FSR Forum, Vol. 6, No. 2, pp. 6, 7, 9-12, 14, 15, February 2004
12 Pages Posted: 7 Mar 2004
This paper identifies eight reasons why it is rational not to trust large complex Anglo corporations and how these reasons could be removed. Two reasons are that directors are overloaded with information but also lack information independent of management to evaluate management and the business. A third reason is that directors do not have systemic processes to discover if their trust in management is misplaced. A fourth and fifth reason is that directors have absolute power to manage their own conflicts of interest and a dominant shareholder can enter into related party transactions that can unfairly extract value. The sixth and seventh reasons are the incentive for directors not to blow the whistle on their colleagues and the impotence of a director to act alone. The eighth reason is that shares can be manipulated and traded covertly. Four changes in corporate constitutions are identified that could remove these concerns. These are to establish a watchdog board, introduce cumulative voting for directors, establish stakeholder councils and introducing sunlight share trading.
Keywords: Conflicts, cumulative voting, directors, governance, power, shareholders, stakeholders councils, sunlight trading, trust, watchdog board
JEL Classification: G34, D72, D74, D82, G38, K22, L29
Suggested Citation: Suggested Citation
Turnbull, Shann, Why Anglo Corporations Should Not Be Trusted: And How They Could Be Trusted. FSR Forum, Vol. 6, No. 2, pp. 6, 7, 9-12, 14, 15, February 2004. Available at SSRN: https://ssrn.com/abstract=492524