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The minority shareholders are those shareholders who are in a position to exercise control over the issues of the company. This situation may lead to a conflict of interests between the majority and minority share holders. The reasons for such conflicts and the likely effects of those conflicts on the corporate governance and the ways to solve such conflicts are discussed in this paper.
Structural reasons: The organization structure is so designed that some people may have advantages over others by having access to information and resources so that they have more of insider information. Hence, this creates an organization which is not transparent. Also the majority share holders can have control of financial resources and human resources of the company and this may create a domination over the minority group. The Institutional allocation of authority can be imbalanced and can be according to the benefit of few people. The majority share holders may have more power in decision making and when the minority do not agree for decisions they may threaten to create a deadlock until the minority group agrees.In case of proprietary companies(3), the ownership and management are overlapping and there is no distinction between the two. Hence, the company is managed in such a way that is best for the owners which may cause conflict with the minority shareholders.
Absence of Information and Factual Complexity: Withhold of valuable information causes mistrust among the minority group and this can ruin the confidence of the minority group on the management. Hence, when there is information is available freely the shareholders are not willing to believe the credibility and this can cause confusion.
Breakdown of relations: Personal relations between directors, shareholders and employees can be a cause of conflict, or can at least exacerbate conflicts caused by other factors such as loss of trust, poor communication, stereotypes of gender or class,high levels of emotion, ego clashes, cultural or gender tensions, autocratic or uncooperative behavior.
Shortage of Resources: Resources are finite in nature and when more is enjoyed by some, it is going to be less for the others which may result in conflict.
EFFECTS ON CORPORATE GOVERNANCE
According to Aleksandr Shkolnikov in his report “Protecting minority shareholders in emerging markets”(4), minority shareholders can have a major influence in the governance and overall success of a company. They can also help in the development and sustainability of capital markets. They play a major role in scrutinizing board actions and can be check on the power of the controlling group. By doing so, they create the transparency and ethical trade practices and good governance which can result in the development of the company and the industry as a whole.