In Search of the 'Absent' Shareholders: A New Solution to Retail Investors' Apathy

Abstract

Corporate law scholars have taken investors' rational apathy for granted for many years, considering it a necessary evil once ownership is no longer closely held. But how significant is retail investors' apathy and what is its impact? This Article is the first to provide comprehensive data on the true magnitude of retail investors' apathy and its negative impact on corporate governance. Building on behavioral economics tools, this Article then presents a novel solution that could substantially mitigate, if not fully eliminate, this long-standing problem of investors' rational apathy, with minimal regulatory burden. The solution is based on the premise that the high economic and mental costs associated with voting could be dramatically reduced by providing retail investors with a little "nudge" in the form of highly-visible voting default arrangements that would allow (or force) them to choose from a menu of voting shortcuts. Aside from strengthening shareholder democracy, mobilizing retail investors with different voting heuristics will have other important advantages such as providing for greater accountability of companies' incumbents.

Keywords: Rational Apathy, Shareholder Activism, Shareholder voting, Corporate Governance, Behavioral Law and Economics, Nudge

JEL Classification: K2, K22, G34, G38