Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP

What is a Shareholder Democracy?

Shareholder Democracy is a concept advocated by corporate shareholders to increase their access to and influence over corporate governance. More influential Shareholder voting rights are sought by this movement in order to:

1. Have more say in the running of the business and critical direction of the firm.
2. Influence pay structures and compensation for executives.
3. Make corporate boards more accountable to shareholders.
4. More say in Board Director elections and restriction of non-votes brokers.
5. Reduced anti-takeover measures and increased proxy access.

How Does a Shareholder Democracy Work?

The Shareholder Democracy movement has been gaining in strength owing to the following factors:

• A decentralized power structure is more sustainable in the long term, making the case for devaluing board member powers and increasing shareholder stakes.
• Democratic governance is more free and fair, facilitates decisions that are beneficial to a wider audience base rather than concentrating wealth in the hands of a few.
• More shareholder rights also make shareholders more responsible towards their decisions, making the firm more inclusive and conducive to improved decision making and encouraging the entrepreneurial spirit.
• Self regulated systems perform better than those that are externally regulated, provided all the stakeholders are on the same page regarding the growth and direction of the organization.
• The sense of ownership put pays to the blame games that follow failures. A more democratic corporate governance structure would parcel out the onus of successes as well as failures in equal measure to all shareholders.
• It is aimed at improving upon the current structure of governance rather than trying to pull it down.
• Institutions will have more incentive to consider shareholder obligations when making decisions, making them more watchful and more vigilant of their performance.
• Just like how workers bringing their brains to work improves a firms performance over time, stakeholders bringing their brains to the table also bodes well for the firm in the long term.
• It takes corporate governance one step closer to a more democratic system that gives equal importance to all stakeholders and considers the welfare of all shareholders involved in evolving the system.
• It will clearly demarcate firms that take shareholder obligations seriously vs. those that are taking decisions that benefit the board and the management rather than the investors.
• It will facilitate greater transparency in the way corporate businesses are run and allow investors a front row view of how their investments are being utilized.

Related Topics

• Corporate Governance Law (Intro)
• What is Business Governance?
• Berle-Means Thesis 
• Corporate Governance Rating Definition
• Who are the members of a corporation?
• Corporate Charter
• Shareholder Register
• Common Stock
• Preferred Stock
• Par Value
• Authorized Shares
• Issued Shares of Stock
• Unissued Shares of Stock
• Outstanding Shares
• Institutional Shares
• Dual Class Shares
• What is a closely-held corporation?
• Close Corporation Plan Definition
• What is a Private Company vs a Public Company?
• What is the role and purpose of the corporation?
• What is the Agency theory of corporate governance?
• Shareholder-Centric Perspective
• Shareholder Value
• What is the Stakeholder theory of corporate governance?
  
• What is the role & rights of Shareholders in the corporation?
  
• Shareholder Democracy Definition
• Quorum Definition
• Information Circular
• Straight and Cumulative Voting
• Statutory (Straight)
  
• Cumulative Voting
• Plurality Voting
• Class Voting Shareholders
• Changing the Voting Rules
• Supermajority (Voting)
• Shareholder Sponsored Proposal 
• What are the variations on attributes of Ownership structure?
• Stock Split
• What are the fiduciary duties owed by shareholders?
• When is a shareholder personally liable for corporate obligations?
• Appraisal Rights
• Dissenter's Rights
• Say on Pay Rights
• How can shareholder enforce their rights (direct and derivative actions)?
• Amotion
• What is the process for bringing a Derivative action?
• What are corporate vote Proxies?
• Proxy Statement
• Proxy Fight or Contest Definition & Explanation 
• What is Shareholder Activism and the significance of Institutional Investors?
• Activist Investor
• Overview of Board of Directors
• Board Decision Making
• Advisory Board (Observer Directors)
• What is the role of the Board of Directors?
• Board of Trustees
• Board of Governors
• What is the composition of the board of directors?
• Chairman of the Board
• CEO as Chairman of the Board
• Inside Director
  
• Outside Director
• Outside Director or Non-Executive Director Definition
• Independent Outside Director
• Budget Committee
• Audit Committee
• Compensation Committee
• Nomination Committee (Corporate Board)
• What standards govern the actions of the board of directors?
• Duty of Candor Definition
• Duty of Care (Board of Directors)
• Duty of Loyalty (Directors) 
• Self-Dealing
• Board Evaluation Definition
• What is the Business Judgment Rule?
• What is D&O insurance?
• Codetermination (Foreign)
• What is the role of Managers of the corporation?
• What standards govern manager actions?
• Chief Executive Officer (CEO)
• Chief Financial Officer
• Chief Information Officer (CIO)
• Chief Investment Officer (CIO)
• Chief Legal Officer
• Chief Operating Officer
• Chief Risk Officer
• Chief Security Officer
• Chief Technology Officer (CTO)
• What are the primary state and federal corporate governance laws?
• What is the role of the state in corporate governance?
• What is the role of Securities Laws in corporate governance?
• What is the role of the Foreign Corrupt Practices Act in corporate governance?
• What is the Sarbanes-Oxley Act (SOX) effect on corporate governance?
• Sarbanes-Oxley Act (SOX)
• What is the Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?
• Corporate Monitors
• What industry organization standards affect corporate governance?
• How do proxy advisory firms affect corporate governance?
• What is the role of ethics in corporate governance?
• What are the major causes of corporate governance issues?
• What are the access to information issues?
• What are decision-making structure issues?
• What are the power struggle or competition issues?
• Holding Company
• What are hostile takeovers and defenses to hostile takeovers?
• Williams Act
• Staggered Board
• Shark Repellent Defenses?
• Poison Pill Defenses?
• Flip Over Poison Pill Definition
• Flip In Poison Pill Definition
  
• Voting Poison Pill Plan
• Delay-Tactic Defenses?
• Legal Lockup Defenses?
• White Knight and Pac Man Defenses?
• Jonestown Defense
• Lady Macbeth Strategy
• Macaroni Defense
• Yellow Knight
• Back-end Plan Definition
• Backflip Takeover Definition
• Dead Hand Provision Definition
• Kamikaze Defense
• Operating Company Property Company Model
• Whitemail
• Scorched Earth Policy Definition
• Revlon Rule
• What are benefit-alignment issues?
• Cadbury Rules Definition