Shareholder Democracy as a Misbegotten Metaphor

Abstract

The rise in corporate scandals and the dawning of the great recession motivated frustrated shareholders to seek greater power in order to influence the actions of the firms in which they own equity. Shareholder democracy has become the umbrella term for these shareholder empowerment efforts.¹ Shareholder democracy is a worldwide movement (Fairfax, 2008a) that, having achieved a foothold in the United States, is gaining ground in Canada (Veall, 2012) and Europe (Rose, 2012). Although recently reinvigorated, this shareholder democracy movement is not new. The concept dates back to shortly after World War II, when Lewis Gilbert popularized the concept in the United States. Emerson and Latcham (1954: 152) later argued that “vigorous shareholder participation” was in keeping with democratic values. Mintzberg (1983) contributed a similar argument, contending that a country can only consider itself to be free if its major institutions subscribe to democratic principles. Arguments in favor of shareholder democracy have ranged from protecting society from corporate power to protecting shareholders from managerial abuse to protecting the rights of shareholders to shape their own destinies (Tsuk Mitchell, 2006). These arguments have taken hold as the shareholder democracy movement has pushed successfully for shareholder empowerment at annual meetings, SEC policy changes, and legislative developments that all have led to greater direct shareholder influence over corporate practices (Cohen & Schleyer, 2012).²