Hostname: page-component-586b7cd67f-g8jcs Total loading time: 0 Render date: 2024-11-24T12:12:33.008Z Has data issue: false hasContentIssue false
  • English
  • Français

Courting Shareholders: The Ethical Implications of Altering Corporate Ownership Structures

Published online by Cambridge University Press:  23 January 2015

Cynthia Clark Williams  and
Lori Verstegen Ryan
Get access Rights & Permissions [Opens in a new window]

Abstract:

The relationship between corporate executives and shareholders has riveted the attention of business ethicists since the inception of the field. Most ethicists agree that corporate executives owe their investors the duties of loyalty, candor, and care. These fiduciary duties undergird the promises made to shareholders at the time of incorporation, placing on executives moral obligations to engage in fair dealing and to avoid conflicts of interest.

We concur that executives owe all of their existing shareholders both promise-keeping and fiduciary duties and argue that some corporate executives violate these responsibilities by attempting to withhold information from or limit information to some shareholders while courting others. We analyze the ethical implications of six techniques and tools that executives use to attract certain types of shareholders while deterring others. We conclude with recommended structural and behavioral changes to these current managerial and investor practices.

Type
Articles
Information
Business Ethics Quarterly , Volume 17 , Issue 4 , October 2007 , pp. 669 - 688
Copyright
Copyright © Business Ethics Quarterly 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Baker, A. 2003. Sell-side suspects. Investor Relations, March: 28–33.Google Scholar
Berle, A. A., & Means, G. C. 1932. The modern corporation and private property. New York: McMillan.Google Scholar
Boatright, J. R. 1994. Fiduciary duties and the shareholder-management relation: Or, what's so special about shareholders? Business Ethics Quarterly, 4: 393–407.CrossRefGoogle Scholar
Bogle, J. C. 2005a. The battle for the soul of capitalism. New York: Yale.Google Scholar
Bogle, J. C. 2005b. Individual stockholder, R.I.P. Wall Street Journal, October 3: A16.Google Scholar
Borrus, A. 2005. Investors may not want this hot line. Business Week, December 5: 82.Google Scholar
Brav, A., Jiang, W., Partnoy, F., & Thomas, R. S. 2006. Hedge fund activism, corporate governance, and firm performance. Finance Working Paper No. 139, European Corporate Governance Institute.CrossRefGoogle Scholar
Brickley, J. R., & Smith, C. 1988. Ownership structure and the monitoring of managers. Journal of Financial Economics, 20: 267–91.Google Scholar
Bunderson, J. S. 2001. Normal injustices and morality in complex organizations. Journal of Business Ethics, 33: 181–90.Google Scholar
Burns, J. 2006. SEC slows flow of PIPE deals to a trickle. Wall Street Journal, December 27: C1, C4.Google Scholar
Bushee, B. D., Matsumoto, D., & Miller, G. S. 2004. Managerial and investor response to disclosure regulations: The case of Reg FD and conference calls. The Accounting Review, 79: 617–43.Google Scholar
Bushee, B. J. 2004. Identifying and attracting the “right” investors: Evidence on the behaviors of institutional investors. Journal of Applied Corporate Finance, 16(4): 28–35.Google Scholar
Business Wire. 2004. Securities analyst and investor relations associations jointly forge guidelines for ethical conduct in the analyst-corporate relationship. March 11: 1.Google Scholar
Cassidy, J. 2002. The greed cycle. The New Yorker, September 23: 64–77.Google Scholar
Chaganti, R., & Damanpour, F. 1991. Institutional ownership, capital structure and firm performance. Strategic Management Journal, 12: 479–91.Google Scholar
Clark, C. E. 1999. Investor influence: Financial conference calls often put press on hold. Business Media Journal: 7–10.Google Scholar
Clark, C. E. 2000. Making sense of information disclosure: What every public company should know. The Strategist, 6 (3): 34–38.Google Scholar
