Images of the Shareholder – Shareholder Power and Shareholder Powerlessness

Abstract

This chapter argues that effective regulation requires legal paradigms that accord with commercial reality, yet that some shareholder images are today seriously outmoded, and used selectively, inconsistently and used to achieve particular ends. The chapter assesses recent regulatory developments in the light of major changes to capital markets, whereby institutional investors are now the dominant shareholders in many parts of the world, and argues that regulation is still playing catch-up with this new commercial reality.

The chapter shows that shareholder power can be viewed in a positive or negative light, and explores a range of contemporary regulatory issues against this backdrop. These issues include, for example, the implications of investor ‘sophistication’ in the light of the Goldman Sachs’ Abacus scandal during the global financial crisis. The chapter also discusses the significance of shareholder image for judicial decision-making, and considers several cases, including the Delaware Supreme Court decision, Kahn v M& F Worldwide Corp (2014). Finally, the chapter examines regulatory developments based on the view that shareholder power is a positive corporate governance attribute, such as (i) the UK Shareholder Stewardship Code; and (ii) increased shareholder participation in the regulation of executive pay.

Keywords: Comparative corporate governance, shareholder power, institutional investors, enforcement of directors’ duties, shareholder stewardship, say on pay

JEL Classification: D70, G30, G32, G34, G38, K22