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Shareholder Committees in the United States and Switzerland: Blind Alley or Vital Branch in the Evolution of Corporate Governance?
Series
University of St. Gallen Law & Economics Working Paper Series
ISSN
n/a
Type
working paper
Date Issued
2011
Author(s)
Abstract
Three Swiss corporate governance scholars have suggested recently that public corporations establish shareholder committees, which would have certain oversight functions and act as a communication link between shareholders and management. To assess the merits of this proposal, I review the history of shareholder committees in the United States, outline the spectrum of possibilities in designing shareholder committees, and evaluate their benefits and costs.
Shareholder committees are not going to mitigate the collective action problem of shareholders, and they are unlikely to reduce managerial agency costs to a notable extent. Moreover, their potential for savings in information and communication costs is small. The costs of shareholder committees - transaction costs and additional agency costs - are unlikely to be substantial, but they might offset the limited benefits that a shareholder committee offers. Overall, I doubt whether it is in the best interest of public companies to have a shareholder committee. Nevertheless, given that shareholders will both bear the costs and reap the benefits of a shareholder committee, it should be up to them to decide whether to adopt one or not. Accordingly, the Swiss legislature should lift the restrictions that corporate law currently places on the establishment of shareholder committees.
The paper is available in full text on [http://ssrn.com/abstract=1850566 SSRN]
Shareholder committees are not going to mitigate the collective action problem of shareholders, and they are unlikely to reduce managerial agency costs to a notable extent. Moreover, their potential for savings in information and communication costs is small. The costs of shareholder committees - transaction costs and additional agency costs - are unlikely to be substantial, but they might offset the limited benefits that a shareholder committee offers. Overall, I doubt whether it is in the best interest of public companies to have a shareholder committee. Nevertheless, given that shareholders will both bear the costs and reap the benefits of a shareholder committee, it should be up to them to decide whether to adopt one or not. Accordingly, the Swiss legislature should lift the restrictions that corporate law currently places on the establishment of shareholder committees.
The paper is available in full text on [http://ssrn.com/abstract=1850566 SSRN]
Project(s)
Language
English
Keywords
Corporate law
corporate governance
widely-held corporation
shareholder committee
shareholders' advisory committee
Switzerland
HSG Classification
contribution to scientific community
Refereed
No
Publisher
n/a
Number
2011-06
Subject(s)
Division(s)
Eprints ID
139461
File(s)