SHAREHOLDER POWER AS AN ACCOUNTABILITY MECHANISM: THE 2017 SHAREHOLDER RIGHTS DIRECTIVE AND THE CHALLENGES TOWARDS ENHANCING SHAREHOLDER RIGHTS

The 2017 Shareholder Rights Directive has paved the way towards adopting a model where shareholder power can be used as an accountability mechanism in European corporate governance by amending the 2007 Shareholder Rights Directive to encourage active shareholder participation. This model can ensure good governance practices, but practical implications can challenge its effectiveness. This paper seeks to outline the merits and the challenges this model must overcome to be effective. The Directive manifests EU corporate law’s adoption of a model where shareholders power is used to confer accountability in corporate governance. Despite the model’s merits, there are implications that may impede its effectiveness. Firstly, several problems related to agency capitalism and the establishment of collective action, such as participation costs, disclosure of information; free-riding and incentives of exercising shareholder rights can significantly affect proper shareholder engagement. Secondly, another implication is found on shareholder short-termism and the basis on which shareholder power is to be exercised to confer accountability. Though the Directive addresses these issues to some extent, the appropriate consideration of all issues of these implications is paramount. As such, the Directive is only the starting point towards the facilitation of shareholder power act as an accountability mechanism.