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Models of shareholder democracy: A transnational approach

  • ABRAHAM SINGER (a1) and AMIT RON (a2)


Existing discussions about shareholder control work with a state-centric and Westphalian conception of democracy. Therefore, they see the corporation as a state-analogue: shareholders (citizens) elect a board (legislature) charged with the responsibility to ensure that the executive follows their ‘collective interest’. We claim that state-centric models of democracy are not apt for an environment of corporate governance characterised by complex interdependence, porous boundaries, and criss-crossing relations of weak allegiances. Instead, we suggest that recent theories of transnational democracy provide us with better models for thinking about ‘popular’ control in such an environment. We look at shareholder democracy not as a system where a single body representing a ‘demos’ tries to control a single executive; instead, we view shareholders as constituting multiple dêmoi which must coordinate and collaborate to control multiple corporate executives. We emphasise deliberation and communicative power as a central mechanism for these dêmoi of shareholders to effectuate control.


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1 Adamti, AR and Pfleiderer, P, ‘The ‘‘Wall Street Walk’’ and Shareholder Activism: Exit as a Form of Voice’ (2009) 22(7) The Review of Financial Studies 2445.

2 Ciepley, D, ‘Beyond Public and Private: Toward a Political Theory of the Corporation’ (2013) 107(1) American Political Science Review 139.

3 Bainbridge, S. ‘Director Primacy: The Means and Ends of Corporate Governance’ (2003) 97(2) Northwestern University Law Review 547.

4 Dahl, RA, A Preface to Economic Democracy (University of California Press, Berkeley, CA, 1985).

5 Landemore, H and Ferreras, I, ‘In Defense of Workplace Democracy: Towards a Justification of the Firm-State Analogy’ (2016) 44(1) Political Theory 53; González Ricoy, I, ‘Firms, States, and Democracy: A Qualified Defense of the Parallel Case Argument’ (2014) 2 Law, Ethics and Philosophy 32.

6 See, for example, Greenwood, DJH, ‘Fictional Shareholders: For Whom Are Corporate Managers Trustees, Revisited’ (1996) 69(3) Southern California Law Review 1024; Dunlavy, CA, ‘Social Conceptions of the Corporation: Insights from the History of Shareholder Voting Rights’ (2006) 63(4) Washington & Lee Law Review 1347.

7 Joo, TW, ‘The Modern Corporation and Campaign Finance: Incorporating Corporate Governance Analysis into First Amendment Jurisprudence Table of Contents’ (2001) 79(1) Washington University Law Review 1; Rodrigues, U, ‘The Seductive Comparison of Shareholder and Civic Democracy’ (2006) 63(4) Washington and Lee Law Review 1389.

8 Shleifer, A and Vishny, RW, ‘Large Shareholders and Corporate Control’ (1986) 94(3) Journal of Political Economy 461.

9 Greenwood, DJ, ‘Markets and Democracy: The Illegitimacy of Corporate Law’ (2005) 74(1) University of Missouri-Kansas City Law Review 84.

10 For the distinction, see Bohman, J, ‘Beyond the Democratic Peace: An Instrumental Justification of Transnational Democracy’ (2006) 37(1) Journal of Social Philosophy 127; Bohman, J, Democracy Across Borders: From Dêmos to Dêmoi (MIT Press, Cambridge, MA, 2007) 37; Christiano, T, ‘The Significance of Public Deliberation’ in Bohman, J and Rehg, W (eds), Deliberative Democracy: Essays on Reason and Politics (MIT Press, Cambridge, MA, 1997) 243.

11 Rodrigues, (n 7); Bainbridge, SM, ‘The Case for Limited Shareholder Voting Rights’ (2006) 61 UCLA Law Review 602.

12 For the former, e.g. Malleson, T, After Occupy: Economic Democracy in the 21st Century (Oxford University Press, Oxford, 2014); for the latter, Gould, CC, Globalizing Democracy and Human Rights (Cambridge University Press, Cambridge, 2004).

13 Dryzek, JS, ‘Transnational Democracy’ (1999) 7(1) Journal of Political Philosophy 30.

14 Jensen, MC, ‘Value Maximization, Stakeholder Theory, and the Corporate Objective Function’ (2002) 12(2) Business Ethics Quarterly 235.

