Until the early 20th century , shareholders wielded minimal influence over U . S . corporations , with notable changes instigated by industries such as railroad conglomerates . To sidestep antitrust accusations and manipulate competition , for example , railroad companies created “ communities of interest ” by buying shares in one another , frequently installing their financiers and bankers on targeted companies ’ boards . However , increased antitrust enforcement from the Supreme Court discouraged these practices by 1912 .
Investors remained undeterred . Throughout the 1920s Merger Wave , shareholders amassed large stakes in various companies , eroding the traditional influence of company founders , executives , families , as well as other stakeholders like employees , trade unions , suppliers , customers , and local communities . The momentum of the shareholder rights movement surged following the stock market crash in 1929 , which prompted legislation aimed at increasing transparency granting shareholders increased authority and information access .
During World War II , U . S . industrial power was centralized under government control . This trend , however , waned after the conflict concluded , leading to a resurgence of privatization that benefited shareholders as control shifted away from government oversight . Despite initially dominating the post-WWII economic landscape , U . S . companies began encountering tougher competition from global rivals by the 1960s , hindering their growth .
During the 1970s , prioritizing stock price growth for shareholders gained traction . However , it was the 1980s when this mindset became institutionalized , with legal rulings such as Smith v . Van Gorkom , ( 1985 ) and Revlon , Inc . v . MacAndrews and Forbes Holding , Inc . ( 1986 ) affirming corporations ’ duties to shareholders .
Amendments to corporate laws aimed to enhance shareholder rights , enabling actions like director nominations , and voting on executive pay . Executive stock rewards thus began to increase , incentivizing risk-taking for short-term gains . Additionally , the 1986 Tax Reform Law cut the individual top tax rate and fueled heightened interest in shortterm stock trading .
The evolution of institutional investors also played a pivotal part in reshaping the financial landscape . The growing role of hedge funds , 401 ( k ) pension plans managed through mutual funds , and the introduction of other major asset management firms like Vanguard and BlackRock began to herald a new era in the stock market and corporate governance .
In the decades up to the 1980s , corporate raiding had become increasingly common . However , regulatory changes during the 1980s lifted restrictions on mergers and acquisitions , leading to the peak of the U . S . corporate raiding era . During this time , riskier , higher-return bonds called “ junk bonds ” and leveraged buyouts involving a large amount of borrowed money to purchase a company evolved into crucial financial tools for funding corporate takeovers . Companies often targeted struggling companies or undervalued firms , acquiring them with the intention of privatizing operations , slashing costs , divesting assets , and eventually reintroducing them to the public market .
In response to these attempts , entrenched corporate management networks implemented defensive strategies . They issued new shares to existing shareholders as poison pills , diluting the ownership stake of prospective buyers . Dualclass share structures allowed company insiders to maintain their control even with a minority of shares . Staggered boards meanwhile divided boards into different classes to make it difficult for outside entities to gain control . However , many still found themselves compelled to yield to the demands of institutional investors .
While corporate raiding declined in the early 1990s , the concept of stock prices as the primary measure of a company ’ s performance , thereby ensuring shareholder loyalty , was established . With more individuals and pension funds investing in the stock market and the Dow Jones Industrial Average becoming an even more important economic indicator , increasing shareholder value had become the prevailing corporate imperative by the close of the 20th century .
Criticism of the shareholder value system and its repercussions , such as job outsourcing and soaring CEO pay , continued into the 2000s and remains widespread . Boeing ’ s diversion of pandemic relief funds for stock buybacks highlights the issue of prioritizing immediate shareholder gains over long-term stability and growth .
Boeing ’ s actions , though legal due to a 1982 SEC ruling that legitimized buybacks , received public criticism without significant consequences . Nevertheless , Boeing ’ s ongoing troubles with the safety of its planes have been exacerbated by the lack of investment . Several incidents have led to a notable decline in its share price over the last few months , erasing the benefits achieved through short-termism policies .
The evolution of corporate culture toward shareholders has occurred globally but to a lesser extent in other capitalist countries . In South Korea and Japan , stakeholder consensus among customers , suppliers , and the community remains more prominent . Long-term relationships are common with employees and suppliers , facilitating trust and collaboration throughout the supply chain , though efforts to increase the influence of shareholders are ongoing .
Many European firms have traditionally been characterized by high levels of ownership by founding families and governments . While this has slowly changed , there remains a culture of “ codetermination ” in Germany and other European Union ( EU ) countries . This model grants greater rights to employees in the decision-making process , with a focus on stability and job preservation , and returned after Germany pursued more shareholder-friendly policies during the 1990s .
In contrast , the UK shares a corporate structure more akin to that of the U . S ., and it remains Europe ’ s financial powerhouse even after Brexit . However , the UK only has 15
26 x The Trial Lawyer