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http://ssrn.com/abstract=1103160
 
 

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The False Promise of One Share, One Vote


Grant M. Hayden


Hofstra University - Maurice A. Deane School of Law

Matthew T. Bodie


Saint Louis University School of Law

March 4, 2008

Hofstra Univ. Legal Studies Research Paper No. 08-01
Cardozo Law Review, Vol. 30, 2008

Abstract:     
Shareholder democracy has blossomed. The once moribund shareholder franchise is now critical in takeover contests, merger decisions, and board oversight. However, the mechanisms of this vote remain largely undertheorized. In this Article, we use voting rights and social choice theory to develop a new approach to the corporate franchise. Political democracies typically tie the right to vote to the level of a person's interest in the outcome of the election. Corporate democracies, on the other hand, tend to define the requisite institutional interest quite narrowly, and thus restrict the right to vote to shareholders alone. This restriction has found its justification in the assumption that shareholders have a homogeneous interest in corporate wealth maximization. Such homogeneity, it is argued, maximizes efficient preference satisfaction.

This assumption of shareholder homogeneity is false. It is becoming increasing clear, for example, that shareholders have many different types of interests in a corporation. In addition, stakeholders such as employees, consumers, and creditors also have interests in corporate governance that are not currently captured through existing contractual regimes. Moreover, many of the conclusions drawn from the assumption of shareholder homogeneity are either based on dated understandings of Arrow's Theorem or, in some cases, are flat out inconsistent with the standard economic theory that they purport to embody. As a result, corporate voting schemes are sterile reflections of their more robust political counterparts. The Article argues that corporate law scholars should acknowledge the weaknesses of shareholder voting theory and should examine new ways of translating the preferences of corporate participants into a governance structure.

Number of Pages in PDF File: 86

Keywords: shareholder, vote, merger, democracy, corporate

JEL Classification: G3, M5, R5

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Date posted: March 10, 2008  

Suggested Citation

Hayden, Grant M. and Bodie, Matthew T., The False Promise of One Share, One Vote (March 4, 2008). Hofstra Univ. Legal Studies Research Paper No. 08-01 ; Cardozo Law Review, Vol. 30, 2008. Available at SSRN: http://ssrn.com/abstract=1103160 or http://dx.doi.org/10.2139/ssrn.1103160

Contact Information

Grant M. Hayden (Contact Author)
Hofstra University - Maurice A. Deane School of Law ( email )
121 Hofstra University
Hempstead, NY 11549
United States

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Matthew T. Bodie
Saint Louis University School of Law ( email )
100 N. Tucker Blvd.
St. Louis, MO 63108
United States

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