The High Costs of Shareholder Participation

University of Pennsylvania Journal of Business Law, Vol. 11, No. 4, pp. 941-966, Summer 2009

George Mason Law & Economics Research Paper No. 08-18

27 Pages Posted: 25 Mar 2008 Last revised: 18 Oct 2009

Harry G. Hutchison

Centre for the Study of Law & Public Policy at Oxford; Regent University - School of Law

R. Sean Alley

Tennessee Technological University - Economics, Finance, & Marketing

Date Written: March 1, 2008

Abstract

A number of observers contend that the new literature on happiness, the product of the work of psychologists and economists, poses a significant challenge to traditional economics. Economics generally assumes that peoples' choices advance their well-being. By contrast, current happiness literature suggests that people often make poor choices that undermine their subjective well-being. Therefore, more wealth and income are not sufficient to make people better off. This view, if uniformly adopted, may lead to paternalistic intervention in the market for corporate governance.

In view of the new happiness literature, corporate law scholar James McConvill argues that shareholder empowerment should be seen as an end in itself because it enhances the empowered shareholder's access to happiness-inducing participation. His recent article supplies a novel approach to analyzing corporate governance. Participatory experience is substituted for utility maximization as the relevant investor objective. McConvill disputes prevailing conceptions of rational choice analysis for shareholders and argues that the perceived logic which encapsulates rational choice theory fails to appreciate the non-financial benefits (shareholder happiness) that can be derived from increasing shareholder power. McConvill's fresh look requires an explanation and a critique. This brief article is the second of a series of articles that offer critical analysis vitiating McConvill's Panglossian conclusions.

Keywords: behavioral economics, corporate governance, empowerment, happiness, McConvill, non-financial benefits, Panglossian, psychology, rational choice, shareholder democracy, shareholder participation, utility maximization

JEL Classification: G30, G32, G34

Suggested Citation

Hutchison, Harry G. and Alley, R. Sean, The High Costs of Shareholder Participation (March 1, 2008). University of Pennsylvania Journal of Business Law, Vol. 11, No. 4, pp. 941-966, Summer 2009; George Mason Law & Economics Research Paper No. 08-18. Available at SSRN: https://ssrn.com/abstract=1112885

Harry G. Hutchison (Contact Author)

Centre for the Study of Law & Public Policy at Oxford

Belsyre Court, 57 Woodstock Road
Oxford 0X2 6HJ
United Kingdom

Regent University - School of Law ( email )

1000 Regent University Drive
Virginia Beach, VA 23464
United States

Sean Alley

Tennessee Technological University - Economics, Finance, & Marketing ( email )

United States

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