Journal of Management and Governance 8: 187–197, 2004. © 2004 Kluwer Academic Publishers. Printed in the Netherlands. 187 Reports and Bulletins Shareholders and Corporate Elections S. P. CHAKRAVARTY 1 , J. A. GODDARD 2 and L. HODGKINSON 1 1 School for Business and Regional Development, University of Wales, Bangor, LL57 2DG, UK, E-mail: s.p.chakravarty@bangor.ac.uk; 2 Department of Economics, University of Wales Swansea, Swansea SA2 8PP, UK Abstract. Concern about the need to address the problem of conflicts of interest between manage- ment and shareholders has led to calls on shareholders to exercise their voting rights at the annual general meetings. It is argued here that the distribution of shareholding in the UK companies creates a complex pattern of incentives and disincentives for the holders of even larger blocks of shares to participate in the voting process. Whether the effort to participate is rewarded depends in an unpredictable manner on the distribution of large block shareholdings, and also on the percentage of the holders of small parcels who exercise their right to vote. A clear choice set is needed to arrive at a rational decision concerning the exercise of franchise, but that is not available. Key words: agency, corporate governance, elections 1. Introduction This study builds on a previous paper (Chakravarty and Hodgkinson, 2001) published in the Journal of Management and Governance, relaxing some of the assumptions and utilising a larger data set. The study provides ‘falsifying’ evidence to counter the view implicit in discussion on corporate governance that there is a monotonic relation between the concentration of share ownership and the incentive to exercise control. 1 In the earlier paper, the incentive to exercise control was measured by the voting power of shareholders. The philosophical basis underlying the construction of voting power indices has come into question in recent years (Morriss, 2003; Garrett and Tsebelis, 1999; Felsenthal and Machover, 1998). 2 There are problems with the use of voting power indices in that they conflate preference with power, and power with influence. The voting power of an indi- vidual is measured in the power index literature in terms of the critical importance of that individual for coalitions to form or survive. No account is taken about how much the person may wish to be in one particular coalition rather than another. Suppose that I am required for a winning coalition to form. That does not neces- sarily tell me how likely it is that I should be able to get the coalition to order policies in exactly the same sequence of priorities that I should like to place them. These indices, as they are calculated, do not reflect the fact that preferences are not always articulated in isolation. Coalitions are formed and they are broken up by strategic decisions taken by the participants in the game of coalition form-