By Michael S. Olympios
Chief Consultant
Allied Business Consultants
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As the annual general meetings’ season close nearer some shareholders are getting busy. In the past, dominant CEO’s were running the show with glossy speeches praising last year’s “miraculous†performance “despite competitive pressures and other hardshipsâ€. Active investors are becoming tired of the rhetoric of the usual suspects and increasingly press the board on the tough issues ranging from performance to executive pay. Judging from last year’s activity investors will continue to scrutinize board performance and whether the board has achieved its stated objectives and held management to account. This scenario will only play at a handful of companies that don’t have controlling owners-managers sitting on the board to oversee their own performance. In fact those family companies that pay lip service to good corporate governance will continue to draw little attention from the market and will likely bring their own crowd to their AGM as they often did in the past. But many of these closely held companies that subscribe to good governance and are increasingly moving towards more board independence will experience a change of attitudes of investors. Equally outside directors that truly care and are not passive by-standards, who see the board as a rubber stamp, will ensure that they know the company’s challenges and investors’ expectations. The truth is that the old way of doing business on board is beginning to crumble thanks to a change of investor attitudes and the Cyprus Stock Exchange corporate governance code. Directors are mingling with employees, according to our sources, to get the low-down on simmering problems and they are opening channels of communication with some key investors to hear their concerns. Some even ask the tough questions before investors ask them. This helps directors not only get a better grasp of the company’s operations but also pick up on any problems in the company.
In the past directors had minimal contact with shareholders, even big ones. Management was the official voice of the company, and rarely gave investors a way to contact board members other than through the chairman and the CEO. Yet hearing views outside of management is an integral part of being a good director. In a way it’s like politicians who listen to their voters. Those who lack contact means that they are insulated from outside complaints and investors have no access to the only people who can challenge management’s decisions and hold executives accountable. Now the situation is beginning to change. The Cyprus Stock Exchange requires its top companies to ensure that at least half of their board is independent. And shareholders of the big companies are increasingly playing a vital role in improving corporate governance and placing more pressure for performance. As a result directors, particularly outside ones, are becoming more aggressive watchdogs. They are more forward about questioning management’s proposals and following up on those plans to see how the company is fairing. Outside directors however should be careful not to abuse their access and step into management’s shoes. With more board members taking an active role, the line between governance and management can seem fuzzier in our experience. When such thing happens, it could easily undermine the executives’ credibility and disrupt their ability to perform their job. The board’s role is to steer and exercise effective control the company. Outside director interference may cause friction and management will often see such behavior as an unnecessary intrusion to their business. While the board should take control of the company’s destiny, it’s the management’s role to get the company there – and investors to ensure just that.
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