No full-text available
To read the full-text of this research,
you can request a copy directly from the author.
The Fallacy Of The Rational Apathy Theory: Minority Shareholder Electronic Participation In Nigerian Corporate Governance
Abstract
Purpose: The appeal of the Rational Apathy Theory lies in the fact that it is not only a descriptive theory of shareholder behaviour in the modern public firm but also a powerful normative tool which recommends itself to corporate legislators and policymakers. True to their normative logic, proponents of apathy contend that since shareholders of modern public firms will never find it cost-efficient or incentivized to perform their monitoring responsibilities over corporate management, insisting on a shareholder-oriented corporate governance model is undesirable. This article rejects the determinism and immutability of the above thesis and argues that firm investors will embrace activism where the cost of corporate monitoring is reduced, and the benefits of doing so are increased. Given the ability of the internet to reduce monitoring costs for shareholders (predominantly minority shareholders) in public companies, the article campaigns for minority shareholder electronic participation in corporate governance and proposes a careful reform of corporate law and governance in post-covid Nigeria, drawing inspiration from similar reforms on electronic governance in Canada, UK, and the State of Delaware in the US. In a society where digitalization has been identified as a major catalyst for the economic revival of commercial and corporate life, this article recommends itself to policy and lawmakers, corporate boards, corporate law experts, legislators, regulators, and other relevant stakeholders.Methodology: The article adopts doctrinal and comparative methods of legal analysis.Results/Findings: The article finds that while the Rational Apathy Theory may have served the analogue world, it is unsuitable for a digital generation, where issues of cost, communication and participation could be liberalized, through the use of the internet, to serve the interest of shareholder democracy in public companies.
ResearchGate has not been able to resolve any citations for this publication.
Minority shareholders tend not to participate in the decision-making process of public companies with a controlling shareholder, and their voice is rarely heard. Even when they disagree with how the company is being managed, they prefer to express this dissatisfaction by selling their shares rather than by expressing their voice. Contrary to the prevailing view, this article provocatively suggests that their voice is important and desirable. On the deontological level, it asserts that shareholder voice has an intrinsic value that is independent of any utility it may yield. Corporate democracy and, specifically, minority shareholder suffrage, legitimizes the exercise of power by the public corporation's insiders: the controlling shareholder, directors, and managers. Indeed, the shareholder's right to vote is the foundation upon which the public corporation is constructed and sustained. On the utilitarian level, this article argues that shareholder suffrage is efficient because it reduces agency costs and contributes to the development of financial markets. Given the prevalence of controlled companies, the unique insights in this article can serve as an important normative basis for poli-cymakers in designing reforms aimed at incentivizing minority shareholders to exercise their voting rights and use their voice.
By longstanding practice, shareholders of large public corporations have delegated almost all decision rights over business matters to the board of directors. Given current calls for shareholder empowerment, it is worth revisiting the basis for the existing practice, as reflected in this 1991 paper. Among other things, we see that this absolute delegation rule minimizes potential pathologies in shareholder voting, including possibilities for opportunistic side-dealings and destructive voting cycles. These risks must be addressed lest shareholder empowerment merely replace one set of problems with another.
This Article not only argues that corporations must be encouraged to enhance the level of communication between shareholders and the board, but also maintains that the benefits of increased engagement are significant enough that we should consider developing standards for incentivizing, if not mandating, more robust board-shareholder engagement for corporations that fail to respond to such encouragement. In the last several years, shareholders not only have gained increased authority over corporate elections and governance matters, but also have demonstrated a willingness to use that authority to challenge, and even reject, management policies and practices. Shareholders also have begun to demand increased communication with the corporation in general, and the board in particular. This Article argues that corporations should be strongly encouraged, if not compelled, to meet that demand. While acknowledging the potential pitfalls associated with increased board-shareholder engagement, this Article further argues that many of those pitfalls have been overstated, or can be minimized. Moreover, in light of shareholders' enhanced influence over corporate affairs, the costs associated with enhanced engagement may be outweighed by the benefits. While it is not a panacea, increased board-shareholder engagement has the potential to dramatically increase the corporation's ability to promote understanding of its policies and programs, and otherwise avoid the negative repercussions of shareholder activism. Thus, this Article endorses proposals that encourage corporations to increase board-shareholder dialogue with two caveats. First, given the menu of communicative options and the various judgment calls that must be made when implementing particular options, deference should be given to corporations and the board with respect to which option or options to adopt. Second, the benefits of board-shareholder engagement are important enough that we should consider proposals that would more effectively incentivize and even mandate such engagement for those corporations that refuse to answer the calls to increase their dialogue with shareholders.
