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Making the Corporation Safe for Shareholder Democracy
Abstract
This article considers the effect that increased shareholder activism may have on non-shareholder corporate stakeholders such as employees and consumers. One of the most outspoken proponents of increased shareholder power has argued that such increased power could have negative repercussions for other corporate stakeholders because it would force directors to focus on profits without regard to other interests. This article critically examines that argument. The article acknowledges that increased shareholder power may benefit some stakeholders more than others, and may have some negative consequences. However, this article demonstrates that shareholders not only have interests that align with other stakeholders, but also introduces empirical evidence suggesting that shareholders may use their increased power to advance the interests of other stakeholders. Thus, this article debunks the notion that increased shareholder power is necessarily problematic for non-shareholder stakeholders.
... Several justifications are given for shareholder democracy. First, shareholders' efforts to increase their participation power are motivated by their desire to make corporate managersofficers and directorsmore accountable (Fairfax 2008;Fairfax 2009;Smythe 2006). "Ultimately, many shareholders and their proponents believe that expanding shareholder democracy will lead to greater managerial accountability, thereby curbing managers' abuses of authority and ensuring that managers pay heed to shareholders' concerns" (Fairfax 2008). ...
... First, shareholders' efforts to increase their participation power are motivated by their desire to make corporate managersofficers and directorsmore accountable (Fairfax 2008;Fairfax 2009;Smythe 2006). "Ultimately, many shareholders and their proponents believe that expanding shareholder democracy will lead to greater managerial accountability, thereby curbing managers' abuses of authority and ensuring that managers pay heed to shareholders' concerns" (Fairfax 2008). ...
... Board primacy advocates argue that the successful management of corporations rests upon a clear and significant separation of powers between the shareholders as owners and the directors as managers (Garrett 1956). Other criticisms are based upon the possibility that some shareholders may be seeking to advance their own personal or political agendas (Fairfax 2008), or that shareholder empowerment benefits some shareholders more than others (Fairfax 2008), or that the interests of some shareholderssuch as hedge fundsare opposed to the interests of the corporation's stakeholders more broadly (Fairfax 2008), or that "activist shareholders with only short-term interests may seek, and bring about, substantial changes that harm the prospects of some of the corporation's long-term goals" (Matheson and Nicolet 2019). ...
... Several justifications are given for shareholder democracy. First, shareholders' efforts to increase their participation power are motivated by their desire to make corporate managersofficers and directorsmore accountable (Fairfax 2008;Fairfax 2009;Smythe 2006). "Ultimately, many shareholders and their proponents believe that expanding shareholder democracy will lead to greater managerial accountability, thereby curbing managers' abuses of authority and ensuring that managers pay heed to shareholders' concerns" (Fairfax 2008). ...
... First, shareholders' efforts to increase their participation power are motivated by their desire to make corporate managersofficers and directorsmore accountable (Fairfax 2008;Fairfax 2009;Smythe 2006). "Ultimately, many shareholders and their proponents believe that expanding shareholder democracy will lead to greater managerial accountability, thereby curbing managers' abuses of authority and ensuring that managers pay heed to shareholders' concerns" (Fairfax 2008). ...
... Board primacy advocates argue that the successful management of corporations rests upon a clear and significant separation of powers between the shareholders as owners and the directors as managers (Garrett 1956). Other criticisms are based upon the possibility that some shareholders may be seeking to advance their own personal or political agendas (Fairfax 2008), or that shareholder empowerment benefits some shareholders more than others (Fairfax 2008), or that the interests of some shareholderssuch as hedge fundsare opposed to the interests of the corporation's stakeholders more broadly (Fairfax 2008), or that "activist shareholders with only short-term interests may seek, and bring about, substantial changes that harm the prospects of some of the corporation's long-term goals" (Matheson and Nicolet 2019). ...
... 12 Moreover, shareholders have been considered to be free to choose whether or not to exercise the rights they have been given, 13 Shareholder rights were at the core of the 2007 Shareholder Rights Directive. 15 The purpose of this directive was to enhance shareholder rights in listed companies, to facilitate and encourage shareholder engagement and to solve problems related to cross-border voting. 16 The rights granted to shareholders in company law, and emphasized with the adoption of the Shareholder Rights Directive, are fundamental to the European corporate governance model. ...
... 20 In a corporate governance perspective, principal-agent theory most commonly focuses on the relationship between the information-rich board of directors (the agent) and the company's shareholders (the principal), whose interests the board ostensibly serve. 21 Here, shareholder rights are important as part of a 15 Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies. 16 See Recitals 1 and 3, Directive 2007/36/EC. ...
... For many firms use plurality voting: whoever gets the most votes wins. So a nominee can win election to the board even if she receives just one vote (Fairfax, 2008). It is possible for an outside group to mount a proxy battle-that is, an attempt to solicit shareholders' support for an alternative (slate of) candidate(s)-but such efforts are expensive and risky, and so are rarely attempted (Bebchuk, 2007). ...
