Publication date: 26.06.2024
Corporate governance and protection of shareholders' rights in companies
Introduction
Corporate governance is a system of relationships between a company's management, its board of directors, shareholders and other stakeholders. Effective corporate governance ensures a balance of interests, promotes transparency and increases investor confidence. Protecting shareholder rights is a critical component of corporate governance, as shareholders are the owners of the company and are entitled to fair treatment and proper information.
Basic principles of corporate governance
1. 1. Transparency and disclosure of information
- Substance: Companies should ensure timely and accurate disclosure of information about all material aspects of their business, including financial condition, results of operations, ownership and management structure.
- Application: Maintaining regular reports, conducting audits and publishing financial statements.
2. Responsibility of the Board of Directors
- Essence: The board of directors is responsible for the strategic direction of the company, overseeing the activities of management and ensuring compliance with the law.
- Application: Establish clear procedures for decision-making, hold regular board meetings, and monitor the implementation of decisions.
3. Shareholder rights
- The bottom line: Shareholders should have the right to participate in key company decisions, receive dividends, review financial reports, and elect members of the board of directors.
- Application: Holding general meetings of shareholders, providing access to information and the opportunity to vote on important issues.
4. Equal treatment of all shareholders
- The bottom line: All shareholders, including minority shareholders, should have equal rights and opportunities.
- Application: Ensuring equal access to information, non-discrimination, and fair distribution of profits.
Protection of shareholders' rights
1. Participation in the general meeting of shareholders
- Essence: The general meeting of shareholders is the main mechanism for exercising shareholders' rights to participate in the management of a company.
- Application: Shareholders have the right to attend meetings, vote on important decisions and make proposals.
2. The right to receive information
- The bottom line: Shareholders have the right to receive complete and accurate information about the company's activities.
- Application: Regular publication of reports, providing access to company documents and holding meetings with investors.
3. Protection from abuse by management
- The bottom line: Shareholders should be protected from possible abuse by the company's management.
- Application: Implementation of control mechanisms, such as internal and external audits, as well as the establishment of special ethics and compliance committees.
4. The right to dividends
- Essence: Shareholders have the right to receive a portion of the company's profits in the form of dividends.
- Application: Clearly defined dividend policy, regular dividend payments and fair distribution of profits.
Current challenges in corporate governance
1. 1. Globalization and international standards (continued)
- Solution: Integrating international practices into national legislation, participating in global corporate governance initiatives, and adapting best practices to local conditions.
2. Ethical challenges and social responsibility
- Issue: Growing attention to ethical standards and social responsibility requires companies to be more transparent and accountable to society.
- Solution: Developing and implementing corporate social responsibility (CSR) policies, regular reporting on sustainability achievements, and active engagement with stakeholders.
3. Technological changes and digital transformation
- The challenge: The rapid development of technology is changing business models and requiring new approaches to risk management and data protection.
- Solutions: Investing in modern technologies, implementing cybersecurity systems, developing digital strategies, and increasing staff competence in innovation.
4. Institutional investors and shareholder activism
- Issue: The growing role of institutional investors and shareholder activism are creating new challenges for corporate governance.
- Solution: Establishing effective communication channels with investors, taking into account their suggestions and concerns, and ensuring transparency in decision-making.
5. Regulatory changes
- The problem: Constant changes in legislation and regulatory requirements can create additional burdens for companies.
- Solution: Regular monitoring of changes in legislation, adaptation of internal policies and procedures to new requirements, and close interaction with regulators.
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The role of the board of directors in protecting shareholders' rights
1. 1. Ensuring accountability
- The bottom line: The board of directors should hold the company's management accountable to shareholders.
- Application: Regular reports on the company's activities, audits, and management performance evaluation.
2. Strategic management
- Description: The Board of Directors is responsible for developing and implementing strategic plans for the company's development.
- Application: Setting long-term goals, assessing risks and opportunities, monitoring the implementation of strategic initiatives.
3. Risk control
- The bottom line: The board of directors should implement effective risk management systems to protect the interests of shareholders.
- Application: Implementing risk management policies, conducting regular risk assessments and developing crisis response plans.
4. Effective communication with shareholders
- The bottom line: The board of directors should ensure open and transparent communication with shareholders.
- Application: Organizing regular meetings with shareholders, providing timely information about the company's activities and taking into account feedback.
Conclusion.
Corporate governance and shareholder rights protection are fundamental aspects of the successful operation of modern companies. Effective governance promotes sustainable development, increases investor confidence and ensures fair treatment of all shareholders. In today's environment, companies must continuously improve their corporate governance practices, taking into account global trends, regulatory requirements and public expectations. This is the only way to ensure the company's long-term success and sustainability in the market.