This Article reconsiders the basic allocation of power between boards and shareholders in publicly traded companies with dispersed ownership. U.S. corporate law has long precluded shareholders from initiating any changes in the company's basic governance arrangements. Professor Bebchuk's analysis and his empirical evidence indicate that shareholders' existing power to replace directors is insufficient to secure the adoption of value-increasing governance arrangements that management disfavors. He puts forward an alternative regime that would allow shareholders to initiate and adopt rules-of-the-game decisions to change the company's charter or state of incorporation. Providing shareholders with such power would operate over time to improve all corporate governance arrangements. Furthermore, Professor Bebchuk argues that, as part of their power to amend governance arrangements, shareholders should be able to adopt provisions that would give them subsequently a specified power to intervene in additional corporate decisions. Power to intervene in game-ending decisions (to merge, sell all assets, or dissolve) could address management's bias in favor of the company's continued existence. Power to intervene in scaling-down decisions (to make cash or in-kind distributions) could address management's tendency to retain excessive funds and engage in empire-building. Shareholders' ability to adopt, when necessary, provisions that give themselves a specified additional power to intervene could thus produce benefits in many companies. A regime with shareholder power to intervene, Professor Bebchuk shows, would address governance problems that have long troubled legal scholars and financial economists. These benefits would result largely from inducing management to act in shareholder interests without shareholders having to exercise their power to intervene. Professor Bebchuk also discusses how such a regime could best be designed to address concerns that supporters of management insulation could raise; for example, shareholder-initiated changes in governance arrangements could be adopted only if they enjoy shareholder support in two consecutive annual meetings. Finally, examining a wide range of possible objections, Professor Bebchuk concludes that they do not provide a good basis for opposing the proposed increase in shareholder power.
Traditionally, two analytical dimensions define the rational apathy discourse in the corporate governance context. The first is the stylised facts about the modern corporation, which help to reinforce the notion that shareholders are rationally apathetic. The second relates to the incentive problems of money managers through whom institutional shareholders invest. This article draws on a third dimension—the Internet and its potential—to interrogate the rational apathy theory. It argues that the Internet could induce collective action among otherwise apathetic shareholders, given its potential to (i) facilitate information generation, analysis and dissemination; and (ii) enhance increased communication and liberalise participation. Specifically, the article examines how the Internet could (i) reduce the information edge management hitherto had on dissident shareholders; (ii) make management and dissidents' claims easily verifiable; and (iii) provide a platform for dissident shareholders to forge cooperation among otherwise scattered shareholders.
The past twenty years have witnessed a significant increase in the number of shareholder proposals submitted to American public corporations and in the number of such proposals that have received majority support during shareholder meetings. Although some companies have responded to majority vote resolutions by implementing the proposals or reaching settlement with the proponents, a significant number of companies have not adopted the changes suggested by these resolutions. The refusal of companies to adopt such suggested changes, even when doing so after careful consideration by the board of directors, has in turn led some activist shareholders to employ pressure tactics against such companies. After canvassing these changes, this Article examines what companies and their directors should do in response to shareholder resolutions that obtain majority shareholder votes. The Article concludes that directors retain the ultimate responsibility to act in what they believe to be the best interest of all shareholders, even if that means not adopting majority vote resolutions. At the same time, it also notes that the changed corporate governance climate makes it essential for companies and their directors to treat majority vote resolutions seriously and recommends possible enhanced procedures for considering and acting on such resolutions.
