How firms can better engage shareholders

I was recently invited by the accountants’ body, the Institute of Certified Public Accountants of Kenya( ICPAK) to run a session at their 7th Annual Governance and Ethics Conference. The topic they chose for me was “Inside the boardroom: the realities of shareholder engagement”, and this in the context of the overall theme of the event, “Sustainability and Convergence”.

I felt challenged by the title thrown at me, and I was happy to accept for an extra reason: I am the chairman of the council of KCA University, and since ICPAK is our sponsor I would be addressing my shareholders, the institute’s members.

In preparing the presentation my mind first took me to the two key words in the theme, and I began with “convergence”. For in whatever I do, whether as a director or a consultant, I am always focused on convergence, on helping to bring people together, aligning their energy by building healthy cultures.

As for “sustainability”, in today’s world we are increasingly conscious of the need to think beyond the next quarter, the next year, to longer term sustainability. This inevitably requires organisations of every kind (not just the giants) to be sensitive to shareholders yes, but now more than ever to all key stakeholders.

I could readily see why the two words were chosen together, for surely unless there is convergence between stakeholders – among whom the shareholders – you can forget about sustainability.

So here was my launch platform. I would elaborate on how to bring about convergence, this in support of sustainability, and then explore the engagement of shareholders in such a context. Within the context, my terms of reference clearly specified that I had to discuss how this should unfold in the boardroom.

Did this make my task easier or more difficult? In the boardroom, shareholders are represented by the directors they appoint at their Annual General Meetings. Such representatives sit alongside independent (typically non-executive) directors, and executive directors (those who participate in the organisation’s management). But in the boardroom good governance allows no room for differentiation of perspectives, however much the actual realities may differ.

Each and every director must only be concerned with the best interests of the organisation. They all strive to add value as best as they can with that one unified objective, and none among them is more or less important or influential.

So where does engagement with directors who represent shareholders come in? Why must they be singled out for special attention? It is because their principals, as Roger Hitchcock of the Sirdar Group expressed it to me in the context of private companies, are “legitimately selfish” in their objective of seeing some combination of dividends and growth. Yet when these directors enter the boardroom they are obliged to become, like any other director, “legally selfless”.

Much comes down to how a chairperson engages those at the table. In those boardrooms, is their leader talented at converging fellow directors around building sustainability? Does that leader know how to engage the “legitimately selfish” outside that room so they focus only on becoming the “legally selfless” within it?

Take the example of a board agenda item, again in the context of a for-profit company, to decide on how much of a dividend to pay. Directors representing shareholders may be inclined to press for higher amounts, but they must not succumb to such temptations if it is other than in the interest of the company.

If higher disbursement will starve the organisation of needed capital then sustainability will be compromised. So the mature, responsible shareholder-elected person in the room will go for gratification-deferral, in support of future benefit.

I am happy to report that I duly performed at the conference, in front of around two hundred of KCA University’s shareholders. I laid out my thoughts on convergence and sustainability, taking time to review how what is discussed at board meetings will support these two key pillars of governance and ethics.

You’ll have to ask those present how well I engaged them on the subject. But alongside addressing my theme, I can confess that I did take advantage of this unusual opportunity to enhance shareholder engagement with the university.

Leading a board isn’t for glamour but hard work

In my last article I found myself in the boardroom and today I remain there, following my invitation by Strathmore University Business School to be a panelist on their “Leading the Board” programme.

In what follows I will refer to the main issues that emerged, and I’ll start by reporting on our easy consensus over the stark fact that holding a board position in this era is so much more challenging than it used to be. Not only do we find ourselves in uncertain and complex times, ones that require unprecedented agility, but cumulative laws and regulations have become frighteningly explicit about the onerous responsibilities of individual board members for the wellbeing of the organisations they lead. The consequence? They are no longer positions of glamour and prestige.

With expectations of directors at an all-time high, the positions have become transformatively more demanding. There’s the obligation to take care of the interests of all stakeholders, and ethically at that. Then compliance is the word of the moment, as a result of which those who sit around the boardroom table must constantly be assessing risks and learning more about how to discharge their responsibilities appropriately.

To ensure compliance they must be up to date with the latest legal, financial, technological and other trends, while at the same time not being so constrained by these that focus on performance is lost. And in this age of social media they never know when some threat to organisational reputation may suddenly emerge, requiring instant assessment and response.

The task of bringing their colleagues together in navigating these turbulent waters belongs to the board chair.

And here too the panel discerned some clear trends. Given the increasing focus on transparency and accountability, board chairs cannot allow their teams to be mere rubber stamps for management’s recommendations. But equally, they must not arbitrarily impose their views on others but ask questions and listen openly. And this they must do with each other and with management.

Chairs must develop teamwork between directors, so trusting relationships form that enable the building of genuine consensus. The panelists emphasised that where unresolved conflicts exist boards cannot make proper decisions or add serious value. So they must also spend informal social time together away from board meetings to complement their hours in formal meetings with formal agendas. Comprehensive board induction is essential too, covering both the hard and the soft elements of the director’s role.

In all that we aired, sharing healthy values and behaving with emotional intelligence were deemed critical, not least on the part of the chair, so that consensus could emerge by “negotiating to win-win.”

Talkative director

An interesting point about how the chair manages time at board meetings arose from a question posed by one of the participants who asked how one deals with a board member who consistently talks too much. It led us to suggest that prior to each board meeting the chair and CEO must agree on its purpose and agenda, as a result of which the time needed for each element and the overall length of the meeting can be proposed by the chair at the beginning of the meeting. As far as the talkative director is concerned, the chair would probably need to have a word with the time-consumer offline, doing this in their role as coach.

This led us to the need for annual board assessments, through a process – not unduly heavy – whose purpose is continuous improvement. It includes reviewing the board as a collective; the chair and individual members; and the board’s relationship with the CEO and management generally.

As important as any other success factor is the quality of the relationship between the board chair and the CEO. The two must engage in regular close consultation, developing mutual respect and accepting that each must motivate and engage the other.

One of my fellow panelists rightly concluded that membership of a board is above all a privilege. It is a position of trust that requires the holder to be available and to contribute, in a spirit of giving back.

Board members are there to make wise decisions, to add value and to leave a legacy behind them when they eventually step down. Still up for it?