Connelly, J. 2005. The board's eyes and ears on Wall Street. Corporate Board Member, January/February.Google Scholar
Craig, S. 2002. Securities firms do the soft sell on their ratings, Wall Street Journal, September 13: C11.Google Scholar
David, P., Kochhar, R., & Levitas, E. 1998. The effect of institutional investors on the level and mix of CEO compensation. Academy of Management Journal, 41: 200–08.Google Scholar
Davis, G. F., & Thompson, T. A. 1994. A social movement perspective on corporate control. Administrative Science Quarterly, 39: 141–73.Google Scholar
DesJardins, J. 2006. An introduction to business ethics (2nd ed.). New York: McGraw-Hill.Google Scholar
Easterbrook, F. H., & Fischel, D. R. 1996. The economic structure of corporate law. Cambridge, MA: Harvard University Press.Google Scholar
Financial Wire. 2005a. Investrend research comments about analyst coverage problems to SEC committee. May 25.Google Scholar
Financial Wire. 2005b. SEC nears paid-for research endorsement, but may leave investors confused about standards: December 12.Google Scholar
Firestein, P. 2004. What's in a perception? Investor Relations, July: 42.Google Scholar
Friedman, M. 1970. The social responsibility of business is to increase its profits. New York Times Magazine: 32–33.Google Scholar
Georgeson. 2006. Annual corporate governance review. Available at http://www.georgeson.com/en_uk/download/news/2006_ACGR_FINAL.pdf. Accessed January 20, 2006.Google Scholar
Gillan, S. L., & Starks, L. T. 2003. Corporate governance, corporate ownership, and the role of institutional investors: A global perspective. Journal of Applied Finance, Fall/Winter: 4–22.Google Scholar
Goodpaster, K. E. 1991. Business ethics and stakeholder analysis. Business Ethics Quarterly, 1: 53–73.Google Scholar
Goodpaster, K. E., & Holloran, T. E. 1994. In defense of a paradox. Business Ethics Quarterly, 4: 423–429.Google Scholar
Gorton, G., & Kahl, M. 1999. Blockholder identity, equity ownership structure and hostile takeovers. Working paper No.7123, National Bureau of Economic Research, Cambridge, MA.Google Scholar
Grossman, S., & Hart, O. 1980. Takeover bids, the free rider problem and the theory of the corporation. Bell Journal of Economics, 11 (1): 42–64.Google Scholar
Gullapalli, D. 2004. On governance, Wall Street may carry big stick. Wall Street Journal, August 31: C33.Google Scholar
Hasnas, J. 1998. The normative theories of business ethics: a guide for the perplexed. Business Ethics Quarterly, 8: 19–43.Google Scholar
Healy, P. M., & Palepu, K. G. 2001. Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting & Economics, 31: 405–40.Google Scholar
Hirschman, A. 1971. Exit, voice and loyalty: Responses to decline infirms, organizations, and states. Cambridge, MA: Harvard University Press.Google Scholar
Holderness, C. G. 2003. A survey of blockholders and corporate control. Federal Reserve Bank of New York Economic Policy Review, 9: 51–63.Google Scholar
Investor Relations Business. 2002. Do IROs really need stock surveillance? March 25: 1.Google Scholar
Jensen, M. 1989. Eclipse of the public corporation. Harvard Business Review, 67: 60–70.Google Scholar
La Porta, R., De Silanes, F. L., & Shleifer, A. 1999. Corporate ownership around the world. Journal of Finance, 54: 471–517.Google Scholar
Lev, B. 1992. Information disclosure strategy. California Management Review, 34(4): 9–32.Google Scholar
Levitt, A., à Dwyer, P. 2002. Take on the street: What Wall Street and corporate America don't want you to know. New York: Pantheon.Google Scholar
Levitz, J. 2006. Do mutual funds back CEO pay? Wall Street Journal, March 28: C1.Google Scholar
Lucchetti, A. 2007. Shares bought in the dark. Wall Street Journal, January 9: C1, C2.Google Scholar
Mahoney, B. 2000. NIRI symposium: Putting the spotlight on earnings “management.” IR Update, January: 4.Google Scholar
