Shareholders (sometimes informally called stockholders) are people who have purchased a share (or stock) in a company. Shareholders own equity in a company. In most cases, this gives them a legal right to:
- vote in the election of the company’s board of directors;
- a share in the company’s “residual earnings” (profits the company has after its other obligations – salaries, bills, etc. – are paid); and
- the loyalty and care of the company’s managers.
Shareholders are often referred to as the “owners” of the corporation, but this is arguably inaccurate. Strictly speaking, what they own is shares in the company, which means that what they “own” is a piece of the governing power of the organization (i.e., a right to vote on the board’s membership) and the right to a share of whatever dividends the board sees fit to distribute.
There is considerable debate over the notion of “shareholder primacy,” the idea that the firm is in some way “about” shareholders’ interests in the corporation and, therefore, that managers should “put shareholders first.” Part of the problem is that there is disagreement and confusion over just what it means to put shareholders first. Another confusion, pointed out by the legal scholar Stephen Bainbridge, is that the idea that a firm’s management ought to extend fiduciary care only to the firm’s shareholders is the same as shareholder primacy. In Bainbridge’s view, the firm is “about” the board of directors, but the board is bound by a duty of fiduciary care to shareholders.
Another interesting question about shareholders surrounds whether there are shareholder responsibilities in (or to) the corporation or others and what those responsibilities might be. Are shareholders responsible for corporate wrongdoing in any but a (limited) financial way? If so, what should shareholders do about corporate wrongdoing? Shareholder activism is a phenomenon that sees shareholders attempting to influence the managerial direction of corporations—whether to be more focused on increasing shareholder returns or to pursue more or better corporate social responsibility initiatives. While some applaud the movement toward shareholder activism, others see it as undercutting one of the principal features of the corporation: the separation of ownership and control.
See also in CEBE:
- Henry Hansmann, The Ownership of Enterprise, 2000