Manuscript Type: Conceptual
Research Question/Issue: This article explores the rising tension between shareholder and director power in the common law world. First, the article analyzes key arguments in the shareholder empowerment debate, and current US reform proposals to grant shareholders stronger rights, from a comparative corporate law perspective, examining how traditional US legal rules diverge from other common law jurisdictions. Secondly, the article discusses power shifts in the opposite direction – namely toward the board – in some parts of the common law world. It considers the potential friction between legal rules designed to enhance shareholder power and commercial practices designed to subvert it.
Research Findings/Insights: The article shows that US shareholders have traditionally had unusually restricted rights compared to their counterparts in common law jurisdictions, such as the UK and Australia. The article challenges a number of arguments supporting this traditional US approach, by showing that the arguments are often US-specific, and are less persuasive from a comparative corporate governance perspective. The article also identifies an important tension between legal rules designed to enhance shareholder power and commercial practices designed to subvert it. It shows how the dynamic nature of regulation, and the strategic response of regulated parties, can affect the operation of legal rules.
Theoretical/Academic Implications: The article broadens the scope of the US shareholder empowerment debate, by means of a comparative law analysis. It challenges an evolutionary/managerialist theory of US corporate governance, by showing that other jurisdictions have made different choices concerning the allocation of power between shareholders and the board. The article also shows the importance in comparative corporate governance scholarship of focusing not only on the terms of specific laws, but also on the commercial responses of parties subject to those laws.
Practitioner/Policy Implications: The article assesses the role of shareholder participation as a regulatory mechanism to enhance corporate governance legitimacy. The global financial crisis has highlighted some of the dangers of untramelled managerial power and under-regulation. The article provides important regulatory insights to policy makers, concerning the appropriate balance of power between shareholders and the board of directors.