Social Conceptions of the Corporation:Insights from the History ofShareholder Voting Rights

I. Introduction1Power is distributed among the shareholders of today's corporations in a great variety of ways. Evidence of this diversity is readily apparent in shareholder voting rights, which, by their very nature, define relations of power among shareholders. A study of voting rights in 300 large European corporations in mid-2004, commissioned by the Association of British Insurers (ABI), found that more than one-third of these companies had something other than a one-vote-per-share voting rule.2 An official of the ABI, which advocates one-vote-per-share voting rules, summarized the "deviations" in these words:European companies use an extraordinary cocktail of devices to restrict the voting rights of their shareholders. For example, one in 20 imposes an ownership ceiling, limiting the stake of individual owners; one in 10 companies impose[s] a voting right ceiling limiting the right of individual holders to register their opinion by voting at annual meetings. Then there are priority shares, granting specific powers to their holders. A fifth of companies analyzed issue shares with multiple voting rights, which give additional rights to selected shareholders.3Deviations from one-vote-per-share have multiplied in the last two decades in the United States as well. For much of the twentieth century, the New York Stock Exchange refused to list the shares of companies that issued non-voting common stock, but it dropped this restriction in 1985, and dual-class shares have become increasingly common since then. Between 1994 and 2001, according to Marco Becht and J. Bradford DeLong, the number of listed firms with dual or multi-class shares more than doubled to 215. Typically, such firms issue one class of shares bearing one-vote-per-share and a second class bearing ten votes per share-the latter held by a small group of individuals, often family members, that do not circulate freely in the market. "The United States today," they observe, "is not exceptional in its rules. The law of many states allows corporations to issue shares with no voting rights, limited voting rights, contingent voting rights, or multiple voting rights."4 In the United States as well as Europe, in short, voting rights are used to apportion power among shareholders in a variety of ways.Current theories of the corporation have little to say about this diversity, no matter how one draws lines to distinguish among them.5 The contractarian model, which has dominated legal scholarship for the last couple of decades, envisions the corporation as a "nexus of contracts" and imagines the contracting parties (managers, shareholders, employees, suppliers, customers) as acting individually as equals in the bargaining process (aside from differences in information and other resoures). At most this may imply a pluralist distribution of power between bargaining parties, but it has little to say about what I call horizontal power relations: in this case, power relations within the category of shareholders. Other theories acknowledge vertical power relations within the corporation, both in the principal-agent relationship that links shareholders to managers and in the managerial hierarchies characteristic of the modern corporation. But here, too, shareholders are assumed to have identical interests-all cut from the same cloth, all intent on maximizing profits or share values. In Daniel Greenwood's phrase, they are "fictional shareholders," fundamentally alike and "fundamentally different from the human beings who ultimately stand behind the fiction."6 Although the interests of managers and shareholders, or of managers and employees, may diverge, no divergence of interest among shareholders is theoretically possible. The notion of power relations among shareholders, therefore, has little relevance.For insight into the significance of different ways of distributing power among shareholders, this essay turns to history and analyzes shareholder voting rights in political terms. …