Shareholder empowerment, steps forward and steps back. Comparative analysis of the US and UK regulations

Author:Saad Almohammed Alrayes
Position:School of Law, Queen’s University Belfast, UK

Purpose The global financial crisis of 2007-2008 prompted a significant debate on corporate governance and shareholder empowerment. A question arises as to whether shareholders ought to be further empowered to have a greater influence over the companies’ activities. Yet, it is not self-evident that shareholder empowerment ensures better-run companies’ corporate activities. Thus, the... (see full summary)

Shareholder empowerment, steps
forward and steps back
Comparative analysis of the US
and UK regulations
Saad Almohammed Alrayes
School of Law, Queens University Belfast, UK
Purpose The global nancial crisisof 2007-2008 prompted a signicant debate on corporate governance
and shareholder empowerment.A question arises as to whether shareholdersought to be further empowered
to have a greater inuence over the companiesactivities. Yet, it is not self-evident that shareholder
empowerment ensures better-run companiescorporate activities. Thus, the purpose of this paper is to
critically examine,identify and explain the corporate regulation forms and control collectivelyto evaluate the
effectivenessof shareholder empowerment fully.
Design/methodology/approach To do so, this paper sets out a comparative analysis approach
between two jurisdictions, the UK and Delaware in the USA. The paper further addresses by undertaking
three case studies;Barclays Plc which illustrated the Complyor Explain role, AVIVA (2012) that concentrated
on the impact of the shareholderrevolt, and the case of Hills Stores Co.v.Bozic(2000), which involved a claim
brought byshareholders on the grounds of a breach of duciary duty.
Findings This paper arguesthat the shareholder empowerment theoreticallyprovides an effective means
through which corporate activities can be regulated. However, to do this, account must be taken that a
distinctionshould be made between long-term and short-terminvestors to encourage shareholder engagement
by responsible long-term investors.Furthermore, the shareholders can exercise their powers effectivelyand
inuencethe Boards decision to award executive compensation.
Originality/value This paper offered two distinct contributions: assessing whether in times of crisis
shareholder empowermentrepresents a way to regulate corporate activities and by assessing the distinction
between theperception of shareholder empowermentand the reality in practice.
Keywords Financial crisis, Corporate governance, Comparative corporate governance,
Corporate reform, Shareholder empowerment.
Paper type Research paper
1. Introduction: the context and signicance
A frequent theme in political and legal circles have been to present the causes of the recent
global economic recession 2007-2008 as being a direct consequence of poor corporate
governance structures which has failed to regulate adequately and control the commercial
activities of companies, both domestically and internationally (Coffee, 2008). In particular,
the riskybehaviour of some nancial companies has evidenced a need to review and re-
evaluate corporate governance frameworks (Bratton and Wachter, 2010). As corporate
governance and the lack of scrutiny over corporate activities have been cited as issues of
concern in leading to the lasteconomic recession, it is now necessary to reconsider the ways
For helpful insights, comments, and suggestions, the authors wishes to thank Yue Ang, a Senior
Lecturer in Law at Oxford Brooks University, Dieter Pesendorfer, a Senior Lecturer in Law at Queens
University Belfast and Chieh Huang, a Senior Lecturer in Law at Oxford Brooks University.
Received27 March 2018
Revised21 May 2018
Accepted19 June 2018
Journalof Financial Regulation
Vol.27 No. 2, 2019
pp. 169-196
© Emerald Publishing Limited
DOI 10.1108/JFRC-03-2018-0054
The current issue and full text archive of this journal is available on Emerald Insight at:
in which companies can be more effectively scrutinised in their pursuit of risky activities.
However, allowing them to remain free to maintain and sustain their economic viability
(Kate, 2010). The question has thus been raised, Can shareholder empowerment be
considered an effective meansto regulate corporateactivities?.
In fact, the nancial crisis originatedin 2007-2008 has been characterised as the result of
untrammelled managerial power, the lack of risky behaviour regulation and undertaking
of unsound corporate activities by boards of directors(John, 2008) and the populist political
response to articulate arguments in favour of greater powers for shareholders (Hill, 2010).
This crisis has stimulated a debate on corporate governance and the primacy of
shareholders empowerment value (Mukwiri and Siems, 2014). Indeed, the debate raised
issues such as the question whether shareholders ought to be further empowered to have a
greater inuence over the companiesactivities. Thus, the intuitive reason for the topicality
of shareholder empowerment is that the latest economic crisishas given momentum to the
contention that shareholders empowerment represents the most effective means to
scrutinise corporate activities. Consequently, it has emphasised creating a new legal
framework for regulating commercial activities which is oriented towards providing
shareholders withgreater powers of control (Bratton and Wachter, 2010).
Hence, Bebchuk (2003,2005,2006 and 2007) argued extensively that the shareholders
should enjoy the powerto initiate, and approve by vote, major corporate decisions.Onthis
basis alone, one is inclined towards the conclusion that arguments for shareholder
empowerment are likely to be convincingin the wake of the crisis (Hill et al.,2012).
However, contrary to Bebchuks view, some arguments have been put forward against
providing shareholders with greater powers. One of the principal arguments expressed
against greater shareholder powers is that strengthening the powers of shareholders is
contrary to the entrenched corporate legal frameworks which draw a clear distinction
between the owners of a company and the companys management(Stephen, 2006). Thus, a
distinction between discussions of shareholder empowerment in theory and practice needs
to be made.
In addition, ideally, shareholder empowerment might ensure better monitoring of
management and therefore better-run company corporate activities (Mukwiri and Siems,
2014). Yet, it is not self-evident that shareholder empowerment has such a difference in
corporate outcomes and such a positive effect. It is prudent at this point to consider the
developments of arguments in favour of shareholder empowerment in some depth.
Subsequently, a critical analysis of shareholder empowerment is therefore essential. In
particular, Bebchuks academic work concerning empowering the shareholders will be
critically analysed.
On this basis, while shareholders empowerment is capable of controlling management
behaviour (Kraakman et al.,2009), an unexplored area is whether shareholders
empowerment is capable of regulating corporate activities. Therefore, the purpose of this
paper is to go further than existing research by assessing whether shareholders
empowerment can be considered an effective means to regulate corporate activities.
Accordingly, it must be noted that the assessment of effectiveness will be inevitably
involved by considering the difference between the theory of shareholders empowerment
and the practical realitiesof shareholders empowerment.
The present article has the objectivesof lling a gap in the literature and conceptualising
more coherently the question of shareholdersempowerment primacy value.As shareholder
empowerment represents one of an array of controls that can inuence management
decisions within a company the hypothesis to be explored is whether shareholder
empowerment can represent a way to go further than simply inuencing management

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