Shareholder Voice and Its Opponents

Abstract

This article revisits half of the classic governance dichotomy, “voice” and “exit”. It aims to illustrate that the principal, legal arguments against shareholder voice—that shareholders neither own corporations nor are restricted by legal duties—are without merit. It explains the legal nature of the property rights that shareholders have in corporations. In an analysis restricted to US law, it presents the fiduciary and other types of duties that temper and restrain shareholder behaviour in ways very similar to the existing legal checks on management behaviour. It also seeks to clarify why—although shareholders have complete freedom under US law to structure their corporations according to taste—they almost always end up the complete wards of management. By way of conclusion, the article outlines how a steady increase in institutional ownership that continued at least until the end of 2004 has prompted measures that palpably facilitate shareholder voice.