to have breached their "fiduciary duty" to the other shareholders indicates that this "safeguard" may be similar to putting the lions in the same cage with the rabbits at the zoo, on the assumption that the lions will represent the rabbits' interests in negotiating with the keepers for food. Second, the single large shareholder can exercise more effective control over the management. No question about it: it is doubtful whether the control exercised by a scattered shareholder electorate through the use of its votes is even worthy of the name "control,' "while the single large shareholder often can, and does, closely supervise the actions of the elected management (if he is not himself the chief executive officer). The question is whether the control he exercises is more responsive to the welfare of the scattered shareholders than the self-control of the management itself. To the extent that the large shareholder views himself as the trustee of the business and the employer of its management, and has no substantial financial or other interests in other firms that might affect his view of the corporation's affairs, the ideal may be fulfilled. However, by the nature of the beast, there is a much greater likelihood that the single large shareholder, with more spare money and spare time than the salaried management of the corporation, will have substantial interests in other businesses than that the salaried managers will have such interests. Also, to the extent that he is less involved than the salaried managers in the running of the corporation's business, he have a lesser sense of identification with the corpomay ration as an entity and a consequently greater inclination to view the corporation as a means of achieving objects unrelated to the interests of the shareholders and the corporation's other constituencies.88 On balance, the scattered shareholders are likely to have a more faithful agent in the salaried management than in the large shareholder, despite the superficial identity of interest that they have with the latter. Furthermore, it is much easier to police the actions of the official managers of the business than those of the controlling shareholder, who may operate in an unofficial and indirect manner in achieving his objectives. The public policy argument for favoring large shareholder control is that the large shareholder is likely to be closer to the classical economic ideal of the innovative entrepreneur, who through his selfish efforts will produce a more efficient allocation of productive assets and thereby benefit the entire society. The trouble with this theory, as Galbraith has pointed out, is that for those companies which have ceased to be "Entrepreneurial Corporations" and have become "Mature Corporations" (which includes most of our largest enterprises), the entrepreneurial techniques suited to new, small, single-product businesses simply will not work.89 When such techniques are actually continued, they may lead to the financial ruin of the company. More often, the "entrepreneurial" image cultivated by the Mature Corporation merely serves as window dressing for sophisticated financial manipulations, such as those that characterized the "conglomerate" developments of the past decade. B. Take-Over Bids and the Rise of the Conglomerate The problems of sale of control, by their nature, can arise only in corporations in which a "controlling block" of shares already exists. The development of the "conglomerate" corporation and the use of one of its principal techniques, the "take-over bid," however, indicate that there is a similar problem, at least in latent form, for any publicly-held company. The conglomerate corporation is one that grows by acquiring other companies in related or unrelated lines of business. These acquisitions are sometimes made with the concurrence of the acquired company's management but in other cases are made by means of a published tender offer for the publicly-owned stock of the company to be acquired, either in exchange for securities of the acquiring conglomerate or for cash it has accumulated or borrowed. The situation here is the same as that involved in the sale of control to the extent that control of the corporation is shifted to a new person or group acquiring a substantial part of the corporation's voting shares. The significant difference, however, is that the initiative in the take-over control is often accomplished by paying a premium above bid comes from outside the corporation, and the shift of market price for the interests of the scattered shareholders rather than those of the incumbent management. The result, in many cases, is simply the unceremonious ousting of the old management without any compensation whatsoever. 