Why Shareholders Shouldn't Vote: A Marxist‐progressive Critique of Shareholder Empowerment
| Author | Lorraine Talbot |
| Published date | 01 September 2013 |
| Date | 01 September 2013 |
| DOI | http://doi.org/10.1111/1468-2230.12036 |
THE
MODERN LAW REVIEW
Volume 76 September 2013 No 5
Why Shareholders Shouldn’t Vote: A Marxist-progressive
Critique of Shareholder Empowerment
Lorraine Talbot*
This paper argues that liquidity, short-termism and low involvement in corporate governance are
fundamental ingredients of shareholders’ value maximisation strategies. Neither shareholders nor
their representatives will voluntarily adopt restrictions which inhibit their ability to pursue these
strategies, such as those presented by the Stewardship Codes. Utilising Marxist and progressive
theory this paper evidences the tendency for all capital (including shares) to seek liquidity. It
presents historical evidence which shows that political policy can either restrict this tendency, as
it did in the progressive and post war period, or facilitate it, as it did in nineteenth century England
and in the current neoliberal period. The shareholder empowerment initiatives examined in this
paper are therefore best understood as strategies to justify shareholder claims in the current crisis
and to thereby protect the neoliberal status quo.
INTRODUCTION
The financial crisis has revealed both a bewilderingly complicated and troubled
financial system and a generalised inability to theorise and find solutions to the
seemingly insoluble problems it has caused. In conceptualising the problems and
in constructing policies, political institutions, the academies and the media seem
locked into the theories and ideas that formed and legitimated the old neoliberal
order.1As a contribution to trying to think outside the old paradigms this article
explores a Marxist analysis of capitalism in order to theorise the current crisis.
The focus of this exploration is a critique of current initiatives to empower
shareholders and to provide a progressive response to this.
From a Marxist perspective the political claim of capital over labour in the
company is conceptualised in law as a piece of private property. That property
*Warwick School of Law.
1 Not all of these theories follow a shareholder primacy perspective. Indeed many explicitly reject
this approach. Edward Freeman’s stakeholding (strategic management) theory and Lyn Stout and
Margaret Blair’s ‘team production’ model both offer approaches which encompass the interests
of non-shareholder groups. However, even these approaches sustain the status quo. Freeman’s
stakeholding because its goal is profit maximisation, and Blair and Stout’s ‘team production’ theory
because of its insistence that the solutions are already encompassed in corporate law. Both
approaches do not offer the radical critique presented here.
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© 2013 The Author. The Modern Law Review © 2013 The Modern Law Review Limited. (2013) 76(5) MLR 791–816
Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
is the company share. The law neutralises the highly political and exploitative
relationship between labour and capital by interpreting the claims of shareholders
as uncontroversial claims of private property ownership. The tendency of capi-
talism to transform economic relationships into property, and of law to concep-
tualise them as property, is understood by Marx as the commodification of social
relations of production. The commodification of the share was achieved in the
nineteenth century. It was challenged by progressives in the first part of the
twentieth century but has since been forcefully reasserted by neoliberal theories
of the company. Neoliberalism, however, has unintentionally undermined its
own ideological project to assert the claims of shareholders. Because it has
allowed shareholders the freedom to seek out the highest returns in a global
economy, it has made shareholders more obviously distant from ‘their’ compa-
nies, raising questions about the credibility and workability of the ownership
model of shareholding.2In this paper I assert that post crisis initiatives to
empower shareholders are concerned with the re-commodification of this prop-
erty form and the re-assertion of ownership claims,3and to thereby neutralise the
underlying class conflict.
In this initiative, the empowerment of shareholders, or at least large institutional
shareholders, is being promoted as a key ingredient in the improvement of
corporate governance. Conceptualised as the new company stewards, it is argued
that institutional shareholders can counterbalance the old, self-serving stewardship
of company management. Commentators on the topic have varying perspectives
but all agree that if shareholders did step up, it would be a jolly good thing.4If
management are the problem, shareholders must, by definition, be the solution.
From this position, corporate governance discussions centre on how best to
empower shareholders and how best to encourage them to utilise that power.
This perspective also encompasses discussions about the technical problems of
2 EU Commission Green Paper Corporate governance in financial institutions and remuneration polices
COM (2010) 284 final 8, discussed later in this paper.
3 For example, the European Fund and Asset Management Association’s Code of best practice is
tellingly titled ‘principles for the exercise of ownership rights in investee companies’ http://
www.efama.org/Publications/Public/Corporate_Governance/11-4035%20EFAMA%20ECG
_final_6%20April%202011%20v2.pdf (last visited 28 August 2012).
4 The leading article on this is probably L. A. Bebchuk, ‘The Case for Increasing Shareholder
Power’ (2005) 118 HLR 835, making the case that shareholder empowerment would improve
managerial performance. Much scholarship and policy has followed this line. At the level of policy,
the Walker Review, which recommended the formalisation of more shareholder involvement in
governance has resulted in the UK Stewardship Code. The debate around more shareholder
involvement through voting has focused on reforming the advisory vote on the Director Remu-
neration report (currently held in the Companies Act 2006, s 439) to make the vote mandatory.
A Bill to reform this, (the Enterprise and Regulatory Reform Bill 2012) is currently being
considered by parliament. In the United States similar reform has been achieved by the Dodd-
Frank Act 2010. From the shareholders themselves, a broad spectrum of institutional shareholders’
associations such as the Institutional Shareholder Committee and PIRC have argued for more
empowerment. Affirming institutional shareholder competence, scholarly work by Hawley and
Williams has conceptualised institutional shareholders as the responsible owners of a fiduciary
capitalism. J. P. Hawley and A. T. Williams, The Rise of Fiduciary Capitalism: How Institutional
Investors Can Make Corporate American More Democratic (Philadelphia: University of Pennsylvania
Press, 2000). More generally, there is a growing body of literature on shareholder activism.
Why Shareholders Shouldn’t Vote
© 2013 The Author. The Modern Law Review © 2013 The Modern Law Review Limited.
792 (2013) 76(5) MLR 791–816
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