Shareholder empowerment, steps forward and steps back: Comparative analysis of the US and UK regulations

Abstract

Purpose

The global financial crisis of 2007-2008 prompted a significant debate on corporate governance and shareholder empowerment. A question arises as to whether shareholders ought to be further empowered to have a greater influence over the companies’ activities. Yet, it is not self-evident that shareholder empowerment ensures better-run companies’ corporate activities. Thus, the purpose of this paper is to critically examine, identify and explain the corporate regulation forms and control collectively to evaluate the effectiveness of shareholder empowerment fully.

Design/methodology/approach

To do so, this paper sets out a comparative analysis approach between two jurisdictions, the UK and Delaware in the USA. The paper further addresses by undertaking three case studies; Barclays Plc which illustrated the Comply or Explain role, AVIVA (2012) that concentrated on the impact of the shareholder revolt, and the case of Hills Stores Co. v. Bozic (2000), which involved a claim brought by shareholders on the grounds of a breach of fiduciary duty.

Findings

This paper argues that the shareholder empowerment theoretically provides an effective means through which corporate activities can be regulated. However, to do this, account must be taken that a distinction should be made between long-term and short-term investors to encourage shareholder engagement by responsible long-term investors. Furthermore, the shareholders can exercise their powers effectively and influence the Board’s decision to award executive compensation.

Originality/value

This paper offered two distinct contributions: assessing whether in times of crisis shareholder empowerment represents a way to regulate corporate activities and by assessing the distinction between the perception of shareholder empowerment and the reality in practice.

Citation

Alrayes, S.A. (2019), "Shareholder empowerment, steps forward and steps back: Comparative analysis of the US and UK regulations", Journal of Financial Regulation and Compliance, Vol. 27 No. 2, pp. 169-196. https://doi.org/10.1108/JFRC-03-2018-0054