Shareholder Democracy on Trial: International Perspective on the Effectiveness of Increased Shareholder Power

Abstract

Shareholder democracy - efforts to increase shareholder power within the corporation - appears to have come of age, both within the United States and abroad. In the past few years, U.S. shareholders have worked to strengthen their voice within the corporation by seeking to remove perceived impediments to their voting authority. These impediments include classified boards, the plurality standard for board elections, and the inability to nominate directors on the corporation's ballot. Shareholders' efforts have also extended to seeking a voice on the compensation of corporate officers and directors. Advocates of shareholder democracy believe that such efforts are critical to buttressing shareholder value and curbing managerial abuses of authority. However, there are many who criticize shareholder democracy, claiming that it will undermine firm value and corporate governance. Opponents also insist that shareholder democracy will undermine corporate efforts to focus on non-shareholder constituents such as employees, customers, and communities. This Article examines these and other criticisms in the context of international efforts to increase shareholder democracy, and argues that the international experience with shareholder democracy undercuts the force of such critiques. Indeed, experiences in other countries suggest that shareholder democracy can achieve its desired result of enhancing financial returns and reducing corporate misconduct. In this way, the Article relies on international corporate governance trends to provide a novel, significant perspective to the ongoing debate over the propriety of shareholder democracy in the United States.

Keywords: shareholder democracy, shareholders, corporate governance