Shareholder Activism and Consumerism Matthew Fredrick

Shareholders represent an important, but limited part of corporate management.

Shareholder money is the foundation of the corporation. Directors and officers should

receive input from shareholders. Some may disagree, but directors and officers should be

able to defend their business decisions to the shareholders. This is because having skin in

the game affects the decision making process. For example, in a partnership, partners

have personal liability and so generally make decisions differently. Directors or officers

do not necessarily have the same money on the line. It may be easier to head towards a

riskier or more uncertain field without the downside of liability. Therefore, shareholders

benefit the corporation by acting as a reminder of the potential loss and the necessity of

prudent decisions. The shareholders role is, and should be, limited in order to avoid

interfering with day-to-day operations of the corporation. Shareholders determine if the

ship is moving in the correct direction, but should not interfere with the individual

processes necessary to move in that direction. The reason for this limit is because

shareholders could severely inhibit corporate operations by taking up officials time.

Public companies have shareholders that number in the thousands or even greater.

Undoubtedly, these individuals will all have vastly different interests and preferences.

Allowing shareholders to have too much access and influence could mean that they

significantly bog down the operational efficiency of decision makers. The limitations on

shareholder interaction should not be understood to minimize the importance of

shareholder interaction.

I believe that shareholders are most often a neutral factor but can be a very

positive factor. If processes are set up correctly they should facilitate the good actions

and neutralize the detrimental actions. When shareholders bring unique or innovative

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Shareholder Activism and Consumerism Matthew Fredrick

ideas they can be very positive. Shareholders should be heard because they could offer

good insight and have already established some credibility. This is because it requires

some amount of motivation to own shares and participate in the market. This motivation

means the shareholders could be uniquely qualified to offer a good idea. If we assume

optimal operation, the law would neutralize, or empower the corporation to neutralize,

any action that would not be beneficial. Absent these individuals some corporations may

never experience the success we know today. In an ideal world law would help to

facilitate only these positive outcomes. This would include law allowing the unhindered

activities of beneficial shareholders while limiting interference from disruptive

shareholders. This could even include time-based limits, such as only during certain

meetings, but allow for completely free and open action within those limits. The law

could also empower corporations to streamline this process themselves. So shareholders

do contribute to corporations, but the law could take steps to ensure a greater frequency

of positive outcomes.

With the above legal considerations in mind there would be no change to my

views on the purpose of corporate law. I believe that corporate law should serve a broad

purpose that takes into account practical realities in order to affect positive outcomes for

all involved parties. This could be accomplished through any number of ways one of

which would include shareholder interaction reform. Some of this reform should include

the ability of shareholders to affect greater long term, or more general societal, benefits.

Corporations exercise huge amounts of power and therefore represent a potential for huge

benefit. Benefit to society often can benefit the corporation, and its shareholders, as well.

Since shareholders have a different perspective they may be able to offer different

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Shareholder Activism and Consumerism Matthew Fredrick

suggestions than a director or officer. By creating pathways for shareholders to direct the

general purpose of the corporation, or even to suggest a new direction, historically

disadvantaged groups, and all other interested parties, would benefit. Law should take an

informed and practical view of the corporate form and its operation today. Maybe the

cost requirement for share ownership, or access to becoming the record owner could be

adjusted to allow for greater participation. This view would allow for corporations to be

used to their greatest potential and would clear the way for anyone to access their

benefits. Business is often connected with economic success, which can improve quality

of life. Traditionally business has been used to create barriers to disadvantage certain

demographics. Now, we should use corporations to solve the ills that exist. Whether it is

achievable now, or at some point in the future, corporate law should constantly strive for

the perfect balance of shareholder and other corporate actor interaction.