Running a successful business requires focus and strategic discipline, especially in the face of unanticipated events. Shareholder disputes rank high among the many potential disruptions that can derail operational continuity. Strong corporate governance, proactive communication, and well-crafted shareholder agreements can go a long way toward preventing them.
Shareholder disputes pose a real threat to effective business operations. They can impact quick decision-making, stall mergers and acquisitions, and impede leadership’s ability to adapt to shifts in the market or respond to opportunities. Demands for management changes can create instability and change an organization’s direction or approach, and the costs involved in mediation, arbitration, or litigation can strain a company’s finances. Morale may fall as the workforce worries about overall stability, and negative publicity about infighting investors can cause customers to lose faith.
The best way to manage shareholder disputes is to prevent them from arising in the first place. Though it may sound more easily said than done, there are proven strategies that reduce the risk. As in all relationships, communication is key, and the more frequent and clear the messaging between shareholders and management, the more easily challenges can be diffused. Best practices include regular meetings and updates, as well as a willingness to hold open forums for shareholders when issues arise.
Having a well-crafted, thoughtful shareholder agreement that clearly defines the rights, responsibilities, and expectations of each shareholder, as well as how disputes will be resolved, tends to defuse the majority of potential problems. Arbitration and mediation are important options that can head off a litigious or adversarial response to disagreements, and so too is ensuring that the organization has an independent and fearless board of directors that is capable of keeping the company’s best interests front of mind.
The more you prepare for the eventuality of shareholder disputes, the better you will be able to manage them. Your company’s crisis management plan should include the steps to be taken to protect the company’s reputation, maintain leadership stability, and ensure business continuity. Notification of your legal and financial advisors should be one of the first steps in this plan so that when a dispute arises, they can quickly provide guidance and minimize disruption or economic impact.
If you need assistance in diffusing a shareholder dispute or in crafting a shareholder agreement, our experienced attorneys can help. Contact us today to set up a time to chat.
