Sunday, January 15, 2012
Shareholder Empowerment: The Right to Approve and the Right to Propose, by John G. Matsusaka, University of Southern California - Marshall School of Business; USC Gould School of Law, and Oguzhan Ozbas, University of Southern California - Marshall School of Business - Finance and Business Economics Department, was recently posted on SSRN. Here is the abstract:
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.