With shareholder supremacy, the board is accountable to all shareholders, including minorities, enforced by restrictions on managerial opportunism. The market for corporate control and scrutiny of diversified institutional investors provide the mechanisms for disciplining managers to act in shareholders’ interests. Along with legal protections for minorities, these mechanisms ensure the supremacy of shareholders as a stakeholder group. Shareholder value maximization, as a theory and a set of financial techniques, provides quantitative outputs that drive managerial behavior. From a historical perspective, shareholder supremacy is a late twentieth-century phenomenon according to these definitional characteristics. History also reveals that shareholders have exercised dominance in other ways and that their power as a stakeholder group has waxed and waned over time as the governance role of investors has changed. Shareholder supremacy can be asserted in a number of ways. Shareholder activism and transparent structures of accountability are sufficient conditions in some circumstances. The suitability of this model is dependent on market structure and favored where there are local monopolies or businesses that have a narrow scope of activities. Alternatively, shareholders as active institutional investors can play a dominant role utilizing the market for corporate control. Collaboration with board insiders committed to expansion by takeover and merger is crucial to the success of this model. Finally, and most recently, the complementary presence of the market for corporate control, diversified institutional investors, and minority protection underpins present-day shareholder supremacy. In this model, the use of a common valuation technique is crucial. History reveals differing routes to shareholder supremacy, which have followed from developments in the institutional structure of regulation and changes in shareholding patterns.
