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 shareholders. The reasons for such conflicts and the likely effects of those conflicts on 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 insider information. Hence, this creates an organization which is not transparent. Also, the majority of shareholders can have control of financial resources and human resources of the company and this may create domination over the minority group. The Institutional allocation of authority can be imbalanced and can be according to the benefit of a few people. The majority of shareholders may have more power in decision making and when the minority does not agree for decisions they may threaten to create a deadlock until the minority group agrees. In the 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.
The 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.