J. E. Parkinson
- Published in print:
- 1995
- Published Online:
- March 2012
- ISBN:
- 9780198259893
- eISBN:
- 9780191682018
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198259893.003.0022
- Subject:
- Law, Company and Commercial Law
This chapter describes the shareholder democracy as a mode of corporate governance. It begins by exploring the areas of company decision-making that are usually assigned to the shareholders, and ...
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This chapter describes the shareholder democracy as a mode of corporate governance. It begins by exploring the areas of company decision-making that are usually assigned to the shareholders, and considering whether corporate efficiency could be increased by expanding the range of issues over which the members have the final say. It then looks at the current level of involvement of institutional investors in the affairs of their portfolio companies, and whether, as is hoped for in some quarters, the institutions are likely to assume a more sustained governance responsibility as the ownership of companies becomes increasingly concentrated in their hands. Moreover, it takes up the argument that the separation of ownership and control is a non-issue, and that the fact that shareholders might fail to play an active supervisory role through internal governance mechanisms is unimportant. Finally, it considers ways in which governance might be improved, principally by board reform.Less
This chapter describes the shareholder democracy as a mode of corporate governance. It begins by exploring the areas of company decision-making that are usually assigned to the shareholders, and considering whether corporate efficiency could be increased by expanding the range of issues over which the members have the final say. It then looks at the current level of involvement of institutional investors in the affairs of their portfolio companies, and whether, as is hoped for in some quarters, the institutions are likely to assume a more sustained governance responsibility as the ownership of companies becomes increasingly concentrated in their hands. Moreover, it takes up the argument that the separation of ownership and control is a non-issue, and that the fact that shareholders might fail to play an active supervisory role through internal governance mechanisms is unimportant. Finally, it considers ways in which governance might be improved, principally by board reform.
Anita Indira Anand
- Published in print:
- 2019
- Published Online:
- April 2021
- ISBN:
- 9780190096533
- eISBN:
- 9780190096564
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780190096533.003.0003
- Subject:
- Law, Legal Profession and Ethics
This chapter examines shareholder-driven corporate governance (SCG) through the twin concepts of shareholder democracy and shareholder activism. Taken together, these concepts are the vehicle through ...
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This chapter examines shareholder-driven corporate governance (SCG) through the twin concepts of shareholder democracy and shareholder activism. Taken together, these concepts are the vehicle through which SCG takes effect in practice. The term activist investor describes an institutional investor that seeks value-enhancing changes in the leadership, governance, capital structure, or strategy and operations of a corporation in which it is invested. There are two basic types of activism: offensive activism, in which a hedge fund takes over a poorly performing firm and then reforms it to enhance its performance; and defensive activism, in which the activist institution takes on an advocacy role when it is unhappy with a corporation of which it already holds a significant block. Meanwhile, shareholder democracy refers to the ability of shareholders to influence the corporation through their votes. It is an important concept in corporate law, one that underpins the legitimacy of shareholder activism.Less
This chapter examines shareholder-driven corporate governance (SCG) through the twin concepts of shareholder democracy and shareholder activism. Taken together, these concepts are the vehicle through which SCG takes effect in practice. The term activist investor describes an institutional investor that seeks value-enhancing changes in the leadership, governance, capital structure, or strategy and operations of a corporation in which it is invested. There are two basic types of activism: offensive activism, in which a hedge fund takes over a poorly performing firm and then reforms it to enhance its performance; and defensive activism, in which the activist institution takes on an advocacy role when it is unhappy with a corporation of which it already holds a significant block. Meanwhile, shareholder democracy refers to the ability of shareholders to influence the corporation through their votes. It is an important concept in corporate law, one that underpins the legitimacy of shareholder activism.
William Lazonick and Jang-Sup Shin
- Published in print:
- 2019
- Published Online:
- January 2020
- ISBN:
- 9780198846772
- eISBN:
- 9780191881770
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198846772.003.0005
- Subject:
- Business and Management, Corporate Governance and Accountability
This chapter explains historical and systemic sources of institutional activism. Starting from re-examining underlying principles of New Deal financial regulations established in the 1930s that ...
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This chapter explains historical and systemic sources of institutional activism. Starting from re-examining underlying principles of New Deal financial regulations established in the 1930s that discouraged institutional activism, it argues that they were overturned in the 1980s and 1990s in the name of promoting “shareholder democracy.” It analyzes these misguided regulatory “reforms” including the introduction of compulsory voting by institutional investors, a proxy-voting rule change that greatly facilitated aggregation of proxy votes by predatory value extractors. The chapter argues that those reforms created a large vacuum in corporate voting because, contrary to the ideal of shareholder democracy and particularly with the increasing dominance of index funds, institutional investors had little ability and incentive to vote the shares in their portfolios. The main beneficiaries of these reforms have been the leading proxy advisory firms and a small group of hedge-fund activists intent on looting the business corporation.Less
This chapter explains historical and systemic sources of institutional activism. Starting from re-examining underlying principles of New Deal financial regulations established in the 1930s that discouraged institutional activism, it argues that they were overturned in the 1980s and 1990s in the name of promoting “shareholder democracy.” It analyzes these misguided regulatory “reforms” including the introduction of compulsory voting by institutional investors, a proxy-voting rule change that greatly facilitated aggregation of proxy votes by predatory value extractors. The chapter argues that those reforms created a large vacuum in corporate voting because, contrary to the ideal of shareholder democracy and particularly with the increasing dominance of index funds, institutional investors had little ability and incentive to vote the shares in their portfolios. The main beneficiaries of these reforms have been the leading proxy advisory firms and a small group of hedge-fund activists intent on looting the business corporation.
Sarah L. Quinn
- Published in print:
- 2019
- Published Online:
- January 2020
- ISBN:
- 9780691156750
- eISBN:
- 9780691185613
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691156750.003.0006
- Subject:
- Political Science, American Politics
This chapter looks at the postwar boom in mortgage bonds. The market heated up at the close of the 1920s as lenders marketed mortgage bonds to American families. With families now acting as investors ...
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This chapter looks at the postwar boom in mortgage bonds. The market heated up at the close of the 1920s as lenders marketed mortgage bonds to American families. With families now acting as investors in an unregulated financial market, these bond sales reflected the new logic of the shareholder democracy. The crux of the shareholder democracy was not just that Wall Street's markets could welcome small investors, but also that those markets should be unregulated. As the boom grew into a full-scale bubble, sellers had more reason to exploit the ignorance of small investors, and there was no real government oversight in place to stop them. Emboldened by the wartime bond drives and courted by Wall Street and advertisers, many Americans jumped into the shareholder democracy by investing in mortgage bonds. This was, in retrospect, a recipe for disaster. The collapse of this market in the early 1930s wiped out the private market for mortgage bonds completely and led to regulatory prohibitions against small-investor purchases of mortgage bonds.Less
This chapter looks at the postwar boom in mortgage bonds. The market heated up at the close of the 1920s as lenders marketed mortgage bonds to American families. With families now acting as investors in an unregulated financial market, these bond sales reflected the new logic of the shareholder democracy. The crux of the shareholder democracy was not just that Wall Street's markets could welcome small investors, but also that those markets should be unregulated. As the boom grew into a full-scale bubble, sellers had more reason to exploit the ignorance of small investors, and there was no real government oversight in place to stop them. Emboldened by the wartime bond drives and courted by Wall Street and advertisers, many Americans jumped into the shareholder democracy by investing in mortgage bonds. This was, in retrospect, a recipe for disaster. The collapse of this market in the early 1930s wiped out the private market for mortgage bonds completely and led to regulatory prohibitions against small-investor purchases of mortgage bonds.