Do shareholders really have a meaningful relationship with boards of directors? Basically, they don’t. There is virtually no effective mechanism for communication between shareholders of large public companies and boards of directors. Most executives actively discourage or even forbid independent directors from communicating directly with shareholders. Likewise, shareholders have no real way to communicate with directors. A company’s annual report and SEC filings often fail to provide postal and e-mail addresses, or phone numbers for directors. Annual meetings where shareholders are “invited” to see management and directors are often held in out-of-the-way locations, making it more difficult for shareholders to attend.
There is virtually no effective mechanism for communication between shareholders of large public companies and boards of directors.
Shareholders have very little influence over the composition of boards. Theoretically, a self-perpetuating nominating committee of the board puts together the slate of directors that shareholders will elect. In practice, however, there is only one candidate for each position, likely chosen by the CEO. Shareholders may vote for or against each candidate. And, by the way, candidates for the board know who votes for or against them. This alone can discourage institutional investors from voting their consciences because they need the support of management and directors to win business. Elections for directors have nothing akin to the constitutional right to privacy in popular elections.
Once the board is in place, shareholders have great difficulty in holding individual directors accountable for their actions. Virtually all votes taken by the board pass unanimously, usually because of pressure from other directors or the CEO. The directors that shareholders “elect” to bring wisdom, judgment, and experience to decision making on shareholders behalf virtually always agree with each other on all matters. Dissenting opinions are rarely put forward, certainly not in writing. Accountability is virtually nonexistent in this model.