91 92 of transfer of control came not from the scholars but from As might be imagined, the cries of outrage over this form the managers. (The scholars, in fact, were quite taken with the whole development as a means of securing a more efficient utilization of capital assets.) The managers ran to Congress and the state legislatures for protection against the "pirates" who were raiding "fine old companies" and has generally limited itself to disclosure requirements in received a rather mixed reception. From Congress, which regulating management-shareholder relations in industrial companies, they got the Williams Bill, which amended the Securities Exchange Act of 1934 to apply to contested take-over bids the same kind of filing and disclosure requirements that were already applicable to proxy contests. In Ohio 93 and Virginia, they secured the passage of laws giving state agencies supplementary authority over disclosure and other practices in tender offers. In other states, such as Illinois and Pennsylvania," they were state agencies to approve or disapprove the acquisition of unsuccessful in putting through broader laws authorizing a controlling block of a company's shares after considering the general interest of shareholders, employees, and affected communities. The academic opposition of the economists was combined in these cases with the more selfishly-motivated (and more effective) opposition of the investment bankers, who make substantial amounts of money out of the activities surrounding take-over bids." 94 A second major defense of the threatened managers was to amend their corporate charters in a variety of ways to make it more difficult for a raider who acquired a sub 01 See, e.g., Hearings on S. 510 Before the Subcomm. on Securities of the Senate Comm. on Banking and Currency, 90th Cong., 1st Sess., at 53-67, 114-45 (1967). 92 15 U.S.C. §§ 78m (d) (1)-(e) (2), 78n (d) (1)-(f) (Supp. IV, 1969). 23 OHIO REV. CODE ANN. § 1707.04.1 (Page Supp. 1970). 94 VA. CODE ANN. § 13.1-528 (Supp. 1970). 95 See BNA SEC. REG. & L. REP. No. 5, at A-9 (July 2, 1969). 98 Pa. H.R. 841, 1969 Sess. 97 See Hearing Before Pennsylvania House Comm. on Business and Commerce in re House Bill 841, 1969 Sess. 98 stantial block of their shares to merge the target company into his own. One company, for example, proposed to require the approval of the holders of two-thirds of the shares not held by the raider, as well as the holders of two-thirds of all the shares, for any such merger. The most interesting thing about this line of defense was the reaction of the New York Stock Exchange, on which many of the principal target companies were listed. The Exchange saw these defensive tactics as a threat to its concepts of "corporate democracy," "which would in effect discriminate between shareholders based on the size of their investment." " In other words, "corporate democracy" means "one share, one vote," and any departure from that rule is "undemocratic." As a result of strong protests from the management of many listed companies against any implementation of the Exchange's "democratic" principles, "the Board of Governors of the Exchange indicated a deep concern with the problems in this area but determined not to adopt a formal policy at this time." "" 100 The significance of the rise of the take-over bid, and the managerial response to it, insofar as it relates to allocation of corporate voting rights, is that it showed that any company, no matter how large or how widely scattered its shareholdings, was subject to being brought quickly under the control of almost any "entrepreneur" who really wanted to take it over. Many take-overs were motivated, at least in part, by the availability to the acquiring company of substantial retained earnings in the form of liquid assets which the tax law discouraged it from distributing to its shareholders or investing in incomeproducing securities. However, as many enterprising conglomerateurs 101 showed, no substantial assets (other than stock selling at a high multiple of earnings) were needed to "buy" a large publicly-held company. Little companies could, and did, swallow much larger ones by the simple expedients of issuing their own convertible debentures in exchange for the shares they wanted to acquire, or borrowing from banks the money needed to buy the shares and pledging the acquired shares as collateral.102 " 8 Letter from NYSE to Presidents of Listed Companies, Dec. 26, 1968, in NYSE, COMPANY MANUAL, at xxi (1969). Id. The American Stock Exchange, two years earlier, had informed a Canadian company that a provision of its by-laws limiting any shareholder to 1,000 votes was "not consistent with "and the Exchange's policy with respect to voting rights... might lead to delisting. The company had stated that the by-law 'ensures among other things that any 'take-over' offers for the Company would be made openly to the Company or to all the shareholders, rather than to the owners of large blocks of stock in undisclosed transactions." Prospectus of Canada Southern Petroleum Ltd. 19 (July 7, 1966). The company still has the restriction on voting rights, but is no longer listed on the American Stock Exchange. MoODY'S INDUSTRIAL MANUAL 3143 (1969). 100 Letter from NYSE to Presidents of Listed Companies, Feb. 21, 1969, in NYSE, COMPANY MANUAL, at xxiii (1969). See Wall St. J., Feb. 20, 1969, at 6, col. 2. 101 This may be considered an unduly elegant way of referring to someone who puts companies together. Ogden Nash, commenting on a news story about the marriage of the Marquesa de Portago to "Richard C. Pistell, the conglomerateur," expresses the hope that every oilateur and shipping magnateur and scrap-metalateur,/indeed every tycoonateur, will soon have a Marquesa of their/own." He notes in conclusion, however, that "to eur is human, isn' it?" Nash, Who, Sir? Me, Sir? No, Sir, The Times Sir!, ATLANTIC MONTHLY, June 1970, at 66. 