This paper proposes a reform of Nigerian company law to integrate the Internet into the corporate governance scheme. In so doing, the paper examines reforms in some common law countries, especially the United States (the state of Delaware), Canada and the United Kingdom, highlighting to policy- and law-makers key areas they may focus on in the Nigerian reform. It emphasizes the need for a reform that will preserve extant rights, liberalize participation and induce transmission of information at a cost that the shareholders can afford. While noting the challenges such a reform may face in the Nigerian context, the paper proposes the type of Internet-related reform that may work well for Nigeria at present. It makes a case for the reform's relevance, given the government's commitment to liberalize entry into the telecommunications industry and to promote competition. The paper also notes that the exponential increase in the Internet penetration rate in Nigeria signals the desirability of a reform in the direction the paper proposes.
This article uses the reciprocity theory of collective action to evaluate different strategies for policing street crime. The reciprocity theory holds that individuals in collective action settings behave not like rational wealth maximizers but like moral reciprocators: if they perceive that most other individuals are contributing to a collective good, then most individuals prefer to do likewise; if not, then not. The effectiveness of a street-policing strategy, the article argues, depends on how well it responds to three interlocking collective action problems: that between citizens generally, relating to the good of respect for one another's persons and property; that between neighbors, relating to the good of community self-policing; and that between community residents and police, relating to the good of mutual respect. Policing strategies based on the conventional theory of deterrence tend to fail because they inhibit reciprocal cooperation in all three of these collective action settings. The strategies associated with the "New Community Policing", in contrast, foster reciprocal cooperation across one or more of these collective action settings. Nevertheless, most of these strategies - including order-maintenance policing and church-police collaborations - have at least the potential to disrupt reciprocal cooperation within one or more of them as well, constraining their effectiveness. The only technique that is likely to promote reciprocal cooperation uniformly across all the relevant collective action domains, the article concludes, is selective privatization, a highly decentralized and participatory strategy that integrates private citizens into many law enforcement functions.
In recent years, international economic pressures have induced Nigeria to adopt a program of economic liberalization and deregulation. Advocates of the reforms tout their potential not only for generating greater economic growth, but also for contributing to more responsible corporate governance. Sceptics abound. This paper provides an account of the nature of corporate governance in Nigeria and investigates the prospects for recent reforms contributing to more responsible governance and development.
The results presented here are based on a survey, in which 61 % of the top 500 UK quoted companies participated, on the organizational aspects of company investor relations activities. The survey established the involvement of the various directors in managing and executing the investor relations function. The Chief Executive and Finance Director were most heavily involved, and the average board of directors spent 37 days a year on investor relations. 52% of respondents had a designated investor relations officer. The most common organizational arrangement was for investor relations to be part of the Finance Director's department. The average salary bill and budget for the investor relations function were £107,000 and £180,000 respectively. 79% of respondents used an external investor relations consultant. Only 19% of resopondents had a formal policy or written description stating the objectives and responsibilities of the investor relations function. Mutlivariate analysis indicated that the existence of an investor relations officer in the company was associated with size, overseas listings and positive opinions on the value of investor relations meetings. Companies that had been privatized and those with a high firm specific risk were more likely to have an investor relations officer.
Information Depository and Retrieval Systems for Nigeria: Exploring Some Common Law World Initiatives
- I O Bolodeoku
Bolodeoku, I.O. (2006), "Information Depository and Retrieval Systems for Nigeria:
Exploring Some Common Law World Initiatives", International Company and
Commercial Law Review, Vol. 17, No 4, pp. 132-138.
