Shareholder Democracy – Definition

Cite this article as:"Shareholder Democracy – Definition," in The Business Professor, updated April 28, 2019, last accessed October 20, 2020,


Shareholder Democracy Definition

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.

A Little More on What is Shareholder Democracy

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 organisation.
  • 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 firm’s 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 utilised.

References for Shareholder Democracy

Academic Research on Shareholder Democracy

The future of shareholder democracy, Fairfax, L. M. (2009). Ind. LJ, 84, 1259. This paper analyses the current trends and the future implications of a Shareholder Democracy.

Making the corporation safe for shareholder democracy, Fairfax, L. M. (2008). Ohio St. LJ, 69, 53. This paper presents the case for measures taken by corporates to safeguard corporate interests in the face of growing Shareholder Democracy activism.

Proxy Contest Expenses and Shareholder Democracy, Latcham, F. C., & Emerson, F. D. (1952). W. Res. L. Rev., 4, 5. This paper takes a look at the impact of Shareholder Democracy on proxy contests and the expenses thereof.

Shareholders as proxies: The contours of shareholder democracy, Mitchell, S. T. (2006). Wash. & Lee L. Rev., 63, 1503. This paper explores the implications of proxy shareholder voting in a Shareholder Democracy scenario.

Shareholder democracy and the curious turn toward board primacy, Hayden, G., & Bodie, M. T. (2009). Wm. & Mary L. Rev., 51, 2071. This paper explores the unique angle of Board Primacy as a consequence of Shareholder Democracy.

Shareholder democracy in play: Career consequences of proxy contests, Fos, V., & Tsoutsoura, M. (2014). Journal of Financial Economics, 114(2), 316-340. This paper explores the results of Shareholder Democracies on proxy contest when Board Directors careers hang in the balance.

Is Shareholder Democracy Attainable?, Feis, W. J. (1976). The Business Lawyer, 621-643. This paper attempts to answer the question of whether a Shareholder Democracy in corporate governance is attainable.

Shareholder democracy: A reality or chimera?, Schwartz, D. E. (1983). California Management Review, 25(3), 53-67. This paper explores the real world scenarios dealing with Shareholder Democracies and wonders whether it is actually possible or just another pipe dream.

Shareholder democracy and the economic purpose of the corporation, Smythe, D. J. (2006). Wash. & Lee L. Rev., 63, 1407. This paper investigates the correlation between the economic goals of a corporate and Shareholder Democracy.

Shareholder Democracy. A Broader Outlook for Corporations, Gower, L. C. B. (1955). This paper presents a broader outlook on Shareholder Democracy for corporate governance.

Shareholder Democracy or Shareholder Plutocracy-Corporate Governance and the Plight of Small Shareholders, Duffy, M. J. (2002). UNSWLJ, 25, 434. This paper examines whether Shareholder Democracy is intended to increase the influence of small time investors or might eventually lead to a plutocracy of corporate governance by big ticket investors.

Shareholder Democracy: The Roots of Activism and the Selection of Directors, Biggs, J. H. (2007). Loy. U. Chi. LJ, 39, 493. This paper explores the root causes of the Shareholder Democracy movement with focus on the Board of Directors elections.

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