Know Your Shareholder Rights

You might think that a share of stock is a little like a lottery ticket that will either pay off for you or won’t. That’s far from the case, though. Each share of common stock in a company represents an actual stake in the company itself. It makes the shareholder a partial owner of the company — one who will share in the financial pain if the company fails and one who will share in the gains if the company grows more valuable and/or pays out dividend income. Shareholders have rights, too. For example, they’re typically allowed to vote on company matters, such as board-of-directors nominees, executive pay issues and sustainability reports. Shareholder votes have helped usher in some positive changes for companies, resulting in more outside directors on boards, fewer staggered board elections, and more companies requiring majority votes for various measures to be approved. Those last two items make it easier for shareholders to vote out underperforming or bad directors. Here’s another right: If you’re a shareholder of common stock and the company goes under, filing for bankruptcy, you have the right to a portion of its assets and income. Here’s the bad news, though: You’ll get that only after creditors, bondholders and holders of preferred stock are paid what’s due to them. In many such situations, then, common stockholders end up with little or nothing. Shareholders can agitate for change, too. If they hold enough sway, they can submit proposals that get voted on. They can also try to ask management questions at annual meetings. That can be hard, though, if only a few questions are taken and answered. Still, if you’re a shareholder of a company, aim to act like a part owner. Hold management responsible and ask for the changes you’d like to see. When you receive your proxy and voting materials (typically every spring), cast your vote. Keep an eye on what the company is doing, too. If you want to see more environmentally friendly initiatives, or you don’t like a proposal that will limit voting rights, let the company know.