Shareholder Committees in the United States and Switzerland: Blind Alley or Vital Branch in the Evolution of Corporate Governance?

Abstract

Three Swiss corporate governance scholars have suggested recently that public corporations establish shareholder committees, which would have certain oversight functions and act as a communication link between shareholders and management. To assess the merits of this proposal, I review the history of shareholder committees in the United States, outline the spectrum of possibilities in designing shareholder committees, and evaluate their benefits and costs.

Shareholder committees are not going to mitigate the collective action problem of shareholders, and they are unlikely to reduce managerial agency costs to a notable extent. Moreover, their potential for savings in information and communication costs is small. The costs of shareholder committees - transaction costs and additional agency costs - are unlikely to be substantial, but they might offset the limited benefits that a shareholder committee offers. Overall, I doubt whether it is in the best interest of public companies to have a shareholder committee. Nevertheless, given that shareholders will both bear the costs and reap the benefits of a shareholder committee, it should be up to them to decide whether to adopt one or not. Accordingly, the Swiss legislature should lift the restrictions that corporate law currently places on the establishment of shareholder committees.

Keywords: Corporate law, corporate governance, widely-held corporation, shareholder committee, shareholders’ advisory committee, Switzerland

JEL Classification: K22