Shareholder Proposals On China Highlight International Risk For Boards

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Consider talking to your largest shareholders privately instead of having issues of international business risk dealt with publicly.

Recently, investors at Apple and Disney filed shareholder resolutions seeking greater transparency about each company’s business dealings with China. Disney shareholders filed a proposal in February that would require the entertainment giant to produce a report detailing the company’s reliance on its China operations. Shareholders at Apple want the tech giant to produce a report that details “the nature and extent to which corporate operations depend on, and are vulnerable to, communist China.” Risk management is the primary concern.

At first glance, the focus on business dealings in China might seem unusually specific or politically motivated. However, given the growing importance of China on the world stage, corporate board members might want to re-examine their company’s business relationships with China and any other foreign countries where they have significant business interests. If shareholders at Apple and Disney were motivated enough to file shareholder proposals to find out more about international business strategy, this might be a trend boards will want to get ahead of.

As the United States economy continues to wrestle with recession-like conditions, international business operations will be increasingly important to the growth of many companies. Since China is the second largest economy in the world, what happens there can have significant impact on the economic activity of many countries, including the U.S.  Business risk for companies like Apple and Disney that have significant business interests in China may be greater than they were in years past. Corporate boards should be open to open to discussing their company’s international business interests with their largest shareholders privately instead of having issues of international business risk dealt with publicly. 

Among the issues corporate directors might want to consider:

The strength of the company’s international supply chain. Whether a company has business in China or not, international supply chain disruptions are a major risk any multi-national company must account for. Supply chain challenges have hampered many businesses over the last few years. If companies haven’t addressed those issues yet they continue to be vulnerable to shortages of key materials that are key to business expansion. Directors should develop strategies the company can use to avoid supply chain disruptions in the future. They should also make contingency plans for increasing supplies for production if demand for products picks up unexpectedly.

How would China’s involvement in the Russia-Ukraine war impact a company’s business operations? Since many companies pulled their business operations out of Russia when it attacked Ukraine, directors must be prepared that shareholders may ask companies to take similar actions against China if it becomes more involved in the war. Would companies consider such a move? How would that impact the company’s bottom line? Corporate boards may also need to consider potential impacts from different actions China might take in assisting Russia in the war against Ukraine. Would China’s involvement impact a company’s supply chain? What would the company do if it did?

The ongoing impact of Russia’s war with Ukraine. Companies with significant business in Europe have already felt the impact of business interruptions associated with Russia’s attack on Ukraine. Some companies suspended or ended their business operations with the communist country. With the one-year anniversary of the war behind us, boards may want to consider what business relationship they may want to have with Russia in the coming years. Are there potential business opportunities in Ukraine if the war ends in a favorable way? What would be the business risks involved with doing business with either country going forward?

Is there a plan in place for conducting international business if China invades Taiwan? While no one is expecting it, shareholders at Apple did raise concerns about China attacking Taiwan. Boards should at least discuss this possibility and if needed prepare some preliminary plans in case of a worst-case scenario. 

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