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Shareholder Democracy and the Curious Turn Toward Board Primacy


Grant M. Hayden


Hofstra University - Maurice A. Deane School of Law

Matthew T. Bodie


Saint Louis University School of Law

April 15, 2010

William & Mary Law Review, Vol. 51, No. 6, pp. 2071-2121, 2010
Hofstra Univ. Legal Studies Research Paper No. 10-13
Saint Louis U. Legal Studies Research Paper No. 2010-03

Abstract:     
Corporate law is consumed with a debate over shareholder democracy. The conventional wisdom counsels that shareholders should have more voice in corporate governance, in order to reduce agency costs and provide democratic legitimacy. A second set of theorists, described as “board primacists,” advocates against greater shareholder democracy and in favor of increased board discretion. These theorists argue that shareholders need to delegate their authority in order to provide the board with the proper authority to manage the enterprise and avoid short-term decision making.

In the last few years, the classical economic underpinnings of corporate law have been destabilized by a growing recognition that shareholders are not a homogeneous group of wealth maximizers. This recognition has, among other things, undercut the arguments made in support of the typical corporate structure where shareholders alone possess the right to vote in corporate elections. Board primacy seems well-positioned to retheorize corporate law to adapt to this new reality. In their analyses of the issue, however, board primacy theorists have conflated two very different aspects of group decision processes: the responsiveness of the governance system and the composition of the electorate. This confusion ends up putting many board primacy theorists in the curious position of moving away from the public choice emphasis on preference aggregation toward a more civic republican model of less responsive, more deliberative decision making.

By restricting the franchise, board primacists have detached their governance structures from the underlying desires of their constituents without substituting anything in their place. We argue, however, that the breakdown of this particular distinction between shareholders and other constituents could mean that we should investigate treating other constituents more like shareholders, rather than the other way around.

Number of Pages in PDF File: 53

Keywords: Corporate Governance, Shareholder Democracy, Board Primacy, Corporate Voting

JEL Classification: G30

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Date posted: April 16, 2010  

Suggested Citation

Hayden, Grant M. and Bodie, Matthew T., Shareholder Democracy and the Curious Turn Toward Board Primacy (April 15, 2010). William & Mary Law Review, Vol. 51, No. 6, pp. 2071-2121, 2010; Hofstra Univ. Legal Studies Research Paper No. 10-13; Saint Louis U. Legal Studies Research Paper No. 2010-03. Available at SSRN: http://ssrn.com/abstract=1590274

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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