If you have ever received multiple rounds of outside investment into your business, you will have realized that not all investors are equal.
Some shareholders are supportive partners who have good advice, and go out of their way to make introductions and help your business. Others are always hassling you, and force you to waste your time dealing with them and justifying your business decisions, rather than letting you run your business.
Getting the Shareholders You Deserve
Deloitte Canada had a great quote in their recent Corporate Governance Insights mailing. They said “companies get the shareholders they deserve”.
They followed this up with the following advice for how to get great investors, and avoid being pushed towards counterproductive short-term goals ‘by the market’:
“Boards need a shareholder engagement strategy that includes regular and ongoing dialogue with investors so they better ensure they understand investors’ concerns and priorities and so shareholders better understand the company’s longer-term goals and its progress towards achieving those objectives.”
Corporate Governance Insights newsletter – Deloitte Canada – April 28th
This advice is largely targeted to the public markets, where your shareholder base can change freely and frequently. The theory would be that by having good governance, a company would attract ‘great’ investors, who would pay more for the company’s shares than ‘disruptive’ investors would.
Shareholder Behavior is Changeable
The viewpoint of swapping ‘disruptive’ for ‘great’ people sees people as unchanging, and implies that an investor just ‘is’ a certain thing. This is a common human mistake: to see ‘great’ or ‘disruptive’ as being qualities of a person. This labeling and stereotyping is a trick of our psychology, an outcome of our evolutionary impulse to minimize mental energy use.
You can see that labels aren’t true easily in your own life by looking around you. Are there people you know who assign unfair labels to you, and see you as unchanging, when you know it isn’t true? This is a common human experience.
The truth is that ‘great’ and ‘disruptive’ are just behaviors. How you deal with the same shareholder can shift your relationship with them towards great or disruptive. You have power in your relationship with your investors.
What Happens in Private Companies?
Let’s look again at the advice from Deloitte. They recommend communicating regularly so that ‘shareholders understand the company’s longer-term goals and its progress’.
What happens in most private companies? The company is private, and will have minimal to no obligation to communicate with their investors. In fact, the CEO will often see progress updates as ‘reporting’, a tedious task to be avoided. They may even fear a loss of control, and may feel that by reporting, their shareholders will gain information that they can use to become disruptive. Either way, they will feel that their time is better spent on the company and moving it ahead.
I know this feeling well, because it reflects my own attitudes when I ran my first company, with four shareholders. I wanted to focus on running the business, not reporting. So I didn’t communicate. Our shareholders therefore didn’t understand our goals and progress.
What happened? I ended up having to leave the company when my major shareholders insisted on blocking a major operational shift that the team had developed and was starting to roll out based on consistent feedback gathered over months.
I took this learning to a subsequent company, which ended up having around 50 shareholders. I communicated – or ‘reported’ – monthly. Overall, I ended up spending less time on shareholder relations with ten times more shareholders, and had better results, just because I preemptively made sure they all knew what was going on. Any meetings I had were more productive, much more efficient, and more positive, even in periods when the company under-performed.
The natural impulse in private companies to not ‘report’ to key stakeholders contributes to turning your existing shareholders, from acting great to acting disruptively.
How Should You Communicate?
People have many ways to communicate.
Some CEOs will arrange to have weekly or monthly meetings with every shareholder to keep them in the loop. While this is effective, it is also time-consuming. It certainly wasn’t a strategy I could efficiently follow in a company with 50 shareholders. And I also, to be honest, found it inefficient to tell the same story over and over. It was hard to remember what exactly I had told to each person.
A strategy that many people use effectively is a monthly emailed shareholder newsletter, supplemented with extra personal briefings for directors or key shareholders, to selectively share additional information.
Another option is custom-designed platforms, like Incmind, which can be more powerful, because they are designed to include additional features that investors or board members appreciate.
For instance, our platform includes a monthly newsletter template, tools to post news items to greater or larger stakeholder subsets, and user activity tracking so you can selectively follow up … all in addition to a full data room and cap table tool, so that investors and board members have easy access to long-term reference information in the same platform they get their reporting.
And whatever method you use, remember the Deloitte advice. If you want great shareholders, communicate regularly so that they understand your strategy and progress. This will shift your shareholders towards more great and less disruptive behavior.