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The Hanging Chads of Corporate Voting

55 Pages Posted: 15 Aug 2007 Last revised: 4 Apr 2009

Marcel Kahan

New York University School of Law; European Corporate Governance Institute

Edward B. Rock

New York University School of Law

Abstract

Never has voting been more important in corporate law. With greater activism among shareholders and the shift from plurality to majority voting for directors, the number of close votes is rising. But is the basic technology of corporate voting adequate to the task? In this Article, we first examine the incredibly complicated system of US corporate voting, a complexity that is driven by the underlying custodial ownership structure, by dispersed ownership and large trading volumes, and by the rise in short-selling and derivatives. We identify three ways in which things predictably go wrong: pathologies of complexity; pathologies of ownership; and pathologies of misalignment of interests. We then discuss the current legal treatment of these pathologies and consider a variety of directions for reform, ranging from incremental modifications to fundamental redesign. We show that, absent a fundamental reconstruction of the ownership structure, the existing system will continue to be noisy, imprecise and disturbingly opaque. The problems with the existing system pose fundamental challenges for both proponents of direct shareholder democracy, who advocate more extensive voting rights for shareholders, and for proponents of indirect shareholder democracy, who advocate deference to a board of directors the legitimacy of which ultimately also rests on shareholder elections.

Keywords: shareholder elections, technology of corporate voting, voting systems, ownership structure, legitimacy

JEL Classification: K22

Suggested Citation

Kahan, Marcel and Rock, Edward B., The Hanging Chads of Corporate Voting. Georgetown Law Journal, Vol. 96, p. 1227, 2008; U of Penn, Inst for Law & Econ Research Paper No. 07-18; NYU Law and Economics Research Paper No. 07-29. Available at SSRN: https://ssrn.com/abstract=1007065

Marcel Kahan (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6268 (Phone)
212-995-4341 (Fax)

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Edward B. Rock

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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