The Rising Tension between Shareholder and Director Power in the Common Law World
Jennifer G. Hill
University of Sydney - Faculty of Law; European Corporate Governance Institute (ECGI)
March 30, 2010
Corporate Governance: An International Review, Vol. 18, pp. 344-359, 2010
Sydney Law School Research Paper No. 10/34
Vanderbilt Law and Economics Research Paper No. 10-11
ECGI - Law Working Paper No. 152/2010
This article explores the rising tension between shareholder and director power in the common law world. First the article analyzes key arguments in the shareholder empowerment debate, and current US reform proposals to grant shareholders stronger rights, from a comparative corporate law perspective, examining how traditional US legal rules diverge from other common law jurisdictions. Secondly, the article discusses power shifts in the opposite direction – namely toward the board – in some parts of the common law world.
The article shows that US shareholders have traditionally had unusually restricted rights compared to their counterparts in common law jurisdictions, such as the United Kingdom and Australia. It challenges a number of arguments supporting the traditional US approach, by showing that the arguments are often US-specific, and are less persuasive from a comparative corporate governance perspective. The article also identifies an important tension between legal rules designed to enhance shareholder power, and commercial practices designed to subvert it. It shows how strategic commercial responses to regulation can affect the operation of legal rules. The existence of commercial pushback of this kind suggests that, even if US shareholder powers are significantly strengthened, that will by no means be the end of the story.
Number of Pages in PDF File: 60
Keywords: corporate governance, comparative corporate governance, “law matters” hypothesis, shareholders, shareholder empowerment, institutional investors, directors, corporate charter amendment, appointment of directors, removal of directors, corporate prenuptial agreements, entrenchment mechanisms
JEL Classification: D70, G30, G32, G34, G38, K22, K33, K40, K42, M14
Date posted: April 2, 2010 ; Last revised: November 14, 2010