TITLE:
Minority Shareholders: Useful Idiots, Free Riders or the Achilles Heel of the Corporate Idea?
AUTHORS:
Themistokles Lazarides
KEYWORDS:
Minority Shareholders, Corporate Governance, Dominant Shareholders, Scandals, Free Riders
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.3,
May
22,
2020
ABSTRACT: The shareholder is the basis of the corporate idea
and framework. Corporate governance protects the rights of shareholders. But
not all shareholders have the same power, control or ability to exert their
responsibilities and rights. The plethora of legal, regulatory and statutory
frameworks and initiatives that are in place to establish a balance of power
and control within and beyond the formal organizational pyramid, do not take
into account the power and the complexity of relations, alliances and
strategies among shareholders, shareholders and managers or shareholders and
other stakeholders. Furthermore, main corporate governance theories more or
less ignore minority shareholders. They are considered as free riders, useful
idiots or just supplemental capital to achieve the goals of the more organized
or more powerful shareholders or managers. Their position and bargaining depend
on ownership concentration and legal protection. Ownership domination and
control are the borderlines of the corporate governance problems especially in
Continental Europe corporate governance system. In Continental Europe corporate
governance system, the issues or problems that are reported for the Anglo-Saxon
system are different: asymmetry of information vs asymmetry of power and
control, moral hazard vs moral control, adverse selection vs family loyalty,
differences in motives (alignment of interests vs control entrenchment). The
paper will address these differences and will argue that best practices as an
easy way to uphold pretenses and the “comply or explain” in these circumstances
leads to non-compliance and no explanations. Finally, the paper will try to
answer the question: Who wants to be a minority shareholder in a corporation
that doesn’t respect the rights of the individual shareholder or it is
dominated completely? The consequences of the fallout or failure of corporate
governance in Continental Europe system countries will be shown using the Folli
Follie case in Greece. As a conclusion the paper argues that a new framework of
corporate governance is needed for countries where ownership concentration is
high and legal protection of minority shareholders is poor.