15 Carroll, AB, ‘A History of Corporate Social Responsibility’ in Crane, A et al. (eds), The Oxford Handbook of Corporate Social Responsibility (Oxford University Press, Oxford, 2008).

16 McCarthy, MA, ‘Turning Labor into Capital: Pension Funds and the Corporate Control of Finance’ (2014) 42(4) Politics & Society 455.

17 It is important to note that the picture of corporate governance being presented here is the mainstream view of economic and legal scholarship. It does not represent a consensus. An alternative view differs from mainstream in two respects. First, shareholders are not given primacy in corporate governance but are seen as but one group of patrons from which the corporation attempts to secure asset-specific investments. The governing body is not seen as representing a particular group’s interests, but is seen as attempting to secure the viability and sustainability of the corporate enterprise as a whole. Second, and as a result, this view differs from the mainstream view in that the key problem which corporate governance is meant to address is not a principal–agent problem, but a hold-up problem: preventing any one group from taking advantage of another patron group’s vulnerable situation which results from their making an asset-specific investment. The role of corporate executive institutions is not to represent the interests of some one group (which requires governance structures to provide confidence and security), but rather as a ‘mediating hierarchy’ that locks in capital and secures team production (see Boatright, JR, ‘From Hired Hands to Co-Owners: Compensation, Team Production, and the Role of the CEO’ (2009) 19(4) Business Ethics Quarterly 471; Blair, MM and Stout, LA, ‘A Team Production Theory of Corporate Law’ (1999) 85(2) Virginia Law Review 247). We start with the conventional view because it is the most influential and widespread justification of current practices. Because our enterprise is a reconstructive account of shareholder democracy, our sights are most appropriately set on the theory which informs the current regime of corporate governance.

18 Tirole, J, The Theory of Corporate Finance (Princeton University Press, Princeton, NJ, 2006) 16.

19 Boatright (n 17); Jensen, MC and Meckling, WH, ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’ (1976) 3(4) Journal of Financial Economics 305.

20 Manne, HG, ‘Mergers and the Market for Corporate Control’ (1965) 73(2) The Journal of Political Economy 110.

21 Alchian, AA and Demsetz, H, ‘Production, Information Costs, and Economic Organization’ (1972) 62(5) The American Economic Review 777; see (n 14).

22 Easterbrook, FH and Fischel, DR, ‘Voting in Corporate Law’ (1983) 26(2) The Journal of Law and Economics 396.

23 Greenwood (n 6) 1025.

24 Fama issued the canonical argument for this ‘efficient market hypothesis’. Fama, EF, ‘Efficient Capital Markets: A Review of Theory and Empirical Work’ (1970) 25(2) The Journal of Finance 383. For a review of the critical responses, see Malkiel, BG, ‘The Efficient Market Hypothesis and Its Critics’ (2003) 17(1) Journal of Economic Perspectives 59.

25 Lee, IB, ‘Citizenship and the Corporation’ (2009) 34(1) Law & Social Inquiry 151.

26 J Dryzek (n 13); Bohman (n 10); McGrew, A, ‘Transnational Democracy’ in Carter, A and Stokes, G (eds), Democratic Theory Today (Polity, Cambridge, 2002) 269.

27 Bohman, J, ‘Decentering Democracy: Inclusion and Transformation in Complex Societies’ (2004) 13(2) The Good Society 49; Bohman (n 10) 31.

28 Easterbrook, FH and Fischel, DR, Economic Structure of Corporate Law (Harvard University Press, Cambridge, MA, 1991) 72–3; Bainbridge, SM, The New Corporate Governance in Theory and Practice (Oxford University Press, Oxford, 2008).

29 Our reconstruction focuses on corporate governance as it is practised in the United States. We believe, however, that a similar argument can be made in regard to corporate law and corporate governance in other jurisdictions and contexts. Perhaps other systems of corporate governance, e.g. in Germany, China, or Japan, may entail different standards and therefore different analyses.

30 Waite, KW, ‘The Ordinary Business Operations Exception to the Shareholder Proposal Rule: A Return to Predictability’ (1995) 64(3) Fordham Law Review 1253.

