Hereâ€™s a simple statement. The shareholders of a company are its owners.
Or maybe it isnâ€™t so simple. Some people argue that the shareholders are â€śownersâ€ť only in some sophisticated, qualified, legalistic sense. My own view is that there is a common sense plain-English meaning of ownership, and that the shareholders own a company in that sense.
I tend to regard proxy fights as positive developments in the life of a company because they help remind the company management, their employees, of who they work for.
Managements tend to entrench themselves, to seek safety behind various procedural barriers. They like “staggered boards,” for example. But why should owners be allowed to vote in or out only, say, one-third of the boards at any one meeting? Managers seek to justify this by talk of preserving continuity and experience, etc. But the empirical research shows that shareholders don’t benefit from that continuity in any way that would show up in, say, the value of a share of stock!
When challenged on their responsiveness to their shareholders, or lack thereof, incumbent boards and their apologists, the advocates of entrenchment, or of what one scholar calls “directorial primacy,” like to say that if shareholders aren’t happy with how the company is run, they can always sell the stock. They shouldn’t have to, though: That’s the point. They’re owners, not renters.
If you live in a home with a leaky roof and you don’t like it, you can move. The owner can then either fix the roof or find another tenant who’ll tolerate the leak. Even if itâ€™s your home, you might of course decide that fixing it is too much trouble, in which case you can sell. But you, as owner of equity, also have the option of hiring a contractor who’ll fix the roof. And if your contractor proves dilatory in doing this job, of firing him and hiring another.
Since weâ€™ll need a name, let us call the view Iâ€™ve expressed in the last few paragraphs the theory of â€śunitary ownership.â€ť For Iâ€™ve been contending that ownership is one unitary fact, both when applied to homes and when applied to corporations, and that when legislators, or judges, or other regulators, see it as an arbitrary bundle of facts and start splitting them up, they do an injustice.
It doesnâ€™t follow of course that the activist/owners are always in the right, when they come into conflict with management. Consider TCI/CSX. In this litigation it is the management that seems to be defending the unitary nature of ownership. The stockholders own the stock (and are subject to the legal responsibilities of this ownership) even if they find clever ways to dress it up and make it look like something else. I canâ€™t help but share their suspicion that a good deal of what goes on in the market for equity swaps these days is just such a dressing up of beneficial ownership to look like something else.