should act in the best interest of shareholders.
Shareholders pay them large sum of director’s fees to take care of shareholders’ interests and to act as check-and-balance for the management team. Need to make sure they do their jobs.

Hopefully this post can shed some lights on Corporate Governance and Shareholder’s Rights.

The Corporate Governance of Listed Companies: A Manual for Investors (from CFA Institute)
PDF file

One of the intangibles to look into a company when investing is Corporate Governance.

A number of studies show strong links between good corporate governance and strong profitability and investment performance (the studies are mentioned in above PDF file).
We need to pay particular attentions to the Board of Directors, Management and Shareowner Rights.

For Board of Directors,
take note of its independence, member qualifications, authority to hire external consultants, terms, related-party transactions and board committees.

For Management, take note of implementations of code of ethics, personal use of company assets and corporate transparency on executive compensation, share-repurchase and price stabilization program.

For shareowner rights, pay attention to shareowner voting and shareowner proposals.

The Manual is a great read !