One of the main theories of corporate governance is rooted in a separation of powers

notion. Shareholders generally do not have the power to make management decisions for the

corporation. This power is typically reserved to the Board of Directors and officers. Reserving

this power to the directors and shareholders is a benefit of the way the rules govern shareholder

participation because it helps handle different people within the corporation who have different

interests and skills.

On the other hand, this separation can be a negative limitation on the corporation because

it may be that the shareholders do know about management and may actually have the necessary

knowledge to make good management decisions. As far as shareholder participation, this

limitation can be debilitating because shareholders who do have the company’s best interests at

heart have to take roundabout ways to influence the corporation’s day to day operations and

management. For example, in the hypothetical with Reed Cycle, the rules prohibited from

introducing a shareholder proposal that directly addressed his environmental concerns. Instead,

Mr. Cycle’s best course of action was to propose a new Board of Director position by way of a

bylaw amendment.

This method of impacting the company’s environmental impact has many barriers and is

unlikely to be successful. First, getting a shareholder proposal passed is near impossible without

the Board of Directors’ support because the Board of Directors has almost absolute control over

the way the shareholder meeting functions. Second, even if Mr. Cycle can get the bylaw

amendment passed, the next challenge would be to find someone who aligns with Mr. Cycle’s

environmental agenda and actually get that person appointed and elected. Without support from

the right actors who have the right influence, Mr. Cycle hardly stands a chance at making any

real change. Mr. Cycle is a great example of the challenges shareholders face, but environmental
impact is not the only issue shareholders in this country care about today. Shareholders with all

kinds of altruistic goals are cut out of making impactful change every day.

The way corporate governance functions and specifically the limitation discussed above

has a tendency to deter shareholders from participating. In other words, limiting shareholders’

participation in this way incentivizes the shareholders to ignore the impact of day-to-day

operations on the corporation, which could potentially be cutting out a large group of

knowledgeable people from a large part of decision making.

This separation of power seems to hinder activist shareholders’ ability to make any

significant change, especially when it comes to large corporations. Of course, those shareholders

that hold a majority of the shares may be able to impact the corporation by trying to elect a

director who aligns with their goals. However, as previously discussed, this is not an easy

process.

I understand why the rules are set up the way they are set up and I understand the

purposes these rules serve. However, these rules, like many others in our system, were designed

by the people who stand to benefit from them. In this way, the rules do limit access to groups

that have been historically excluded from business participation. This does not change my

perspective on business because this is to be expected. Today, corporations have a massive

impact on the way society functions, so I think it is important to learn who really is making these

important decisions and who influences them. Should society ever expect corporations to

contribute to society in altruistic ways, the rules of corporate governance must change.