When is one vote not equal to another?

• Author: Shaw, David
• Position: ENDNOTE

We've had some lively discussions among our staff on our "The State of Corporate Democracy" section in this issue. Does a single share "count" as much as two shares, or a million? Do small activist shareholders have an equal right to the time and attention of the board and the executive team as shareholders with large stakes or institutional shareholders?

The purchase of a share of stock is already a vote--usually a vote of confidence in a company's ability to deliver a return on investment in that share, through an increase in share price (and a regular dividend if that's offered). If the share is in a mutual fund, it's a vote of confidence in the fund manager's ability to outperform other investment options. If it's in an index fund, that's a vote of confidence on the overall performance of a basket of stocks. In some cases, activist investors will purchase large blocks of shares as a vote of confidence in their own ability to effect changes at the company, or be paid to go away. In any event, the buying of a share of stock is itself a vote, which carried with it other voting rights and responsibilities.

There are similarities between American democracy and corporate shareholder democracy. Shareholders elect board members--who have fiduciary responsibility to exercise a duty of care and duty of loyalty--to represent their interests. This compares with the American process of electing members of the House and the Senate, though Americans also vote for their president, while shareholders rely on the board to select and nurture the company's leadership.

In national American politics, one vote is not truly equal with another. At least a disgruntled shareholder can sell his or her stake.

There are also key differences. There's no electoral college in corporate democracy, weighing the interests of small states against those of larger states. There's no mandate for there to be equal representation regardless of population (or shareholding) such as there is with the Senate. In corporate democracy, a share is a vote, and one vote is outweighed by a million votes. It the same were true in American democracy, the Senate would look very different, and we'd have a different president right now. In national American politics, one vote is not truly equal with another. At least a disgruntled shareholder can sell his or her stake.

But this isn't to say that corporate democracy can't be improved. In 2016, 91% of institutional shareholders...