Natural Person Shareholder Voting

Abstract

“One-share, one-vote” corporate governance often leads to inefficient negative externalities, even when shareholders care about direct harm to themselves and even if corporations respond to share-holder preferences. Because equity ownership is concentrated, while many externalities are more diffuse, corporate voting underweights externalities. But allocating votes according to the principle of “one person, one vote” creates the opposite problem: inefficiently low corporate profits. This article presents an intermediate voting rule that limits negative externalities without underweighting corporate profits. The rule allocates bonus votes to beneficial owners who cross a threshold ownership level at which profit entitlements approximate externality exposures. This amplifies the voice of the subset of owners with socially optimal preferences. Information problems could be mitigated through intermediary institutions that would serve as voting proxies. Voluntary adoption of this governance regime could be encouraged through tax or regulatory incentives.

Michale Simkovic, Natural Person Shareholder Voting, 109 Cornell Law Review __ (2024) (forthcoming)

Keywords: corporate governance, esg, voting , externality, shareholder democracy, governance

JEL Classification: G00, M1, M2, K00, H23, K2, K32, K34