Shareholder preferences and shareholder democracy: Aligning corporate governance with societal expectations

Shareholders’ role in corporate governance has evolved in recent decades, even in jurisdictions where shareholder influence is limited. Traditionally, shareholder interests were held to be narrowly focused on maximising financial returns, with governance practices structured around this objective. However, growing awareness of environmental, social, and governance (ESG) issues has shifted the conversation. Shareholders today are increasingly vocal about matters beyond maximising financial performance, such as climate change, social justice and corporate responsibility.

This evolution raises critical questions about shareholders’ power over the company and to what extend that power takes a democratic form. To enhance corporate governance and align with shareholder preferences, the EU should strengthen the Shareholder Rights Directive II by making ESG resolutions binding, standardise ESG reporting for consistency, promote engaged shareholding, recognise the increasing importance of proxy advisors, empower the general meeting to approve sustainability reports and expand stewardship codes across Member States for active institutional investors. 

Apostolos Thomadakis is Head of Research at ECMI and Research Fellow at CEPS. The article was originally published on the Harvard Law School Forum on Corporate Governance on December 10, 2024.