A:

The 21st century has seen a rapid increase in shareholder activism, such as the general awareness, involvement and influence of corporate shareholders on corporate governance. Markets in North America and Europe have seen more turnover with boards of directors, the members of which are subject to shareholder votes, solicitation of votes and legal action.

Individual shareholders who do not possess large share price influence, or less than 1% of outstanding shares for example, must mobilize others to have real strategic influence. However, the collective of shareholders can exert significant influence to bring about desired changes in the direction of the firm in both the short- and long-term.

In the 2012 Harvard Law School Corporate Governance Symposium, the HLS reported that markets "continued to see shareholders making their voices heard" and that there is a "growing perception that we are, and have been for several years, experiencing a potentially fundamental shift in the balance of authority between boards of directors and shareholders."

The Rights of Shareholders

Company stock represents a partial ownership, and all common stock comes with voting rights and access to shareholders meetings. In the United States, any group comprising more than 3% of a company's stock is allowed to put its nominees for board seats on the annual proxy ballots sent to all shareholders.

Shareholders vote on by-laws, the number of members of the board and the sale of company assets and can add restrictions on the types of business engaged in by a corporation.

The Responsibility and Responsiveness of Directors

Courts have traditionally ruled that a corporate board of directors has responsibility to the corporation, not individual shareholders. However, this distinction is not always significant.

Directors are made most responsive through two mechanisms: proxy votes at shareholder meetings and movements in the price of company stock. If a single director misbehaves or underperforms, he may be voted out of his job. If shareholders are truly dissatisfied, they can sell their stock and drive down the price.

RELATED FAQS
  1. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ... Read Answer >>
  2. Who is responsible for protecting and managing shareholders' interests?

    Several parties are supposed to, including the company's employees, its executives and its board of directors. Read Answer >>
  3. How Do Proxy Fights Work?

    A proxy fight is when a group of shareholders are persuaded to join forces to win a corporate vote. Read Answer >>
  4. Do Shareholders Get a Say in a Firm's Operation?

    Stock ownership often provides a vote on board membership and other issues put out for shareholder approval. Read Answer >>
  5. What is the difference between a president and a CEO?

    In corporate governance and structure, the roles of both CEO and president often vary across firms. Read Answer >>
Related Articles
  1. Investing

    Proxy Voting Gives Fund Shareholders a Say

    You have the right to take part in important company decisions by proxy.
  2. Investing

    Shareholders: Vote Your Proxy and Be Heard

    Voting shares, in person or via proxy ballot, is a right every shareholder should exercise. Here's why.
  3. Investing

    The Basics of Corporate Structure

    CEOs, CFOs, presidents and vice presidents – learn how to tell the difference.
  4. Small Business

    Governance Pays

    Learn about how the way a company keeps its management in check can affect the bottom line.
  5. Managing Wealth

    Keeping Control of Your Business After the IPO

    Taking a company public doesn't mean founders must completely give up calling the shots. Before the IPO, consider these tactics to keep control after it.
  6. Investing

    Evaluating The Board Of Directors

    Corporate structure can tell you a lot about a company's potential. Learn more here.
  7. Investing

    Tesla and GM to Face Shareholders Today

    The futures of two of the nation’s biggest automakers could change today if some angry shareholders get their way.
  8. Small Business

    Whom Should Corporations Please?

    Companies balance the interests of owners, customers and employees. Find out who comes out on top.
RELATED TERMS
  1. Voting Right

    The right of a stockholder to vote on matters of corporate policy ...
  2. Common Shareholder

    The rights of common shareholders give them the ability to influence ...
  3. Proxy Fight

    When a group of shareholders are persuaded to join forces and ...
  4. Annual General Meeting - AGM

    An annual general meeting is a mandatory annual gathering of ...
  5. Directorate

    An organization headed by a director. In finance, directorate ...
  6. Controlling Interest

    When one shareholder or a group acting in kind holds a high enough ...
Hot Definitions
  1. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  3. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  5. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  6. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
Trading Center