Shareholders have an appropriate voice and must exercise their rights and obligations.
Long-term shareholders can and should contribute meaningfully to effective bank governance, although no one should depend on them to steer financial institutions away from another crisis.
Shareholders with seats on the board have the position as well as the incentive to provide some of the checks and balances that are so important to governance. But most institutional shareholders don’t have seats on the board, and their role in securing financial stability through intervention on governance issues remains limited.
The G30 report reveals that financial institutions with good shareholder relationships engage in the following practices:
- They actively listen to shareholder perspectives and concerns before issues arise and communicate clearly the board’s philosophy on governance matters of shareholder interest.
- They recognize that shareholders are a heterogeneous group and that all stakeholders have a legitimate right to be heard.
- They thoughtfully manage their interactions with shareholders in the interest of clarity of message.
- They decide when to resist shareholder demands, including those raised by proxy advisers, and when to accede to them.
- They should not rely upon shareholders to make a material contribution to FI safety and soundness, even though they have an important role to play in shaping bank governance arrangements.
Boards and management teams should be encouraged to engage seriously with shareholders, listen closely, and factor shareholder perspectives into decisions. For their part, institutional shareholders should remain active in governance, commensurate with their ownership objectives.