April 17, 2008
Shareholder Democracy and the Myth of the Mom and Pop Investor
Posted by Lisa Fairfax

One interesting thread of conversation at the ABA session on shareholder power was a discussion about mom and pop investors. Some panelists argued that individual middle income casual investors or so called-mom and pop investors were more imagined than real. However, they pointed out that the image of such investors has been used to distort the discussion regarding the legitimacy of shareholder democracy and power. This is because the rhetoric regarding shareholder democracy suggest that the market is full of small or individual investors at risk of being victimized by powerful corporations. That image gives shareholder democracy credibility because it is consistent with America's broader notions of a democracy whereby participatory rights are necessary to protect relatively powerless individual citizens from a larger more powerful central entity. However, these panelists mainatined that the image of the mom and pop investor so often relied upon by shareholder democracy rhetoric does not recognize and/or has not caught up with the reality that such investors do not exist in any meaningful way. Instead, shareholders tend to be powerful entities in their own right. From this perspective, while shareholder democracy seems appealing when applied in the context of the relatively few mom and pop investors, it loses its force when considered against the reality of investors with tremendous resources and expertise. In this regard, the notion of the mom and pop investor warps the debate on the legitimacy of shareholder democracy.

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