Because individual shareholders often don't have any direct control over the
corporation. Executive management has day-to-day control. The Board of Directors
has oversight over executive management. But the little guy who "owns" a few
shares in the company through a mutual fund in his 401k, or even owns a couple
hundred shares directly, has effectively no say over what the company does. Even
if he votes, his shares are overwhelmed by the large blocks held by the major
shareholders.
Note that the corporation doesn't provide total protection.
Shareholders can be held responsible to the extent that they actually directly
participated in and controlled the decision-making that led to the corporation's
actions. Or at least they're supposed to be. The structure's supposed to
separate mere investment from actual control over (and responsibility for) what
management does.
Personally I think what we need most is a) a ruling that
corporations aren't people, they're merely entities that're allowed for
convenience to act as if they had an existence separate from that of their
investors, and b) courts and regulators willing to tell corporate management and
the boards of directors "If you didn't know what was happening and exercise
control over it, you should have. It's your job, and you can't escape
responsibility by refusing to do it. If you didn't want to do it, you knew how
to hand in your resignation.". [ Reply to This | Parent | # ]
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