Strengthening Shareholders Control of Companies in Ethiopia: Minimizing Agency Cost

Abstract

Shareholders are normally owners of the corporation’s assets and the fact that such assets are controlled by the management body is the cause for many of the problems in corporate governance. Agency problems arise when the agent does not share the principal’s objectives. Shareholders meeting as management organ can play sizeable (significant) roles in minimizing the departure between these interests. The query of the paper is how to enhance role of shareholders in corporate governance upon which they invested their capital. The proliferation of initial public offering of shares while it is not thoroughly regulated is leaving its black spot on future development of corporate culture in Ethiopia. The researcher firmly urges that reforms meant to enhance shareholders control on a company should be made to reduce agency costs. They include, among other things, possibility of derivative suits by shareholders, access of electronic voting, possibility of voting by mail, facilitating sufficient information disclosure mechanisms, adopting advisory voting and the rules necessary to such vote, facilitating easy exit mechanism to shareholders dissatisfied by majority holders, fixing maximum number of shareholders to avoid dispersed share ownership structure, avoiding short time and resource encumbrances to challenge resolutions adopted contrary to the law and the company statutes, and avoiding unnecessary bureaucracy when shareholders petition to the Ministry to appoint investigators.