Shareholder Democracy and the Curious Turn Toward Board Primacy

53 Pages Posted: 16 Apr 2010

See all articles by Grant M. Hayden

Grant M. Hayden

Southern Methodist University - Dedman School of Law

Matthew T. Bodie

University of Minnesota Law School

Date Written: April 15, 2010


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.

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

JEL Classification: G30

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:

Grant M. Hayden (Contact Author)

Southern Methodist University - Dedman School of Law ( email )

P.O. Box 750116
Dallas, TX 75275
United States

Matthew T. Bodie

University of Minnesota Law School ( email )

United States

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