Maintaining engagement and credibility with your investment community is crucial, as shareholders have a powerful voice regarding your organisation’s future. Communication has proven to be one of the most significant aspects to be mindful of. Companies and shareholders are on the same team, but sometimes conflicts may arise because of things such as delays caused by employees or refusal to accept change. Some rebellious investors might even vote no, which could drag your company down. So, businesses must adapt to meet the expectations and demands of shareholders. Not only does effective shareholder management help you build trust among the investment community, but it also keeps you aloof from conflicts.
Indeed, you can reward them by boosting their shares’ values or keeping them busy, but you can also follow some recommendations of the likes mentioned below. These simple practices will ensure things run smoothly.
Know your investors
One of the most common mistakes among entrepreneurs is that they don’t know who their investors are. The shareholder register might provide some information on this matter, but, more often than not, it’s not enough. It’s essential to document the identity of your investors in order to make relevant decisions regarding your company’s future. You should take shareholders’ needs, desires, and issues into account to keep them onside. Otherwise, you risk losing valuable people contributing to your organisation’s growth. Therefore, try to establish whether your shareholders are common or preferred. Preferred shareholders have the right to receive dividends before common shareholders. These are individuals who are paid out first in the case of liquidation, along with debt holders.
Have a clear dividend policy
Transparency is all in business, and if you want to form long-term relationships with shareholders, ensure you make the most of this criterion. Dividends are the centre of attention when it comes to your shareholder base. These can lead to considerable ROI (Return on Investment), and that’s why numerous investors see them as the main reason for owning stock. That said, be sure you have a clear dividend policy containing information about your company’s financial health and future prospects. Also, it helps your management team have a more robust cash discipline.
Keep detailed records
Successful shareholder management requires detailed records – there’s no room for confusion. Therefore, make this a priority and keep detailed records of everything from shareholder communications to decisions. One of the most significant advantages of doing so is that it clarifies anything that might generate misunderstanding. There are situations where parties can remember vaguely – or not remember at all – what was agreed upon or decided, and that’s not even intentional. Insightful and relevant information about all the moves made in the shareholder sphere will prove a particular agreement or choice and keep you far from trouble.
Another noteworthy upside is that detailed management serves as general evidence to support an investor’s position in a conflict because, yes, disputes may arise even if you think everything goes well. Shareholders should also keep track of data and ensure that the organisation performs acts they don’t agree with and which that may represent a risk, and that decision-making implies both parties. Written evidence is also critical when it comes to steward ownership, as it demonstrates a shareholder’s position regarding the control – voting rights – over the company.
Clear rules on inputs and outputs
You should know that shareholders ask for some inputs and outputs, and this is only normal since they invest in your company. But keep in mind that these inputs and outputs can sometimes lead to disputes, as there are no clear boundaries and rules on the matter. One pertinent example in this sense is the situation in which a particular shareholder invests time, energy, and money to help the organisation flourish, while others don’t lift a finger and still reap the fruits of the former’s labour. Your job as an entrepreneur is to ensure peace between shareholders and lay down clear boundaries regarding what each receives and whether there’s something to receive. If a certain investor does nothing for the success of the company, it’s time for them to exit the organisation and sell their shares to the ones who do. Things aren’t that complicated, but we know it can be hard to take a stand since you want to annoy no one.
Communicate often
You should ensure that both you and shareholders act in the interest of your organisation, and there’s no better way to do this than through communication. There should be a mutual and continuous understanding of the enterprise’s goals to mitigate potential risks before the unexpected happens. Shareholder engagement should be addressed strategically, so it takes time and multiple steps to follow. Some of the most significant aspects to consider in this regard are:
- Provide periodic updates to all investors
- Provide information relevant to your business’s finances
- Notify of price-sensitive information
- Consider an “Investor Open Days” event in which you include activities such as meeting board members and a walkabout of the business
- Apart from finance-related information, ensure you provide data related to the company and industry specificities and future plans
- A Q&A forum in which you address crucial issues and ask for the advice of everyone involved
Prepare for the unthinkable
It’s important to be realistic about your business’s potential and not push the limits. Even if you respect all the aforementioned recommendations, the unthinkable can still happen. So, be sure you protect your company with an adequate safety net and provide shareholder insurance. Thus, in the event of a shareholder’s death, their shares will go to the correct parties. It’s essential to take into account each shareholder’s point of view in this sense, as it’s only normal for the continuing investors not to wish for someone with no interest in the business’s good to receive the shares in question.
Being in good standing with your shareholders is not as daunting as it may seem, all the more so if you consider these pieces of advice.
