Shareholders as Proxies: The Contours of Shareholder Democracy

The idea of shareholders as investors limited the location of shareholder democracy to the market. Scholars who viewed shareholders this way focused on mandatory disclosure rules as the means of achieving shareholder democracy. This chapter begins the story of shareholder democracy by examining debates about the modern corporation in the first two decades of the twentieth century. It argues that during this era, corporate scholars&s; dominant frame of reference was the increasing power of the large public corporation. The chapter demonstrates how the crash of 1929 and the following Depression shifted scholars&s; and reformers&s; attention from the corporation back to the market. It explores the argument that shareholders can self-protect underlay the economic theory of the firm, which dominated corporate law in the 1970s and 1980s. Endorsing a strong separation between the roles of shareholders and those in control, proponents of this vision argued that dissatisfied shareholders should either use their voting power or sell their stock.