... Second, even if, with respect to achieving stakeholder theory's distributive goal, giving all stakeholders a lot of power is not best, it hardly follows that giving a little power to a subset of stakeholders (i.e., shareholders), as is now done, is better. It is conceded, even by people who favor restricting shareholder power, that giving them some power serves an important purpose (Fairfax, 2008). Assuming that shareholder theory and stakeholder theory are parallel cases, it follows that all stakeholders should have exactly as much control over boards as shareholders now have. ...
In early writings, stakeholder theorists supported giving all stakeholders formal, binding control over the corporation, in particular, over its board of directors. In recent writings, however, they claim that stakeholder theory does not require changing the current structure of corporate governance and further claim to be “agnostic” about the value of doing so. This article’s purpose is to highlight this shift and to argue that it is a mistake. It argues that, for instrumental reasons, stakeholder theorists should support giving all stakeholders control over the corporation, in the form of control over its board. That is, stakeholder theorists should support stakeholder democracy over the status quo. A larger goal of this article is to steer the conversation about stakeholder theory toward questions of governance and control. Stakeholder theorists tend to sidestep these questions, but it is vital that they be addressed.
... Dakle, posredstvom uticaja na proces imenovanja direktora, odnosno menadžmenta, oni najdirektnije utiču na poslovnu politiku, efikasnost i upravljanje društvom. Stoga se, u prošlosti, želja akcionara za demokratizacijom prilika u društvu, zasnivala na tri fundamentalna zahteva: a) uspostavljanje prava akcionara na predlaganje članova menadžmenta; b) godišnjem izboru direktora po većinskom principu i c) sprečavanju višegodišnjih mandata (Fairfax, 2008). Neki od ovih zahteva su u potpunosti prihvaćeni, dok su neki usvojeni samo delimično, ali su ishodili kompromis izmeĎu akcionara i menadžmenta, koji se nevoljno odricao svojih širokih kompetencija i gotovo potpuno ograničene odgovornosti, što je dovodilo do izigravanja prava akcionara i brojnih zloupotreba. ...
Democracy and participation of shareholders or the demand for their active participation in the meetings of the Assemblyhas increasingly gained in importance in modern conditions. This is because, negative trends of passivation, the limitations of democratic potential of shareholders and shareholders' rights abuse by the management body, especially in the work control and compensation policy of shareholders, have been observed in a detailed analysis of the application and results of the Shareholder Rights Directive. The passivity of shareholders, as one of the most striking features of their position in the joint stock company today, is the biggest problem and threat to democratic processes within the company. If we bear in mind that the most common definition of shareholder democracy is 'ability of shareholders to influence the management of the company', we can notice a clear picture of the seriousness and importance of the lack of shareholder participation. This is the reason why the author of this paper gradually examines the causes and consequences of the passivity of shareholders, the proposed changes in this context in the Law of the European Union and the practical implications of such solutions in practice. In addition, the author examines contemporary forms and conditions for shareholder democracy and the legal framework in the European Union and the Republic of Serbia. In this way, we analyze the situation in this area and point out shortcomings of certain solutions, as well as the implications they cause in practice. The main thesis from which starts the scientific work and which will be gradually proven through theoretical and practical analysis is that the wider social processes directly reflect on the state of the joint-stock companies, or the state of corporate governance. This means that the negative trends of modern democracy (in the constitutional sense) are almost mirrored in economic capital (EC) and our attempt in this paper is to prove that, through the analysis of existing solutions. On the other hand, some solutions of shareholder democracy are applicable in terms of contemporary socio-political relations and can produce a certain positive impact on the democratic processes.
... There are several potential sources of shareholder heterogeneity. Much discussed is the fact that in general, shareholders will not all share the same time preferences or the same discount rate (Lipton and Savitt 2007; Lipton and Rosenblum 2003; Anabtawi and Stout 2008; Strine 2006; Hayden and Bodie 2008; Bratton and Wachter 2010; Anabtawi 2006; Fairfax 2008). Di¤erences in time preferences can lead to di¤erent payo¤s depending on the how the corporation is managed. ...
The question of how to allocate power between managers and shareholders, while intensely debated, remains unresolved among scholars and policymakers. This paper contributes to this debate by formally investigating the optimal allocation of power for shareholders recognizing that they may be heterogeneous, and that agency problems exist with managers. In the model, I treat shareholders as economic actors who choose decision rules (or the degree of management insulation) under a veil of ignorance with the goal of maximizing their utility. Managers choose their consumption of private benefits based on the insulation levels chosen by shareholders. I demonstrate that shareholders face a trade-off when choosing the level of managerial power. High insulation is desirable because it prevents other minority shareholders from blocking potentially profitable investments. Low insulation level is desirable because it prevents other shareholders from approving potentially unprofitable investments, as well as reducing agency costs. I discuss how optimal insulation changes if we relax assumptions about shareholder heterogeneity and the presence of agency costs.
