Taking Shareholder Rights Seriously

The great corporate scandals of the recent past and the resulting push for legal reform have revived the role of the shareholder in the corporation as a subject of great debate. Those who favor an expanded role for shareholders in corporate governance tend to focus on developing new legal rights for shareholders, and their critics respond with reasons why such rights are unnecessary and inappropriate. While these issues certainly are worthy of consideration, issues concerning existing shareholder rights are more fundamental. If existing rights are adequate or could be improved, then new rights may not be necessary; but if existing rights cannot be salvaged, then efforts to add new rights may be equally unavailing. In this article, I argue that the traditional shareholder rights to vote and to sell their shares could be adequate but are undermined by other laws that impede their exercise. I assume that the traditional role of the shareholder in corporate governance is the appropriate one: the business and affairs of every corporation should be managed by or under the direction of the board of directors, and shareholder rights can and should be limited accordingly. Nevertheless, shareholder rights are important. Unfortunately, the law does a poor job of securing even these limited rights. In this article, I only seek to make traditional shareholder rights more meaningful; I do not seek to expand shareholder rights beyond the traditional core or to empower shareholders to intrude on the directors' managerial role. After demonstrating how the current law indirectly eviscerates explicit shareholder rights, I propose and defend a number of legal reforms to both state and federal law that would safeguard traditional shareholder rights.