A Long View of Shareholder Power: From the Antebellum Corporation to the Twenty-First Century

Abstract

For most of the twentieth century the conventional wisdom held — probably correctly — that shareholders in America’s large corporations were passive and powerless and that real power in a public corporation was wielded by its managers. Beginning in the 1980s, however, shareholders in the form of institutional investors started to push for a greater say in corporate decision-making. In the twenty-first century, hedge funds have upped the ante, fighting for major changes in corporations whose shares they own. Once-imperial CEOs have now become embattled, as they fight, but often lose, against activist shareholders demanding policy changes, new dividends, board representation, and even the sale or break-up of corporations. In short, things have changed. This Article situates the present-day rise of shareholder power by taking a long view over the previous two centuries, moving beyond traditional accounts to reach all the way back to the beginnings of the American business corporation in the early nineteenth century, then following the story of shareholder power up to the present day. This broad view reveals the complicated and shifting nature of shareholder power, documenting how periods of greater shareholder power were interspersed with periods where shareholders had little power, how the focus of shareholder power has moved from controlling shareholders to autonomous managers, and how shareholder power has ebbed and flowed across the last two centuries. It thus not only provides the backstory to present developments, but suggests that what has been seen as a hallmark of American corporate capitalism — the relative powerlessness of shareholders — may only have been typical of a few decades in the middle of the twentieth century.

Keywords: corporations, shareholders, shareholder activism, institutional investors, corporate history, business history

JEL Classification: N00, N21, N22, N81, N82, G30, G39, K22, M14