ABSTRACT
This chapter introduces a new understanding in which shareholder activism could theoretically function in corporate governance without substantially undermining board authority. Dissatisfied shareholders in public companies have basically two options: exit the company or speak out against the board and management. The proponents of shareholder primacy theory conceive agency cost problems as the primary targets of company law and, therefore, shareholder activism is usually perceived as being able to improve the efficiency of corporate governance which, in turn, enhances shareholder value and firm value. Director primacy and shareholder primacy theories adopt polar normative positions and assume that an increase in the accountability of directors to shareholders means a decrease in board authority or vice versa. The confrontational understandings of director primacy and shareholder primacy theories and inconclusive empirical studies, therefore, fail to provide an adequate intellectual basis for the reform discourse on the desirability of shareholder activism.
