The Legitimate Rights of Public Shareholders

In recent years there has been significant ongoing academic debate over the expansion ofpublic shareholders 'participation rights in corporate governance. The debate has accompanied a dramatic increase in institutional shareholder and hedge fund activism attempting to influence the conduct ofcorporate affairs. The legitimacy ofshareholderp articipationr ights depends upon the actual role public shareholders play in contributing to the corporation's function of providing goods and services and, ultimately, to economic growth and social welfare. Few in the debate have stopped to examine this question.

This Article presents original empirical evidence that demonstrates that public shareholders do not, on net, contributec apitalt of inance industrialp roduction, andi nf act are net consumers of corporate equity. Moreover, their investment incentives significantly distort the behavior of corporate managers who place strong emphasis on stock price at the expense of long-term business health, a fact that has played some role in the current global financial debacle. The logical conclusion is thatp ublic shareholders'rightss hould, ideally, be eliminated,a nd certainly not expanded or enhanced.