#16 Why corporate governance matters and how best to exercise your rights as a shareholder

By Anton Tagliaferro and Michael O'Neill |  18 December 2018

When one buys shares and invests in any company that is listed on the stockmarket, one becomes a part owner of that company. As a part owner of the business you then have a direct economic interest in the company’s financial future by having a share of all future profits earnt and dividends paid by that company. 

Being a part owner of the company also entitles you to certain rights as a shareholder. In a private company that is owned by one family or shareholder, it is pretty clear who the owner of the company is and who makes all the major decisions. In a private company it is very clear that the management and employees are accountable to the owner of the company. Being the owner of all the shares in a private company, entitles the owner to make all the key decisions relating to the company such as the appointment of a CEO and CFO to run the company, the possible expansion into new products or territories, the remuneration of the company’s key employees as well as the company’s dividend policy. 

In a listed company, the situation is very different. The owners of large listed companies such as BHP and CBA are the millions of shareholders who own the shares. Each of these shareholders may have a different opinion as to the future direction of the company, what executives should be paid and the company’s level of dividends. Thus, in the case of listed companies a Board of Directors is appointed by shareholders. The Board’s job is to act as the stewards of the company and to run the company on behalf of shareholders with the ultimate intention of creating long-term shareholder wealth. 

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