Nearly 400 years ago, angry shareholders of the Dutch East India Company pushed for more rights and accused directors of self-dealing. In 19th century America, stockholders kept a close watch on public companies that operated bridges, canals, banks and especially railroads, which resulted in numerous fights for control.
Not much more is known about the early days of shareholder activity, says Colleen Dunlavy, a professor in the Department of History at the University of Wisconsin-Madison. There is a dearth of documentation, including in companies' archives.
But there were two key institutional developments in this country. "One of the big changes over the 19th century was the increasing use of proxies and the corresponding decline in in-person attendance at shareholder meetings," says Dunlavy, whose research focuses on the history of shareholder voting rights.
Attendance--and therefore in-person voting --was more robust before the Civil War. The voting model for business corporations was based on municipal corporations, according to Dunlavy. City residents could not vote by proxy, and neither could early shareholders without explicit sanction in law. Voting by proxy became common after the Civil War, as more companies expanded their geographical reach, although some railroads in the 1850s offered free passes to shareholders to make it easier and less costly to attend, she says.
A second significant modification was the move to cumulative voting, a system that fosters consolidation of votes for better representation. If a shareholder has 100 shares and three directors are being elected, the shareholder --instead of casting 100 votes for each director--may cast all 300 votes for a single director. "By the 1880s, one vote per share was the norm in the U.S.," Dunlavy said. "Cumulative voting was a modest effort to counteract the dominance of the largest shareholders and push the balance of power back to the small shareholder."
But it is the last century that has been the most turbulent period for corporate oversight and power struggles between management and shareholders, says Jeff Gramm, author of Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, which chronicles the evolution of shareholder behavior, highlighted by letters from activist investors like Warren Buffett and Ross Perot. "If no one is paying attention, most boards will act in self-preservation rather than doing right by shareholders," he says.
A letter written...