It’s one of the thorniest questions in corporate law. Shareholders as a group own a corporation, but shareholders may have conflicting interests. A majority shareholder may be willing to throw the minority under a bus to obtain control of the company. Some shareholders may have differing views on whether the corporation should operate in Sudan or Libya. And union-controlled pension funds may be more interested in leveraging their holdings to force job creation than in pursuing long-term share value.
These potential conflicts are one reason we (generally) limit shareholders’ direct voting to only a few issues: who will sit on the board of directors, and whether a company may be sold. A board of directors that owes fiduciary duties to all shareholders oversees most questions of corporate policy.
But this approach to corporate governance is under pressure from those who consider it insufficiently democratic, including those who would like to see a shareholder vote concerning all corporate political spending – even where much greater amounts are invested in charitable giving, or politically-charged investment decisions, by company management without shareholder approval.
The Federal Court of Appeals for the District of Columbia recently reminded us that there are real costs to expanding the role of shareholders in corporate governance.