10 One analyst even felt that General Motors, because of its "underleveraged" financial structure, would be an "ideal target" for a conglomerateur able to print up "$15 billion worth of debentures and maybe another $10 billion in stock and warrants" to offer in exchange for GM's shares. Burck, The Merger Movement Rides High, FORTUNE, Feb. 1969, at 79, 161. Whether these take-over artists were pirates out to loot fine old companies, as the ousted or threatened managers charged, or enterprising capitalists ousting tired old managements to secure a more efficient use of capital, as they themselves asserted, is hard to determine. The current shakeout of the conglomerates indicates that in most cases they were neither, but rather were enterprising individuals who took advantage of a "performance" fad and flabby accounting rules to create an appearance of growth by putting together companies whose financial statements looked good together, whether or not their operations fit well together. Despite the misgivings of many thoughtful people concerning the economic, social, and political consequences of the conglomerates, the managers of target companies were unable to put together any satisfactory rationale for imposing legal restrictions on take-over activities. According to conventional wisdom, if a person or company was willing to make a tender offer at fifty dollars a share for stock that was selling in the market for forty dollars a share, he presumptively had plans for utilizing the company's assets in a way that would make them worth more than the value the "market" was now assigning to them; that is, he would have to provide better management to justify his own investment. The managers could not claim any vested right in themselves to continue to control the company, for the conventional theory was that they were the mere hirelings of the "owners" of the company-its shareholders. Hence, their only argument to justify state interference was that the threatened take-over would harm the interests of some group the state had an obligation to protect. This could hardly be the shareholders, the "owners" who were being offered fifty dollars for shares that were worth only forty dollars in the market. It must, therefore, be other groups, such as employees, suppliers, or customers, or the economic interest of the people of the state as a whole. Thus, under rather unlikely auspices, arising from unusual circumstances, the state was importuned to make corporate management responsive to a broader constituency in directing the corporation's business affairs. Though tempted, the state by and large did not respond.103 C. Institutional Investors At the same time that conglomerate adventurers were busy restoring publicly-held companies to single ownership-sometimes by private individuals or groups but more often as subsidiaries of other companies-another group of investors, with entirely different purposes and different techniques, had been buying up even larger numbers of shares that were in "public" hands. This group is composed of the so-called "institutional investors," most notably the mutual funds, insurance companies, and pension funds, which are becoming (if they have not already become) the principal vehicle for "public" investment in common stocks. The banks, which are still the largest institutional investors, have, of course, been in this business for decades. Their holdings of common stock, however, have been largely in individual accounts, held in trust or similar capacity, and voting of the shares may be subject to 103 The activities of the conglomerates have been sharply curtailed, at least temporarily, by a sharp drop in the market price of their securities and by indirect restrictions on their issuance of convertible securities through changes in the tax laws and in stock exchange listing standards. INT. REV. CODE OF 1954, § 279, added by Tax Reform Act of 1969, Pub. L. No. 91-172, §411(a) (Dec. 30, 1969); Letter from NYSE to Presidents of Listed Companies, supra note 100. different procedures or consents in each of the separate accounts. The distinctive features of the newer breed of institutional investors is that their decisions-on investment, voting of shares, and everything else are made by a small group of managers on behalf of scattered beneficiaries, the great majority of whom have no idea what shares their institution owns, let alone how those shares are being or should be voted. Unlike the conglomerate-builders, who buy shares largely to amass enough of the votes that are attached to them to take control of the company's assets, the institutional investors generally want shares only for the possibility of profit or return. They do not really want the votes, which require them to make decisions for which they do not wish to be held responsible. The divergence of objectives between conglomerates and institutions has led to some rather unattractive symbiotic relationships. The conglomerate may interest an institution in buying up shares of the target company at the current market price, with the expectation that the institution will then tender its shares to the conglomerate in a subsequent tender offer at a higher price, or that it will vote its shares in favor of a subsequent merger and cash them in for the higher valued package of securities of the attacking company. In either case, the conglomerate gets the votes and the institution gets the profit by selling the votes, which it has no desire to use for itself.104 Far more serious than these ad hoc special relationships is the general problem created by lodging the power and responsibility for the selection and legitimation of corporate management in the hands of people who have disclaimed any interest in the election decision. The standard line of the institutional manager is: "We vote with the management. If we don't like the management, we sell the stock." Since institutions now own about one-quarter of the shares of the companies listed on the New York Stock Exchange, 105 this attitude creates a rather large vacuum in the corporate election process." 