What is a Shareholder Democracy?

Shareholder Democracy is a concept advocated by corporate shareholders to increase their access to and influence over corporate governance. More influential Shareholder voting rights are sought by this movement in order to:

1. Have more say in the running of the business and critical direction of the firm.
2. Influence pay structures and compensation for executives.
3. Make corporate boards more accountable to shareholders.
4. More say in Board Director elections and restriction of non-votes brokers.
5. Reduced anti-takeover measures and increased proxy access.

How Does a Shareholder Democracy Work?

The Shareholder Democracy movement has been gaining in strength owing to the following factors:

• A decentralized power structure is more sustainable in the long term, making the case for devaluing board member powers and increasing shareholder stakes.
• Democratic governance is more free and fair, facilitates decisions that are beneficial to a wider audience base rather than concentrating wealth in the hands of a few.
• More shareholder rights also make shareholders more responsible towards their decisions, making the firm more inclusive and conducive to improved decision making and encouraging the entrepreneurial spirit.
• Self regulated systems perform better than those that are externally regulated, provided all the stakeholders are on the same page regarding the growth and direction of the organization.
• The sense of ownership put pays to the blame games that follow failures. A more democratic corporate governance structure would parcel out the onus of successes as well as failures in equal measure to all shareholders.
• It is aimed at improving upon the current structure of governance rather than trying to pull it down.
• Institutions will have more incentive to consider shareholder obligations when making decisions, making them more watchful and more vigilant of their performance.
• Just like how workers bringing their brains to work improves a firms performance over time, stakeholders bringing their brains to the table also bodes well for the firm in the long term.
• It takes corporate governance one step closer to a more democratic system that gives equal importance to all stakeholders and considers the welfare of all shareholders involved in evolving the system.
• It will clearly demarcate firms that take shareholder obligations seriously vs. those that are taking decisions that benefit the board and the management rather than the investors.
• It will facilitate greater transparency in the way corporate businesses are run and allow investors a front row view of how their investments are being utilized.