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INTERACTION WITH SHAREHOLDERSafter the interests of the many hundreds of millions of people around the worldwho are the beneficial owners of the shares in British companies.So what sort of risk/return disciplines will those millions of people want?Well, they will want to know that the company only invests where it can beat itscost of capital; otherwise their money would be better to have cash returned tothem. They would want an efficient capital structure. They would want to knowthat the company fully understood its strategic advantage and was exploiting itto the full. They would want the company to manage its relations withstakeholders well, not least because stakeholders and beneficial shareholdersoften end up being the same. And since they are diversified investors they willnot wish to encourage behaviour that damages the economic system as a whole.Note that these are the necessary goals of a public company, which has manyowners. They may not be the goals of a private company. In the rest of thischapter, we will look primarily at risk as it relates to public companies; thosedirectors who manage on behalf of a small group of investors should, of course,consult them as to whether these general observations hold true for them.MANAGING RISKShareholders will be interested in two types of risk management. The first is toknow that controls are in place to ensure that those things that can be managed,are managed. The second is that the directors understand the level of risk thatthey are taking; that that risk is in the shareholder interest and has been wellcommunicated. Let us look at each in turn.Type A – operational controlsA company should always take measures to ensure that its control systems areadequate: that it is not open to fraud or misappropriation; that it is acting withinthe letter and spirit of the law. Note that these are different from the risks that acompany chooses to take, what it might call its risk appetite. For example therecent BP oil spill was not part of a ‘risk appetite’; it was a system failure thatsimply should not have happened. Directors should always be satisfied that suchcontrols are in place, and shareholders will expect them to have sought suchassurance. Indeed, any material breach in such systems, together with the68