CHAPTER 3 All about shareholders
Many shareholders rely on journalists to track what companies are doing, whether boards are acting responsibly and whether their investments are being managed carefully.
In recent years, however, shareholders themselves have become more vocal and more actively involved in a range of issues. Regulators in various countries have given shareholders more clout by giving them the right to make nominations to the board.
The collapse of the U.S. subprime-lending markets in 2008 and the ensuing global financial crisis prompted this story about this lone shareholder sharper scrutiny of whether directors are fulfilling their responsibilities to shareholders. A flood of lawsuits and a deluge of media coverage followed.
Shareholder revolts are not always sparked by lone activists or institutional investors (insurance companies, pension funds and investment trusts that purchase large stakes in companies). Family-dominated companies may confront such revolts, too.
Macau casino mogul Stanley Ho had to cope with an internal family struggle over control of his empire, ultimately giving up most of his stake to resolve disputes among his heirs.
The Ho family saga played out in lawsuits among family members. Journalists scrambled to stay on top of the latest filings to make sure they weren’t scooped by rivals. Lawsuits are often the way journalists discover share¬holder actions, but having good sources among institutional investors, regulators, analysts, board members and company insiders is equally important.
To attract attention to their criticisms, shareholders often give information to the media. Sometimes a single share-holder can set off alarm bells and prompt reporters to examine what a company is doing.
That’s what happened when a shareholder challenged the loan activities of PT Bumi Resources, the Indonesian coal company affiliated with London-listed Bumi plc. The shareholder, Nat Rothschild, a banking heir who owns 11 percent of Bumi, attacked PT Bumi Resources for giving loans to affiliated companies even while it was trying to refinance high-interest bearing debt.
He wrote a letter to company directors detailing his com-plaints, and provided a copy to a reporter at the Financial Times.
Knowing who shareholders are can help journalists learn what issues a company might confront. Reporters should examine a company’s “beneficial owners.” These owners enjoy the benefits of ownership, even though the shares are held in another name, such as a mutual fund or investment trust. In emerging markets and developing countries, securities markets are typically in the early stages and may lack registration procedures for share ownership, making it difficult to track down owners.