Reference no: EM132994406

Striking the balance between shareholder rights and the rights of corporate managers to run firms is a challenging issue. Since most shareholders, even institutional investors, own less than 5 percent of the stock in any one firm, there are typically no controlling shareholders who can, on their own, force management to make major changes or address the key concerns of the investors. To address this issue, U.S. regulators have created guidelines that make it easy for shareholders, even small shareholders, to initiate shareholder proposals at annual shareholder meetings. Shareholders who own $2,000 or 1 percent of a firm's stock, whichever is lower, have the right to submit a shareholder proposal. Once submitted, firm management must hold a vote, where all shareholders weigh in on whether they agree that the corporation should address the issues raised in the proposal. If the proposal gets support from at least 3 percent of shareholders. its sponsor can call for a vote on it again at the next shareholder meeting.

1. How would you strike a balance to ensure that shareholders have a voice while limiting the cost of unnecessary proposals? Would there need to be a change in the rules?