Publication: Protecting Minority Shareholders in Closely Held Firms
Date
1999-07
ISSN
Published
1999-07
Author(s)
Leechor, Chad
Abstract
In all but a few advanced countries most
publicly listed corporations are closely held, with the main
shareholder typically playing an active role in management.
In emerging markets firms with active owner-managers provide
effective business solutions where business environments are
characterized by corruption and weak contract enforcement.
But they also pose a significant risk of asset expropriation
for minority shareholders. To promote investor confidence
and develop successful securities markets, this risk must be
mitigated. Some policy analysts argue that the way to do
this is to restrict ownership concentration. Such a step
could cause serious harm. This Note argues instead for
mitigating risk by strengthening corporate laws to safeguard
minority shareholdings, ensuring that markets for corporate
control work, and enforcing disclosure requirements for
firms and ethical standards for public officials. Modern
publicly traded corporations are commonly perceived to have
widely dispersed ownership and a separation of ownership and
control, with the control delegated to professional
managers. The owners of the firm rely on the board of
directors to supervise the managers, voting only on major
strategic decisions. The key issue of corporate governance
in this situation is to ensure that managers act in the best
interest of the shareholders. The board therefore plays a
pivotal role.
Citation
“Leechor, Chad. 1999. Protecting Minority Shareholders in Closely Held Firms. Viewpoint. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/42f0aad1-5811-51ac-8ba3-89508f223af7 License: CC BY 3.0 IGO.”
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