Published online by Cambridge University Press: 18 February 2021
This chapter critically examines the argument for giving shareholders alone the right to vote based on their ownership of the corporate residual. The argument is that shareholders are only paid what's left over after all other contractual participants – employees, customers, creditors, and suppliers – have been satisfied. Because shareholders receive the marginal gains, they have the best incentives to exercise discretion on the part of the entire firm, and hence should be accorded ultimate control. Shareholders, though, are not the unidimensional profit maximizers used to get this argument up and running. Moreover, shareholders do not, by virtue of their relationship with the firm, have ready access to the information necessary to cast informed votes, and many shareholders – such as index fund shareholders – lack real incentives to seek out that information. Finally, this vision of shareholders as the sole owners of the residual is just descriptively wrong – employees, too, are invested in the long-term interest of the firm, cannot easily diversify that interest, and often possess firm-specific skills as well as contributions to the ongoing value of the business.
To save this book to your Kindle, first ensure email@example.com is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.
Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.
Find out more about the Kindle Personal Document Service.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.