Shareholder Empowerment

Stephen M. Bainbridge

in Corporate Governance after the Financial Crisis

Published in print January 2012 | ISBN: 9780199772421
Published online May 2012 | e-ISBN: 9780199932696 | DOI:
Shareholder Empowerment

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This chapter takes up the ongoing debate over the proper role of shareholders in corporate governance. Recent years have seen several developments empowering shareholders. The major stock exchanges, for example, adopted new listing standards expanding shareholder approval requirements with respect to corporate compensation plans. Many states have amended their corporation laws to allow firms to use a majority vote—rather than the current plurality—to elect directors. Institutional investors are using the SEC shareholder proposal rule (14a-8) to propose amendments to corporate bylaws requiring such a majority vote. Finally, and most significantly, the SEC adopted the new proxy access rule, under which shareholders will be able to nominate directors and have their nominees listed in the company's proxy statement and on its proxy card. The chapter suggests that active investor involvement in corporate decision making seems likely to disrupt the very mechanism that makes the public corporation practicable: namely, the centralization of essentially non-reviewable decision-making authority in the board of directors. The chief economic virtue of the public corporation is not that it permits the aggregation of large capital pools, but rather that it provides a hierarchical decision-making structure well-suited to the problem of operating a large business enterprise with numerous employees, managers, shareholders, creditors, and other inputs. The board-centric governance model in which shareholders have but limited powers thus has significant advantages, which are being steadily eroded by each new shareholder empowerment measure.

Keywords: shareholder rights; corporate governance; state law; proxy access rule; corporate decision making; investor participation

Chapter.  24367 words. 

Subjects: Company and Commercial Law

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