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back to index backAMERItalk April,  2007


Corporate Governance: greater U.S. shareholder power poses threat to CEO performance

After decades of battling for more influence over boards, U.S. shareholders may finally be gaining ground; but should their progress be welcomed, ask Kevin Allison and Francesco Guerrera in the Financial Times? Outraged by executive compensation excesses, shareholders recently launched a highly successful say on pay” campaign. Yet supporters of the current system claim that a referendum approach to pay would be time-consuming for corporate leaders, with negotiations distracting them from other key tasks. As they point out, managing companies has never been a democratic process and dissenting shareholders can always sell their shares if unhappy with the leadership of a company. Greater investor power could also destroy companies’ entrepreneurial drive and open them up to attacks from hedge funds able to vote borrowed shares, note the authors.

U.S. regulators and governance experts share these concerns, fearing that an all-out attack on corporate management could prove counterproductive. Shareholders, on the other hand, say that U.S. investors are currently denied rights enjoyed by their counterparts in many other countries. If management and shareholders are all working towards adding value to a company, giving investors greater rights should create no conflict of interest, they argue. Given the confrontational history between management and shareholders, this concept may be hard for corporate America to grasp, suggest the authors. Yet firms could benefit from giving outsiders a greater say, as long as the latter do not abuse this power, they conclude.

Source: Egon Zehnder InternationalGAI


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