Shareholder Democracy

According to John Plender, the biggest curiosity of US corporate governance is that shareholders' votes on directors' appointments at annual meetings have no force. Shareholders can "withhold" their votes, but even if more than 50 per cent do so the gesture is purely symbolic and the company can continue on the management's chosen path. Plender comments: "This shareholder democracy is about as democratic as Cuba or the old Soviet Union."

[Financial Times, November 13th 2004]

Meanwhile, Manchester United management is outraged that Malcolm Glazier should have used his substantial minority shareholding this week to vote against the appointment of directors. Apparently this is bad form; complaints have been made to various regulators. Glazier's intentions towards the football club are currently unclear - but does this mean he should be denied a vote?

Many people seem unable to distinguish the viability of a company from the perpetuation of its current management. Shareholder democracy in Europe is far from being an adequate control mechanism - it lacks power as well as requisite variety. However, many US stakeholders are strongly resistant to even this weak control mechanism; meanwhile News International's corporate move to Delaware is widely seen as an escape from the stricter corporate governance environment in Australia.

One of the preconditions for corporate governance is transparency, and systems engineering can certainly do something about this. But transparency is not enough. We need to engineer appropriate control mechanisms, so that transparent information can be properly acted upon in the interests of the real stakeholders.