This paper develops a theory to explore the effect of shareholder empowerment on corporate decision making. We highlight important distinctions between the right to approve and the right to propose. Our main implications concern the right to propose: when shareholders can initiate their own proposals, managerial agency problems can be significantly controlled; however, the right to propose can also worsen corporate decisions by inducing managers to inefficiently accommodate extreme shareholder groups. Our analysis suggests that the right to approve managerial proposals (such as director nominations or new investment) constrains managers but not enough to bring about efficient actions. We identify implications of our analysis for a variety of current regulatory issues concerning director elections, proxy access, bylaw amendments, and shareholder voting.
Commercial Law | Corporation and Enterprise Law | Economics | Law and Economics | Organizations | Securities Law
Date of this Version
John G. Matsusaka and Oguzhan Ozbas, "Shareholder Empowerment: The Right to Approve and the Right to Propose" (January 2012). University of Southern California Law and Economics Working Paper Series. Working Paper 142.