The Case for Empowering Quality Shareholders
83 Pages Posted: 3 Mar 2020 Last revised: 29 Oct 2020
Date Written: 2020
Special Note: This Article is part of The Quality Shareholder Initiative at the Center for Law, Economics and Finance (C-LEAF), at The George Washington University Law School, Prof. Lawrence A. Cunningham, Faculty Director.
Anyone can buy stock in a public company, but not all shareholders are equally committed to a company’s long-term success. In an increasingly fragmented financial world, shareholders’ attitudes toward the companies in which they invest vary widely, from time horizon to conviction. Faced with indexers, short-term traders, and activists, it is more important than ever for businesses to ensure that their shareholders are dedicated to their missions. Today’s companies need “quality shareholders,” as Warren Buffett called those who “load up and stick around,” or buy large stakes and hold for long periods.
While scholars in recent years have extensively debated indexers, short-term traders, and activists, they have paid scant attention to quality shareholders and their critical role in corporate finance and governance. This Article corrects this oversight by highlighting the quality shareholder cohort. Adding this fresh perspective confirms some of the angst about myopic short-termism on the one hand and ignorant indexing on the other, but rather than regulate related behaviors, the fresh perspective invites attention to empowering quality shareholders. In particular, rather than taxing short-term shareholders or passing through indexer voting rights to fund beneficiaries, this Article explains how companies could simply increase the voting power of their quality shareholders.
Keywords: index funds, passive investing, stewardship, engagement, activist shareholders, quality shareholders, Keynes. Graham, Buffett, shareholder power, shareholder voting, corporate governance, corporate finance, institutional investors, capital markets
JEL Classification: K22, G11, G23, G34, K22
Suggested Citation: Suggested Citation