Humanizing Corporate Governance

Abstract

American corporate governance evolved in a different era, for a type of investor that is no longer typical today. Roughly half of Americans own investment funds, but legal and structural impediments prevent these “human investors” from fully participating in corporate democracy.

One response—so what?—is based on the assumption that investors are rationally apathetic. Most investors have so little at stake, the argument goes, that it is economically irrational for them to vote in corporate elections. What this argument misses is that investors’ rational apathy is not fixed. Instead, it is a function of the costs and benefits of voting. If we increase the impact of voting, while reducing the barriers and complexity, fewer shareholders will be apathetic.

This theoretical intuition is born out empirically. As this Article demonstrates, human investors have strong, surprisingly prosocial views on numerous topics impacting American corporations. If these views were translated into actual votes, the impact would be profound.

This Article proposes a new approach to corporate governance that is explicitly designed to involve human investors. Using hand-collected data, it demonstrates that adopting these proposals would change the outcome of numerous significant corporate votes, and it outlines the path to meaningful change by harnessing the voice of human investors.

Keywords: Corporate Governance, Proxy Voting, Index Funds, Big Three, Pass-through Voting, Shareholder Altruism

JEL Classification: G23, G3, G30, K2, K22, G20, G28