The rise in corporate scandals and the dawning of the great recession motivated frustrated shareholders to seek greater power in order to influence the actions of the firms in which they own equity. Shareholder democracy has become the umbrella term for these shareholder empowerment efforts.1 Shareholder democracy is a worldwide movement (Fairfax, 2008a) that, having achieved a foothold in the United States, is gaining ground in Canada (Veall, 2012) and Europe (Rose, 2012). Although recently reinvigorated, this shareholder democracy movement is not new. The concept dates back to shortly after World War II, when Lewis Gilbert popularized the concept in the United States. Emerson and Latcham (1954: 152) later argued that “vigorous shareholder participation” was in keeping with democratic values. Mintzberg (1983) contributed a similar argument, contending that a country can only consider itself to be free if its major institutions subscribe to democratic principles. Arguments in favor of shareholder democracy have ranged from protecting society from corporate power to protecting shareholders from managerial abuse to protecting the rights of shareholders to shape their own destinies (Tsuk Mitchell, 2006). These arguments have taken hold as the shareholder democracy movement has pushed successfully for shareholder empowerment at annual meetings, SEC policy changes, and legislative developments that all have led to greater direct shareholder influence over corporate practices (Cohen & Schleyer, 2012).2
Introduction, Corporate governance has been described as “the system by which companies are directed and controlled.” Because of the importance of publicly traded corporations in society, there are significant issues over the focus of corporate governance, how power should be allocated within the corporation, and the role of law and non-legal mechanisms in protecting investors and other stakeholders and allowing those who manage to function effectively. Traditional concerns have focused on mismanagement and self-dealing, but modern scandals have focused on financial statements, risk management, and executive compensation. This chapter will look at the importance of the publicly traded corporation in the US and the influence of the focus of corporate governance, the nature of shareholder ownership, and federalism on the policy and laws concerning corporate governance. This chapter will focus on both the internal and external corporate governance mechanisms and the significant effect of scandals in corporate governance. US publicly traded corporations, The US has approximately 16,000 publicly traded corporations. At the end of 2008, there were over 6,000 listed companies on the New York Stock Exchange (“NYSE”) and the NASDAQ with a total domestic market capitalization of over US $11 trillion. Corporations during 2001 accounted for 60 percent of US gross domestic product (“GDP”). These corporations are not only major employers and taxpayers with a significant impact on the US economy, but also are an important repository for the savings of US citizens.
Julien Le Maux, Ivan Tchotourian, « Approche critique du say on pay. Premières leçons d'une analyse substantielle sur les orientations contemporaines du droit des sociétés », Revue internationale de droit économique 2013/4 (t. XXVII), p. 557-568. La reproduction ou représentation de cet article, notamment par photocopie, n'est autorisée que dans les limites des conditions générales d'utilisation du site ou, le cas échéant, des conditions générales de la licence souscrite par votre établissement. Toute autre reproduction ou représentation, en tout ou partie, sous quelque forme et de quelque manière que ce soit, est interdite sauf accord préalable et écrit de l'éditeur, en dehors des cas prévus par la législation en vigueur en France. Il est précisé que son stockage dans une base de données est également interdit.
This Article traces the development of the good faith doctrine in Delaware and links shifts in the doctrine to events occurring in the national economy and in Washington. It shows that in 2003 Delaware judges seemed open to the possibility of imposing liability on directors in a case (Disney) where facts suggested that the directors were overly passive in approving the terms of an employment contract for a senior corporate executive. After the 2001-2002 corporate governance scandals faded, however, the courts abandoned this course. A trio of decisions in Disney, Stone v. Ritter, and Lyondell reiterated what had long been clear prior to 2003, that directors will not face personal liability for the breach of the duty of care. Instead, such liability is limited to situations where directors’ actions or omissions evidence intent to harm the corporation. The Article also assesses Delaware’s response to the 2008 financial crisis. Thus far, Delaware courts have avoided staking out territory with respect to financial oversight. However, on central governance issues such as shareholder voting the legislature and courts are making an effort to preserve state primacy. The legislature, led by Delaware’s bar, moved quickly in 2009 to try to blunt progress on federal proxy access. In spring 2009 the legislature amended Delaware’s corporate statute to affirm shareholders’ rights to gain access to a corporation’s proxy machinery through binding bylaw amendment. In addition, the Delaware Bar Association formally opposed the Securities and Exchange Commission’s more comprehensive proxy access proposal. In contrast, the judiciary’s renewed commitment to shield corporate directors from personal liability tied the courts’ hands in ways that made it difficult to respond doctrinally to the financial crisis. Thus, in Citigroup the court declined to break new ground on directors’ obligations to monitor corporate risk, but on the core issue of executive compensation the court reopened a path for recovery that had seemed until then to be firmly shut. The survival of the plaintiffs’ waste claim in Citigroup seems part of Delaware courts’ efforts appear engaged on compensation issues.
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