Legislation of the Year . . . If the Year Is 1950
Senator Charles Schumer recently announced plans to introduce the “Shareholder Bill of Rights Act of 2009.” This bill is a compendium of corporate governance reforms that shareholder activists have been advocating for many years. Among other things, the bill would require companies to elect the entire board of directors each year, rather than putting only a portion of the board up for a vote. It would also require that directors receive a majority of the votes cast before being allowed to serve, and the bill would make it easier for shareholders to nominate their own director candidates to run in opposition to the candidates nominated by management.
Senator Schumer’s bill is best understood as embodying the principle that, when it comes to corporate governance, more democracy is always better. The assumption is that corporate governance will improve in tandem with increased shareholder voting power. I question that assumption.
First, more democracy might actually lead to worse directors.