Shareholders Versus Shareowners: More Than Just Terms
By Michael Marquardt, Skytop Contributor / February 9th, 2022
Michael is an experienced CEO, corporate director, and business advisor with broad experience serving companies throughout Asia, Europe and the United States. The National Association of Corporate Directors (NACD) has awarded him its highest credential of Board Leadership Fellow® for eight years in a row and has invited him as a speaker and author on emerging corporate governance, multicultural management, and global compliance issues at many of its conferences.
From 2007 to 2016, Michael served as non-executive chairman of the board of healthcare services and logistics company AA International, the parent company of Asia Assistance, based in Kuala Lumpur. After the sale of five of the operating entities to French insurance giant AXA in 2016, Michael was appointed as chairman of the board of the remaining independent companies, including AA International Indonesia, a healthcare and insurance services provider based in Jakarta. In 2016 Michael was elected chairman of the supervisory board of the Paris-based International Assistance Group S.A.S. (IAG).
Since January of 2011, Michael has served as one of four independent directors on the board of
Commonwealth Trust Company, Delaware’s largest non-deposit trust company with more than $15 billion in assets under administration.
Michael gained extensive expertise in the areas of risk management, corporate governance, and the Foreign Corrupt Practices Act when former FBI Director Louis Freeh asked him to serve as President of his global risk management firm, Freeh Group International Solutions, in early 2008.
Michael holds a Master’s degree from the University of Virginia and a Bachelor’s degree from the University of New England. He is a member of the Young Presidents’ Organization and the Aircraft Owners and Pilots Association. He earned the CERT Cybersecurity Oversight certificate from the Software Engineering Institute at Carnegie Mellon University and NACD in 2017.
Following his personal passions, Michael currently serves as chair of the board of the American Cancer Society and, in 2020 and 2021 co-chaired the national search that led to the first woman becoming CEO of this 107-year-old organization. From 2005 to 2014 he served on the board of the Delaware Theatre Company, including four years as chairman.
Introduction: Unpacking Words and Their Meanings
There are some words that you hear so often that you do not even think about their true meaning anymore. As a naturalized American born in Germany, I remember when I first asked the question that has baffled so many foreigners for whom English is a second language: why do Americans drive on a parkway and park in a driveway?
In my opinion, the same could be said for the word shareholders. When someone is a shareholder of a corporation, it means that they own shares in that company. They own a percentage of the business, however small that percentage may be. They may not own the shares forever, but they do own them. Yes, someone may have borrowed money to buy the shares or may have pledged their ownership position to gain access to additional capital, but the same happens when someone buys a home or a car. Yet, no one refers to homeholders or carholders.
There are subtle things like this that happen with language. The reason I bring up this dichotomy is that I believe the widespread acceptance and use of the term shareholder actually has had an insidious and negative impact from a corporate governance perspective. After all, management is — or should be — accountable to its owners.
Beyond Semantics: The Meaning Behind the Word
While it may seem like semantics, it is almost reflexive behavior to have respect for the owners. It is far less reflexive to be respectful or accountable to holders. This is true in many aspects of life. When there is a problem at a restaurant you may be dining at, you may speak with a server first, then perhaps with a manager, and, ultimately, you may interact with the restaurant’s owner. That is as high up as you can get in the proverbial food chain and it is clear to everyone in the restaurant that if the owner says something is okay, then it is okay; management will adjust accordingly.
Shareholders Boards and Management: Sorting Out Direction
In the corporate world, things are not so straightforward. At most large public companies, there typically is not one owner. There are thousands of owners, sometimes millions of owners. And all of these owners annually elect a board of directors to represent their interests in their interactions with the company’s management team.
Owners who own a larger percentage of the company typically get more of a say in who will serve on the board and may also have more direct access to a company’s management team. And when management makes certain strategically important decisions, it discusses them with the board beforehand to seek guidance, advice, and approval.
Some decisions are so fundamental to the long term direction of the business that the board decides to put them to a vote of all of the owners of the company. And sometimes owners of the company decide to make a proposal for all of the other owners’ consideration. These are called shareholder proposals.
There is that word again: shareholders.
Origins of the Word: History of “Shareholders”
The term appears to have originated at the beginning of the 19th century. In Middle English, the word holden meant to contain, to watch over, to keep. Fair enough. So why do I believe that the term shareholder has had an insidious, negative impact? Mainly because I believe that using that term dilutes and obscures the actual power dynamic that is at play here.
In reality, the hierarchy from a corporate governance perspective is straightforward. Owners, well, own the company and elect the board of directors. Directors select the chief executive.
The chief executive selects her or his senior leadership team and consults with the board on major strategic decisions. The chief executive enjoys a lot of autonomy and day-to-day decision making authority, and rightly so. But she or he must be accountable to the board of directors. The board, in turn, must be accountable to shareholders.
Holder and Owners: A Look at Hierarchy and Potential Impact
Unlike in a restaurant, where the hierarchy is very clear even to the most junior personnel, the picture is a bit more opaque in the corporate world.
With thousands, tens of thousands, or even millions of owners of a company, the power of ownership — by definition — is very much diluted and thus harder to get your head around. Whereas the part-time hostess at the front of a restaurant and the other service staff likely have met the owner at least a few times in person, most employees will never have an opportunity to meet even one or two of the people with significant ownership stakes in their company.
It is just not practical and, never mind, large percentages of public companies tend to be owned by other corporations, namely mutual funds or other financial services giants. Now enter the fact that we do not even refer to these owners of shares in the company as owners, but call them holders. It just does not sound very powerful, does it?
Shareowners: A Clarifier for Corporate Governance
If we referred to individuals and corporations who own a percentage of a business as shareowners rather than shareholders, I believe it would help clarify the hierarchy from a corporate governance perspective.
This would serve the company, its employees, its customers, its suppliers, and its owners well in the long run.