31 Eisenberg, MA, ‘The Legal Roles of Shareholders and Management in Modern Corporate Decisionmaking’ (1969) 57 California Law Review 1; Vogel, D, Lobbying the Corporation: Citizen Challenges to Business Authority (Basic Books, New York, NY, 1978).

32 Nicholson, HA, ‘Securities Law: Proxies Pull Mutual Funds into the Sunlight: Mandatory Disclosure of Proxy Voting Records’ (2004) 57 Oklahoma Law Review 687; Kinder, PD, ‘New Fiduciary Duties in a Changing Social Environment’ (2005) 14(3) The Journal of Investing 24.

33 Easterbrook and Fischel (n 28) 66.

34 Freeman, RE, ‘The Politics of Stakeholder Theory: Some Future Directions’ (1994) 4(4) Business Ethics Quarterly 409.

35 Ertimur, Y, Ferri, F and Muslu, V, ‘Shareholder Activism and CEO Pay’ (2011) 24(2) Review of Financial Studies 535.

36 See ‘Vanguard’s View: Social Concerns and Investing’ at <> (accessed 27 May 2015).

37 Compare with Dryzek (n 13).

38 Finnemore, M and Sikkink, K, ‘International Norm Dynamics and Political Change’ (1998) 52(4) International Organization 887.

39 van Marrewijk, M, ‘Concepts and Definitions of CSR and Corporate Sustainability: Between Agency and Communion’ (2003) 44(2) Journal of Business Ethics 95.

40 Lee makes a comparable argument, contending that shareholder resolutions are better understood as ways of appealing to ‘reasons potentially acceptable to the general body of shareholders’ and less as plebiscites. However, Lee raises this point to bolster his argument that ‘citizenship’ is a helpful way to understand corporate governance and corporate law, which is to make recourse to the types of Westphalian concepts we are trying to distance ourselves from. Still, that analysis and ours overlap in the contention that politics, governance, and authority are crucial for understanding the corporation. See (n 25) 151.

41 Habermas, J, Between Facts and Norms: Contributions to a Discourse Theory of Law and Democracy (MIT Press, Cambridge, MA, 1996) ch 7.

42 Fraser, N, ‘Re-Framing Justice in a Globalizing World’ in Lovell, T (ed), (Mis)recognition, Social Inequality, and Social Justice (Routledge Press, London, 2007) 1735.

43 We use the term ‘all-affected’ as a stand-in for wider democratic participation. Recent works in democratic theory offer a more complex understanding of logics of democratic inclusion and exclusion. The point that we make here is that exchange of reasons is not a sufficient condition for democracy. See Bauböck, R, Democratic Inclusion: Rainer Bauböck in Dialogue (Manchester University Press, Manchester, 2017); Bader, V, ‘Democratic Inclusion in Polities and Governance Arrangements’ (2017) Constellations 1 <>; Ron, A, ‘Affected Interests and Their Institutions’ (2017) 4(2) Democratic Theory 66.

44 Friedman, M, ‘The Social Responsibility of Business Is to Increase Its Profits’ (1970) The New York Times Magazine (13 September 1970).

45 See Hutchinson, AC, The Companies We Keep: Corporate Governance for a Democratic Society (Irwin Law, Toronto, ON, 2005).

46 Our distinction between weak and strong public sphere follows Fraser, N, ‘Rethinking the Public Sphere: A Contribution to the Critique of Actually Existing Democracy’ (1990) 25/26 Social Text 56.

47 Drucker, P, The Unseen Revolution: How Pension Fund Socialism Came to America (Harper Collins, New York, NY, 1976).

48 See Davis, RB, Democratizing Pension Funds: Corporate Governance and Accountability (University of British Columbia Press, Vancouver, BC, 2008).

49 Lenzner, R, ‘The Farce of Shareholder Democracy’ Forbes (24 December 2011).

50 Posner, RA, ‘Free Speech in an Economic Perspective’ (1986) 20(1) Suffolk University Law Review 1.

51 Fung, A, ‘Deliberation before the Revolution: Toward an Ethics of Deliberative Democracy in an Unjust World’ (2005) 33(3) Political Theory 397.


Models of shareholder democracy: A transnational approach

  • ABRAHAM SINGER (a1) and AMIT RON (a2)


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