Why Shareholder Rights Matter
When investors buy shares of a public company, they become owners of the company, with the right to participate in its profits and losses. However, they generally do not have the right to participate in the day-to-day running of the company. Ownership instead comes with other rights, such as the right to vote on certain matters affecting the company and the right to receive certain disclosures and inspect company documents. These rights help ensure that shareholders are treated fairly and equitably and that they can raise concerns and hold company boards and management accountable. And these rights work in tandem: Shareholders need companies to provide meaningful disclosures so that they can vote on matters in an informed way.
The Importance of Shareholder Rights
While shareholders at public companies generally have the right to vote on certain matters and to receive disclosures, these rights are not applied the same way at every public company. At some companies, shareholders have strong voting rights and receive comprehensive, detailed disclosures, while at others, shareholder rights and disclosures are weaker.
Shareholder rights are reflected in market prices. All else equal, stronger shareholder rights—and more robust corporate governance practices in general—can reduce perceived risk and lead to lower discount rates, resulting in higher valuations. Conversely, weaker shareholder rights can increase perceived risk and lead to higher discount rates, resulting in lower valuations. Because of this link between shareholder rights and valuation, one of Dimensional’s perennial stewardship priorities is to encourage portfolio companies to strengthen and maintain shareholder rights.
Why Voting Matters
The ability to vote on certain matters is a fundamental shareholder right. Voting allows shareholders to register their concerns and potentially prevent management from taking actions that may negatively impact shareholder value.
For example, a company that is the subject of a hostile takeover1 might consider adopting a poison pill—an anti-takeover device designed to deter hostile takeovers by allowing shareholders other than the potential acquirer to buy discounted shares, thereby diluting the ownership of the potential acquirer and making the takeover more costly. Company management may have its reasons for resisting a hostile takeover; however, the company’s shareholders may prefer the takeover to occur because shareholders would benefit if the company were acquired above its current valuation. Putting a poison pill to a shareholder vote gives shareholders the opportunity to object and make any concerns known to management. At Dimensional, we generally vote against poison pills, because by limiting the ability of the market to operate freely, they could prevent a takeover that could increase shareholder value. In some markets, including the US, companies can adopt poison pills without first submitting the proposal to shareholders. If a portfolio company adopts a poison pill without putting it to a shareholder vote, Dimensional may vote against directors at that company, as well as at any other portfolio company where those directors may serve.
Voting against directors is a key way that shareholders can hold directors accountable for actions that may negatively impact shareholders and thus is one of the most important shareholder rights. When a company’s management and directors are not accountable for their performance, shareholder value suffers.2 For this reason, Dimensional believes that all directors at a portfolio company should stand for reelection each year. Staggered or classified boards, where only certain directors stand for election each year, insulate directors from immediate accountability to shareholders, and Dimensional generally views this as a poor governance practice.
Other policies and actions that may affect shareholder rights, such as share issuances and cumulative voting,3 are also often put to a shareholder vote. Dimensional generally votes against management proposals that seek to introduce provisions that limit shareholder rights and generally votes for management and shareholder proposals that seek to expand shareholder rights. From July 1, 2025, to June 30, 2026, we supported 49 management and shareholder proposals at US companies to adopt annual elections for directors (rather than biannual or triannual) and voted against directors at 65 US companies for adopting poison pills without shareholder approval.
Why Shareholders Should Have Equal Voting Rights
At most public companies, shareholders are treated equally: One share of the company is entitled to one vote.4 But alternative structures also exist. In a dual-class share structure, a company has two classes of common stock with different voting rights. For example, a company could issue Class A shares to the public that carry one vote per share and then issue Class B shares to founders and insiders that carry 10 votes per share.5 The shares issued to founders and insiders that carry more voting power are often referred to as “super voting” shares.
When the public class of stock has limited voting power, this reduces the ability of ordinary shareholders to hold the company’s board and management accountable, and it reduces the ability of shareholders to prevent management from taking actions—like adopting poison pills—that could negatively impact shareholder value. For these reasons, Dimensional generally supports management and shareholder proposals that seek to remove unequal voting rights structures.
Why Shareholders Need Meaningful Disclosures
In addition to mechanisms for holding boards and management accountable, shareholders also need companies to provide meaningful disclosures so that they have the information they need to cast an informed vote. For example, a company’s business model will heavily influence how the company chooses to compensate its executives, both in terms of how compensation plans are structured and how performance is assessed. Because there is no uniformity among companies’ compensation plans, even within the same industry, shareholders rely heavily on company-specific disclosures to understand how the company has arrived at compensation decisions. However, it is not necessarily the case that a company with a complicated executive compensation plan will provide more extensive or detailed disclosures than a company with a simpler plan, nor do rules necessarily require them to.
After the 1929 stock market crash, the US Congress passed laws requiring publicly traded companies in the US to disclose important information to keep investors informed, and over the years, the US Securities and Exchange Commission (SEC) has adopted rules specifying the information that US public companies must disclose on a regular basis, including information about executive compensation.6 Recently, as part of its efforts to encourage companies to go and stay public, the SEC proposed amendments that would reduce disclosure requirements for the majority of public companies. If the SEC’s proposal is adopted, companies in their first five years of being public and approximately 81% of all existing public companies would no longer be required to make certain disclosures.7
Footnotes
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1. A hostile takeover occurs when a company acquires another company against the wishes of the acquired company’s management and board of directors.
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2. See Mathieu Pellerin, “The Economics of Corporate Governance” Dimensional Fund Advisors, September 2022.
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3. Under cumulative voting, if three seats are open, shareholders get three votes each, which they can allocate across open seats as they see fit. For instance, a single shareholder could cast their three votes in favor of a single candidate.
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4. According to the Council of Institutional Investors, approximately 9 in 10 public companies in the US have a single class of voting stock.
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5. The academic literature on whether the effect of dual-class shares on firm value is positive or negative is mixed. For more, see “The Economics of Corporate Governance.”
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6. In May 2026, the SEC proposed rules that would permit public companies to report semiannually, rather than quarterly as currently required. Dimensional’s findings on the potential impact of financial reporting frequency and market premiums are available here.
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7. The SEC’s proposal is available here.
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