SHAREHOLDER EMPOWERMENT

Shareholder Empowerment

Shareholder Empowerment

Corporate governance accounts mechanisms that grant all shareholders of the company to participate fairly in decision-making and to assure them that the management acts in the common interests. The transparency of the company's financial situation and ownership structure, consolidation or integration of all relevant shareholders into decision-making processes and a fair distribution of profits among all shareholders are basic factors of corporate governance. (Heinrich et. al, 2005, pp. 5)

To risk liability from the decision making power, property rights are not delimited in one person's hand, rather than there is a separation between the ownership and control. (Fama and Jensen,1983, pp. 301- 302) However, this detachment of power in ownership and control provides managers a discretional power to attain their own which become the root cause for contravenes of interest among shareholders and management. (Jensen and Meckling, 1976. pp. 306- 310)

A number of claimants are occupied by Corporate governance namely, shareholders and other stakeholders that include the government, customers, suppliers, bankers, creditors, the employees of the company, and the society in general. However for fine rationales it could be conferred keeping in view mainly the stakes of a specific stakeholders' class, that is to say, the shareholders. For corporate governance, the shareholders and investors are considered to be the raison de etre. Special significance is assumed by the role of management, the boards' control and reporting roles, the purposes of the different board committees, when corporate governance is viewed from the perspective of shareholders. It could be concurred that the improvement of shareholder value is the fundamental aim of corporate governance while taking the interests of other stakeholder in to consideration. A balance is needed by a company to strike continuously among the need to improve wealth of shareholders and at the same time, not in any way being disadvantageous to the stakes of the other stakeholders in the corporate. (Kar Pratip, n.d.)

The proper role of shareholders in corporate governance is an ongoing heated debate. Several developments have been seen in recent years empowering shareholders. For example, new listing standards are adopted by the major stock exchanges enlarging approval requirements of shareholder regarding corporate compensation plans. Amendment of their corporation laws has been carried out by many states in United States to permit firms to make use of a majority vote, instead of the current plurality for electing directors. The SEC shareholder proposal rule- 14a-8 is being used by institutional investors to suggest adjustments to corporate regulations obliging such a majority vote.

On the heels of the collapse of firms such as Enron, Qwest Communication, and Global Crossing, the incentives created by the use of stock options are being debated in the popular press and by legislators and regulators. Managerial compensation contracts have long included stock option grants. These options grants have the potential to reduce manager-stockholder agency conflicts (Jensen and Meckling, 1976). Options can serve to align the incentives between managers and shareholders by making the manager an equity stakeholder in the ...