Mahoney, W. 1991. Investor relations: The professional's guide to financial marketing and communication. New York: Simon à Schuster.Google Scholar
Marcoux, A. M. 2003. A fiduciary argument against stakeholder theory. Business Ethics Quarterly, 13: 1–24.Google Scholar
Martinek, P. J. 2005. Court rebukes SEC's enforcement of Regulation FD. Compliance Week, September 13.Google Scholar
McEachern, W. A. 1975. Managerial control and performance. Lexington, MA: Lexington Books.Google Scholar
Mintzberg, H. 1983. Power in and around organizations. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
NIRI (National Investor Relations Institute). 1995. Issues in investor communications and corporate disclosure. Vienna, VA: National Investor Relations Institute.Google Scholar
NIRI (National Investor Relations Institute). 1998. Survey of corporate disclosure practices. Vienna, VA: National Investor Relations Institute.Google Scholar
NIRI (National Investor Relations Institute). 2002. Standards of practice. Vienna, VA: National Investor Relations Institute.Google Scholar
NIRI (National Investor Relations Institute). 2004. Standards of practice for investor relations. Vienna, VA: National Investor Relations Institute, 1–58.Google Scholar
NIRI (National Investor Relations Institute). 2006. Regular member code of ethics. Available at http://www.niri.org/about/CodeOfEthicsRegMember.cfm. Accessed April 6, 2006.Google Scholar
NYSE (New York Stock Exchange). 2004. Final NYSE corporate governance rules. Available at www.nyse.com/pdfs/finalcorpgovrules.pdf. Accessed May 17, 2004.Google Scholar
Oakley, E. F., à Lynch, P. 2000. Promise-keeping: A low priority in a hierarchy of workplace values. Journal of Business Ethics, 27: 377–92.CrossRefGoogle Scholar
Pulliam, S. 2004. Open secrets; tracking stocks: SEC probes firms. Wall Street Journal, December 8: A1.Google Scholar
Rapoport, M. 2005. Five years later: Critics felt Regulation FD would choke off the flow of information. Here's why it didn't happen. Wall Street Journal, October: R8.Google Scholar
Roe, M. J. 1994. Strong managers, weak owners. Princeton, NJ: Princeton University Press.Google Scholar
Ryan, L. V. 2000. Shareholders and the atom of property: Fission or fusion? Business & Society, 39: 49–75.CrossRefGoogle Scholar
Ryan, L. V., à Schneider, M. 2002. The antecedents of institutional investor activism. Academy of Management Review, 27: 554–73.Google Scholar
Sax, I. 2000. Shady side of the street. Investor Relations, January: 35–36.Google Scholar
Scannell, K. 2007. How borrowed shares swing company votes. Wall Street Journal, January 26: A1, A9.Google Scholar
Shleifer, A., & Vishny, R. W. 1986. Large shareholders and corporate control. Journal of Political Economy, 94: 461–88.Google Scholar
Solomon, S. 1998. How to attract analyst coverage. IR Update, April: 10.Google Scholar
Sundaramurthy, C., & Rechner, P. L. 1997. Conflicting shareholder interests. Business & Society, 36: 73–87.Google Scholar
Thompson, L. M. 2005. Sarbanes-Oxley means opportunities and challenges for companies and IROs. The CPA Journal, 75 (9): 14.Google Scholar
Thomson Financial IR Guide. 2004. The evolution of stock surveillance. Investor Relations, January.Google Scholar
Useem, M. 1996. Investor capitalism. New York: Basic Books.Google Scholar
Williams, C. C. 2004a. Siebel Systems, Inc.: Facing a new regulatory and competitive environment. Boston: Harvard Business School Publishing.Google Scholar
Williams, C. C. 2004b. Trust diffusion: The effect of interpersonal trust on structure, function and organizational transparency. Unpublished dissertation. Boston University.Google Scholar
Williams, C. C. 2005. Corporate disclosure strategies: An analysis of investor approach and institutional effects. Paper presented at the Academy of Management annual meeting, Honolulu.Google Scholar
Williams, C. C. See also Clark, C. E. Google Scholar
Zuckerman, G., & Portanger, E. 2004. Investor meetings with executives surge, add a risk of data leaks. Wall Street Journal, August 31: A31.Google Scholar