From Apathy to Activism: The Emergence, Impact and Future of Shareholder Activism as the New Corporate Governance Norm
- L Fairfax
Fairfax, L. (2019), "From Apathy to Activism: The Emergence, Impact and Future of
Shareholder Activism as the New Corporate Governance Norm", Boston University
Law Review, Vol. 99, pp. 1301-1345.
- K Kastiel
- Y Nili
Kastiel, K. & Nili, Y. (2016), "In Search of the "Absent" Shareholders: A New Solution to
Retail Investors' Apathy" Delaware Journal of Corporate Law, Vol. 41, No. 1, pp. 55-104.
Shareholder Voting Over the Internet: A Proposal for Increasing Shareholder Participation in Corporate Governance
- G P Kobler
Kobler, G.P. (1998) "Shareholder Voting Over the Internet: A Proposal for Increasing
Shareholder Participation in Corporate Governance", Alabama Law Review, Vol. 49,
pp. 673-700.
The Privatization Handbook: Guidelines on Privatization of Public Enterprises, Spectrum Books
National Council on Privatization, (2001), The Privatization Handbook: Guidelines on
Privatization of Public Enterprises, Spectrum Books, Ibadan.
Electronic Sources PAGE 262| Journal of Corporate Governance, Insurance, and Risk Management | 2022
- G Stapledon
Stapledon, G. (1996), Institutional Shareholder and Corporate Governance, Clarendon Press,
Oxford.
Electronic Sources
PAGE 262| Journal of Corporate Governance, Insurance, and Risk Management | 2022, VOL. 9, Series. 1
Review of 2018 AGM Season and A Look Forward to the 2019 Season", available at www.linkassetsservices.co,/our-thinking/review-of-2018-AGM-season-anda-look-forward-to-the-2019-season
- J Baker
Baker, J. (2018), "Review of 2018 AGM Season and A Look Forward to the 2019 Season",
available at www.linkassetsservices.co,/our-thinking/review-of-2018-AGM-season-anda-look-forward-to-the-2019-season. (accessed 4 August 2021).
Retail Investor Provides Silver Lining", available at www.go.broadridge1.com/ValueofRetailShareholderData
Broadridge Financial Solutions, (2019), "Retail Investor Provides Silver Lining", available at
www.go.broadridge1.com/ValueofRetailShareholderData. (accessed 3 August 2021).
Virtual Shareholder Meetings: 2019 Facts and Figures
Broadridge Financial Solutions, (2020) "Virtual Shareholder Meetings: 2019 Facts and
Figures", available at https://www.broadridge.com/_assets/pdf/broadridge-virtualshareholder-meetings-2019-facts-and-figures.pdf (accessed 6 July 2022).
Coronavirus Casts Doubts on Future of AGMs
- C Flood
- A Mooney
Flood, C. & Mooney, A. (2020), "Coronavirus Casts Doubts on Future of AGMs", available
at https://on.ft.com/30y5etF (accessed 6 July 2006).
Internet Users Statistics for Africa
Internet World Stats, (2020), "Internet Users Statistics for Africa", available at
https://www.internetworldstats.com/stats1.htm (accessed 6 July 2022).
Will the coronavirus Spark a New Era of Virtual Shareholder Meetings in Canada
- K Prusinkiewicz
Prusinkiewicz, K. (2020), "Will the coronavirus Spark a New Era of Virtual Shareholder
Meetings in Canada?" available at
https://www.nortonrosefulbright.com/en/knowledge/bulications/45533ab4/will-thecoronavirus-spark-a-new-era-of-virtual-shareholder-meetings-in-canada (accessed 6
July 2022).
Rulebook of The Nigerian Stock Exchange: Rules Governing Free Float Requirements for Issuers Listed on the Nigerian Stock Exchange, available at www
The Nigerian Stock Exchange, (2020), Rulebook of The Nigerian Stock Exchange: Rules
Governing Free Float Requirements for Issuers Listed on the Nigerian Stock Exchange,
available at www.nse.com.ng.issuersrules (accessed 6 July 2022.