The Seductive Comparison of Shareholder and Civic Democracy

I. Introduction"Democracy" is a powerful word in America. Perhaps that is why many commentators cannot resist comparing the workings of democracy within the corporation with those of democracy in the more familiar political realm. Colleen Dunlavy makes such comparisons in Social Conceptions of the Corporation: Insights from the History of Shareholder Voting Rights,1 shedding light on what a corporation's being more or less "democratic" might mean. She uses history to point out that it is not natural or obvious that votes should be allocated on the basis of share ownership.2 Indeed, in early corporate America, each shareholder (rather than each share) received a vote.3 This allocation, she implies, is more truly democratic than allocating one-vote-pershare.4This Comment briefly describes Dunlavy's treatment of democracy in the political and corporate worlds, and goes on to discuss how similar kinds of democracies exist in both spheres. It then focuses on one little-explored element of the political-world/corporate-world comparison by developing the striking parallel between the operations of the Electoral College in the national political setting and of boards of directors in the corporate world. The Comment then steps back from this subject and argues that comparisons between the corporate and civic polities, while intellectually tempting, ultimately falter because participation in a corporation fundamentally differs from participation in a nation. Shareholders are not citizens; their investments are voluntary and relatively liquid, and their proxy ballots lack the meaning and power of citizens' votes. The exploration of the Electoral College/board of directors analogy ultimately dead-ends because the board of directors, unlike the modern Electoral College, plays a real and useful role in governance. All of this confirms that Dunlavy's reflections are helpful and provocative. Their primary value, however, lies more in illuminating the role of the shareholder within the corporation than in raising a sustainable critique of corporate law's failure to protect "shareholder democracy" itself.II. Comparing Corporate and Political DemocracyShareholder democracy has many advocates today, most of whom take for granted the idea that this form of "democracy" means that each share of stock equals one vote. Dunlavy reminds us that there is nothing natural about such a division of voting power within a corporation and that, in fact, voting rules of the nineteenth century deviated from this now-familiar pattern.5 Dunlavy characterizes the current one-share-one-vote model of shareholder democracy as "plutocratic" because it allows the wealthier (or, at least, larger) shareholders to have more of a voice in governing the corporation.6 She contrasts this approach with the older, more truly "democratic" version of shareholder democracy, under which each shareholder was given equal voting power regardless of his or her level of share ownership-or at least there was a cap on the voting power that came with the ownership of large numbers of shares.7In examining the meaning of "democracy," Dunlavy draws a parallel between civic and corporate polities. Each involves a "body politic" (nation or corporation), and each must distribute power among its constituents.8 She is not interested in the vertical relationships so familiar to corporate law scholars-those between manager and employee, or manager and shareholder.9 Instead, she urges us to consider the horizontal shareholder-shareholder relationship.10 By virtue of the one-vote-per-share principle, larger shareholders inevitably have a greater say in corporate governance than do smaller shareholders. One might say that although all shareholders are theoretically equal, some are more equal than others-in striking contrast to the operation of our modern political system, which is built on the principle of "one person, one vote."11A. As Politics Democratized, Corporations Became PlutocraciesAs Dunlavy notes, the one-person-one-vote rule has not always dominated American political or corporate life. …