The High Costs of Shareholder Participation
Harry G. Hutchison
George Mason University - School of Law; Oxford Centre for the Study of Law & Public Policy
R. Sean Alley
Tennessee Technological University - Economics, Finance, & Marketing
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
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.
Number of Pages in PDF File: 27
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
Date posted: March 25, 2008 ; Last revised: October 18, 2009