Who is Responsible for Shareholders' Interests?

The shareholders elect the board of directors to oversee and manage the corporation's management and make corporate decisions. The board is responsible for the protection and management of shareholders' interests. U.S. Securities and Exchange Commission (SEC) helps facilitate financial markets' smooth functioning and helps shareholders protect themselves. SEC regulations require publicly traded corporations to provide financial statements throughout the year. Investors and shareholders have access to a company's SEC filings. This could include information about mergers and acquisitions and other financial information that might interest them.

Who are the Directors?

By having checks and balances and ensuring there are no conflicts of interest between board members and the management, a company board's structure can help protect shareholders. There are several members of the board of directors. These include people from the company (called inside directors) and those from outside. An executive from the company or major shareholder could be an inside director. The outside director's goal is to offer an objective view and assist with resolving company disputes.

The board of directors usually elects a chair. This person is responsible for overseeing the smooth running of the board. The chair ensures that the corporation's management team and employees act responsibly. Every publicly-traded company in America must have both an inside and an outside board of directors. The board of directors' role is to advocate for shareholders and monitor the corporation's management team to ensure they maximize shareholder interest.

The chief executive officer (CEO) is the person responsible for overseeing the company's operations. A board chair is usually a different person from the CEO. The CEO's role is to implement the strategy the board and the management team set out. It also ensures that shareholders' interests are protected. Sometimes, the CEO and chair of the board are held by the same person. Many companies choose to have two people occupy the CEO and board chair positions to avoid conflicts of interest and protect shareholders.

How the Board of Directors Protects Shareholders

A board of directors must be objective and proactive when negotiating with management to be effective. This allows management to maximize shareholder value. An objective and independent management board are more likely to promote or protect the shareholders' interests. A board made up mainly or entirely of management, for example, would be hampered by conflicts and might not prioritize shareholder value.

Compensation

The effectiveness of a board can be affected by compensation. The board of directors members can own stock, giving them an ownership stake in the company. Compensation for board members' work can be a way to make sure they are working hard to protect and promote investor interests. Compensation can be in stock or cash for members of a board. Management and employees must also align themselves with investors. This can be done through the compensation they receive. This could include making both investors and owners of the company.

The Role of Employees

Employees and Management who are shareholders are more likely to be encouraged to save shareholder interests than their own. This protects a company against mismanagement and poor employee productivity. A bonus targeting system is another option. This allows managers and employees to receive bonuses when they meet certain goals. These strategies can help align employees' and managers' interests with investors.

The Role of Investors

These groups can cause major problems and damage shareholder value if they are not aligned with the investor's interests. The average shareholder has no control over the board or day-to-day operations, but each investor is ultimately responsible for protecting shareholder value. Investors are ultimately responsible for reviewing corporate governance, policy, and managers' compensation. Investors who believe a company is not committed to shareholders may sell their investment.

What is a Stakeholder?

Stakeholders are parties that have a financial stake in the success or failure of a company. A stakeholder can be any person, institution, or group that has the potential to have an impact on or be affected by an organization's goals and projects. You can have stakeholders from within or outside an organization.

These individuals have a direct relationship with the company via investment, employment, or ownership. These include managers, shareholders, project coordinators, and senior managers. Although they do not have direct relationships with the organization, external stakeholders can influence or be impacted through its actions. Examples of external stakeholders include vendors, suppliers and customers, public groups, host communities, creditors, industry regulators, and creditors.