SHAREHOLDER EMPOWERMENT

Shareholder Empowerment

[Writer's institute] Shareholder Empowerment

Introduction

The Shareholder empowerment is a recent phenomenon evolved with the advent of financial crisis. The term was introduced to the world with the proposal made by Committee on Capital Markets Regulation as the law-reform agenda was brought to ensure the sustainability of competitiveness of U.S capital markets. The committee's recommendations seemed to be controversial for many analysts but most of them would support the notion that the shareholders should be empowered. The paper will discuss the advantages and disadvantages of this empowerment and how it will prove beneficial for the economy of a country. The paper will also discuss the implementation of this agenda in Malaysia and how could it help the country in attracting the foreigners to invest in the economy.

It was in 2006 that the phenomenon of shareholder empowerment was introduced. Some of the market analysts were of the belief that the shareholders need to be empowered so that their decision making power increase. According to the proponents of shareholder empowerment, the agency costs will be lowered because of the increasing accountability in the firms. On the other side, the argument from the opponents was against this empowerment as they firmly believed that the financial crisis in the U.S was a result of this empowerment. Before this opposition is analyzed, it is important to note that one of the benefits of this empowerment, according to the proponents, is that it ensures high prices of the stocks. This, according to the opponents, is going to disastrously affect the economy because all the shareholders will be concerned only about their profits and will be making decisions that can initiate a price hike in the market.

Discussion

Shareholder empowerment defined

In the corporate world, every organization exists to seek profits from the market that it operates in. in order to earn that profit, the needs of the customers are to be catered in way that satisfies all the stakeholders (Pritchard, 1995, p. 4). The organization not only has to serve its customers but also its shareholders that invest a chunk of their savings to finance the organizational operations. The purpose of the business then is to maximize the shareholders' wealth but the shareholders are not given the power to influence everyday operations of the organization. In order to understand the shareholders' power, it is important to consider the common practices that prevail across the corporate world. Usually, it is the board of directors that has to make decisions that can affect the operations of the organization.

The shareholders exercise power only to remove or induct people to the board of directors. The election is done at the discretion of the shareholders and none of the members of board of directors is to be chosen without the consent of the shareholders because the organization fears the withdrawal of investments from the company. The decision of the organization can only be influenced by the shareholders if they decide to bring new people to the board. The power of the shareholders is divided ...