Empowering Shareholders in Directors' Elections: A Revolution in the Making

Abstract

In the last few years, also in the light of the financial crisis in which the world has plummeted, the concern for self-referential and unaccountable boards has gained momentum and prompted several important reforms aimed at enhancing shareholders’ democracy. The reforms recently implemented or currently under consideration both at the state and federal levels, focusing on proxy access, might however prove to be too timid to exorcise this specter. This Article discusses the limits of the latest legislative and regulatory initiatives and advances a new, bold if not heterodox, proposal to empower shareholders and better align the composition of the board to the interests of all the owners of the corporation. The core of the proposal is a proportional voting system called "list voting." Building also on a brief comparative analysis, the Article advocates that "list voting" is superior to the traditional U.S. "cumulative voting" both from the point of view of directors, managers and controlling shareholders, and of minority shareholders.

Keywords: Unaccontable Boards, Shareholders’ Democracy, Proxy Access, List Voting, Cumulative Voting

JEL Classification: G38