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The American social theorist Sidney Verba once said that for participation to be meaningful, it has to be clear, loud and equal: clear so that public officials know what citizens want and need, loud so that officials take notice, and equal so that the preferences and interests of the many are not violated for the sake of the few. Writing in his book, Voice and Equality, Verba describes the situation in America as “often loud, sometimes clear, but rarely equal.”

While Verba was referring to participation in the traditional sense of engaging in and shaping political decisions, his catchy indictment also appears to hold true for the world of corporate governance and shareholder democracy. A recent article in the Observer, for instance, notes how an increasing number of major company boardrooms are having to grapple with one or two aggressive and intransigent shareholders who are determined to steer the business down a path more suited to their own interests. According to the article, although many of these individuals own less than 50 per cent of company shares, by rallying others and relying on abstentions they are able to wield a disproportionate amount of power in the boardroom and effectively remove directors who fail to do their bidding. With a company like M&B losing 4 chairmen in less than 2 years, it is little wonder that the current situation has been described as “more Soviet than City.”

At a time when the markets are already gripped by an acute sense of uncertainty, the concern is that this kind of activity can only serve to amplify the disruption that these businesses are experiencing. Yet perhaps more worrying is the kind of impact that an absence of shareholder democracy might have on the prospects of businesses playing a greater role as the new agents of change in society, a mantle which many now expect and actively urge them to take up.

It is not hard to imagine a situation where the majority of shareholders in a company are socially conscious individuals willing to sign up to a more ethical strategy, but where a more seasoned shareholder uses their experience, organisational savvy and influence to derail such ambitions. Likewise, while a company may have a board, chairman and CEO all committed to pursuing a more ethical business model, the threat of major disruption in the boardroom from a bellicose shareholder could lead them to wonder whether it is really worth the effort in changing their strategic tack.

This isn’t to say that every senior shareholder is determined to prevent the implementation of a more socially minded business model, nor that every smaller shareholder is determined to put one in place. But judging from recent experience, it is usually only through the sustained efforts of a large swathe of minor shareholders working in concert that businesses truly begin to transform their operations for the benefit of wider society. And often this goes against the wishes of a dominant minority.

So when we talk about changing business behaviour for the better, shouldn’t we be paying greater attention to the individual shareholders who are making and breaking the boardrooms? Too often we seem to deal with and lobby against companies as if they were a single entity with all stakeholders acting in unison. Yet the reality tells a different story. Many organisations' shareholders are as cohesive as a political party is united. Look beneath the surface and you will often see frustration and fractious relationships, with a few individuals who hold the balance of power.

If the government is serious about getting “every business to commit” to playing a more positive role in society, and if they are truly concerned about addressing exorbitant bonus pay-outs in the City, perhaps a large part of the solution lies in examining the current state of shareholder democracy. This might mean, for instance, revising company law, tightening the “say on pay” rules, or introducing fairer shareholder voting rights which acknowledge the disproportionate power that certain individuals hold.

I'm certainly not an expert in this area, and there are bound to be several failed attempts in making headway on shareholder democracy. But what is clear is that we should think twice before saying, as was recently noted in the Evening Standard, that it is up to shareholders to decide the direction of their business, not government.


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