LOS G requires us to:
describe the market and non-market factors that can affect stakeholder relationships and corporate governance
The stakeholder’s relationship and corporate governance in a company are mainly affected by two factors, i.e. market factors and non-market factors.
1.1. Market Factors
These are capital market-related factors that impact the relationship with stakeholders and corporate governance. Some of the important market factors are:
1.1.1. Shareholders Engagement
The shareholder’s engagement should be broadened beyond just the annual general meetings. This would probably help in building support for the management’s position.
1.1.2. Shareholders Activism
It is an attempt to compel management to act in a desired manner and can be achieved through proxy battles, shareholders resolutions, and raising awareness.
If the shareholders are not really satisfied with the working of a company or find something against the law and detrimental to their interests, they can file shareholders’ derivative lawsuits. Since the shareholders cannot directly file a suit against the company (as the shareholders themselves are the owners of the company), they can go for derivative lawsuits. It is a lawsuit against the directors and the management since they are deemed to be acting on the behalf of the company and they have failed to do so.
1.1.3. Competitions and Takeovers
The takeovers can be made by the group seeking control over the management and affairs of the company. The controls can be gained through any of the following methods:
a. In the proxy contests, the shareholders re-persuaded to vote for a group seeking a controlling position on the board of directors.
b. In tender offers, shareholders sell their shares directly to the group seeking control over the company.
c. In hostile takeovers, the group seeking control over the company acquires the company without the consent of the management.
1.2. Non-market Factors
1.2.1. Legal Environment
a. There are two types of laws to protect the rights of the shareholders and the creditors, i.e. the common law and the civil law. The common law provides superior protection to the interests of the shareholders and the creditors.
b. The creditors generally have an easier time with the legal recourse than the shareholders.
1.2.2. The Media
The media has the ability to spread information quickly and shape public opinions. It can also spur the politicians to introduce regulations or enforce laws that protect the shareholder’s rights.
Social media allows information sharing at little to no cost.
1.2.3. The Corporate Governance Industry
There are external corporate governance services that provide ratings and proxy advice and other related services.