The Voice: The Minority Shareholder's Perspective

Abstract

Minority shareholders tend not to participate in the decision-making process of public companies with a controlling shareholder, and their voice is rarely heard. Even when they disagree with how the company is being managed, they prefer to express this dissatisfaction by selling their shares rather than by expressing their voice. Contrary to the prevailing view, this article provocatively suggests that their voice is important and desirable. On the deontological level, it asserts that shareholder voice has an intrinsic value that is independent of any utility it may yield. Corporate democracy and, specifically, minority shareholder suffrage, legitimizes the exercise of power by the public corporation’s insiders: the controlling shareholder, directors, and managers. Indeed, the shareholder’s right to vote is the foundation upon which the public corporation is constructed and sustained. On the utilitarian level, this article argues that shareholder suffrage is efficient because it reduces agency costs and contributes to the development of financial markets. Given the prevalence of controlled companies, the unique insights in this article can serve as an important normative basis for policymakers in designing reforms aimed at incentivizing minority shareholders to exercise their voting rights and use their voice.

Keywords: minority shareholders, controlling shareholder, retail shareholders, concentrated ownership, controlled company, shareholder activism, voice, exit, corporate democracy, shareholder voting, shareholder meeting, agency costs, rational apathy, short-termism, myopia

JEL Classification: D70, G30, G32, G34, G38, K22