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When institutional shareholders famously opposed the HP/Compaq merger, we stood witness to the power of the investor in today's organization. Shareholders have the ability to block mergers, replace board members and influence directors. However, if it comes to light that an organization has behaved unethically, investors are rarely held accountable. With the rise to prominence of Corporate Social Responsibility (CSR), is it time we considered Corporate Shareholder Responsibility?
In the Enron case there was no question of blaming investors - they were as much in the dark as the employees, analysts and the rest of the public. However, in other instances questions have arisen with regards to shareholders (especially institutional investors) finding out about certain financial or ethical irregularities and rather than confronting the company directors, they simply sold up and ran.
Shareholder ethics
This debate stems partly from the emergence of the "gambling" investor the shareholder who buys and sells rapidly on a day to day basis in order to make a "quick buck." Essentially, there are two main schools with regards to shareholder responsibility:
(1) The private, independent shareholder - sees shares as private property and therefore it is up to the individual to buy or sell them as they see fit. This decision is entirely independent of other investors and can be utterly self-serving. If an organization wishes to keep the funds of the investor, then it should strive to improve upon current market position - it is not the responsibility of the shareholder. This somewhat traditional view has recently undergone much criticism but still has its supporters who claim that this approach is the very epitome of capitalism, and to think in any other terms would be detrimental to today's free markets.
(2) The socially moral, collective shareholder - feels an obligation to other shareholders as they have all, in effect, entered into a joint contract. They are also responsible for keeping an eye upon directors and confronting them over ethical issues if necessary. Responsibility is directly proportional to the number of shares held. As moral issues come to the fore in the world of business, many have questioned the notion of "gambling" as opposed to "investing" in shares. They believe that as shares were originally introduced as a vehicle to...