Shareholder Democracy

Shareholder democracy, an offshoot of the "shareholder primacy" approach to corporate governance, seeks to increase the role of shareholders in management and decision-making in the corporation. The core idea is that shareholders should regain some of the power that was lost to directors as a result of the rise of management and the board of directors in corporate decision-making. Shareholder democracy sees a parallel between the positions of management of the corporation and the management of democratic societies and suggests that shareholders should have more control and a more active role in the affairs of the corporation. Shareholder democracy, its advocates argue, is necessary for several reasons, including increased accountability of corporate managers, avoidance or reduction of agency problems and conflict of interests between shareholders and managers, and the role of shareholders as the residual claimants of the corporation. The broader agenda of shareholder democracy includes enhancing shareholders' voting power, strengthening shareholder advisory resolutions, allowing derivative suits and stock ownership consolidation in institutional investors, and creating say-on-pay rules, shareholder advisory committees, and proxy advisory firms.