Balancing Shareholder Rights vs. Managerial Authority by Loyalty Shares

Abstract

The imbalance between shareholder rights and managerial authority can be regarded as the main reason for short-termism in corporate governance. So as to mitigate short-termism, a loyalty-share structure has been suggested to be an effective solution. By exploring the causes of short-termism, this essay focuses on how loyalty shares have effects on short-termism in business. Additionally, it evaluates potential risks of loyalty shares, including unfairness, unlimited dual-class share structure, loss of profits, and less liquidity. Finally, this essay demonstrates the assignment of loyalty shares can help to resolve the problem of short-termism derived from the imbalance between shareholder rights and managerial authority.