Engagement: The Missing Middle Approach

The board versus shareholder debate has long been about whether more director or shareholder control would maximize firm value. On one side are those who argue for giving shareholders as much power as possible to revamp firms and reorganize boards and the executive suite in ways to make firms more efficient. Under this view, firm executives are agents that need to be monitored and potentially sanctioned, generally through shareholder voting. Those advocating for this view contend that boards must not become entrenched because then they become close to executives and resistant to helpful change. Instead, executives need to be managed as effective agents through active principals. This view is compatible with advocating for corporate structures that incentivize better oversight of boards by shareholders. Recommendations consistent with this view include opposition to staggered boards, more frequent voting by shareholders, and more power for shareholders, including the ability to adopt provisions that would allow them to change the company’s charter or state of incorporation.