This paper questions the effectiveness of shareholders’ protection from managers who may make choices contrary to the shareholders’ interests. We focus on “silent shareholders” who rarely vote because their goal is purely financial return with no intention or ability to participate in corporate strategies. Since they have virtually no influence on company policies, we argue that they should not be viewed as firm owners, but as consumers of managerial services. Therefore, we suggest the creation of a new class of “capital contract” stock that would grant silent shareholders an explicit legal contract that clearly specifies their rights and compensations in exchange for their investment, but limits their voting rights to proposals regarding changes to the contract. We offer suggestions for specific contract terms customized for each company. One key element of our proposal is linking silent shareholders’ compensation to executive pay. In addition, we propose that the contract should specify reporting requirements that match the characteristics of each company, thereby reducing one-size-fits-all regulations. While the paper focuses on the U.S. capital market, it is also relevant to many other countries.
Rutgers University, USA
Dan Palmon is the Chair of the Department of Accounting and Information Systems at Rutgers Business School and the holder of the William J. von Minden Chair in Accounting. He received his Ph.D. degree from New York University in 1974. Professor Palmon’s interests...
Montclair University, USA
Gary Kleinman has a doctoral degree in Accounting from Rutgers University. He is a tenured full professor at Montclair State University, where he has taught for over a decade. He has also taught at Rutgers University. Further, he has published widely, with topics on...
Ann F. Medinets
Rutgers University, USA
Ann F. Medinets received her MBA in 1996 and her Ph.D. in 2004 from Rutgers University. Her research interests include behavioral accounting and decision-making, financial disclosures, say-on-pay, and audit analytics. Her work has been published in the Review of...
by Murad Antia, Arun Tandon
This article uses earnings before interest and taxes (EBIT) as a proxy for ATI to examines how this bill will have an asymmetric impact on taxes, earnings, and...
Learning from the Failure of the EU Payment Services Directive (PSD2): When Imposed Innovation Does Not Change the Status Quo
by Amir Bahman Radnejad, Oleksiy Osiyevskyy, Olivia Scheibel
By studying the implication of PSD2 and its effect on the EU banking industry, for the first time, we provide practical suggestions for how to improve the...