106 But what if the job of voting portfolio securities held by institutions is taken away from the functionaries to whom it is now generally delegated and exercised directly by the directors and top officers of the institutions? Some commentators have seen this possibility as the best hope of providing an independent check on the actions of corporate managers.107 There are at least two problems here. First, the people who actually manage the institutions have shown no more inclination to take the time or trouble to improve corporate management than have their hirelings; if they don't like the management, they will sell (unless they have word that an attractive tender offer or merger proposal is coming). Second, and more important, many of the directors of the institutions are also officers or directors of the companies in which the institutions invest. Although they would presumably disqualify themselves from participating in the institution's evaluation of the companies with which they are personally involved, they can 104 See, e.g., SEC v. Talley Indus., Inc., 399 F. 2d 396 (2d Cir.), cert. denied, 393 U.S. 1015 (1968). The Chairman of the SEC has indicated in congressional testimony that the practice may be widespread. N. Y. Times, May 15, 1970, at 51, col. 7. 105 NYSE, 1969 FACT Book 45. 108 There are, of course, many individual investors whose views are identical to those ascribed to institutional managers. The difference is that the individual investor is normally not subject to any fiduciary obligation that prevents (or that he believes prevents) his taking a more active role in the selection process. 107 See A. BERLE, ECONOMIC POWER AND THE FREE SOCIETY 1213 (1958); ROSTOW, To Whom and for What Ends Is Corporate Management Responsible?, in THE CORPORATION IN MODERN SOCIETY 46, 55 (E. Mason ed. 1961). hardly be unaware of the reciprocal impact of such intervention. If Mr. Smith, as a director of Fund A, undertakes to evaluate the management of X Corporation, in which Fund A has a substantial interest, he does so with the realization that Mr. Jones, who is the President of X Corporation, can, as a director of Fund B, undertake a similar evaluation of the management of Y Corporation, in which Fund B has a substantial interest and of which Mr. Smith is President. It is not too pleasant to contemplate one part of the business establishment sitting in judgment on another part of the same establishment, with the knowledge that their roles may be reversed in a similar future situation.108 D. Campaign GM The development of conglomerates and the rise of institutional investors each involve a process of "reconcentration," in which previously scattered shareholdings are brought together to be managed and voted as a block. Perhaps neither of these two developments standing alone, or even together, would place any significant new strain on the rules governing corporate elections were it not for a third development which has changed the nature, not of the electorate, but of the questions to be decided. policy questions, it does not matter too much who comprises the electorate or what motivates their decisions. As long as it was assumed that the sole test of the performance of corporate management was the amount of money they made "for the shareholders," one man's (or institution's) view of his economic self-interest was pretty much like another's.109 If the management's economic performance is bad, they have to face the possibility that they will be ousted. Since the shareholders are voting only their selfish economic interest, there is nothing wrong with their buying and selling votes (through the medium of purchases and sales of shares) or with one man buying up enough votes to kick the incumbent management out and try his own ideas on how to make more money (if that is the real objective of his take-over). If an electorate is not presented with any significant Since the rise of the modern publicly-held business corporation, two limitations have been recognized on the type of issues that could be brought before the shareholder electorate for decision or ratification (and, by implication, on the type of issues they could consider in voting on nominees for the board of directors). First, the issue could not be so narrow as to constitute an interference with the directors' (ie., management's) right and obligation to manage the day-to-day affairs of the company. Second, the issue could not be so broad that it could be said to relate primarily to "general economic, political, racial, religious, social or similar causes" rather than to the selfinterest of the shareholders as economic animals." 110 What reasons underlie this dual limitation which has put a severe squeeze on the range of issues that can be put to a shareholder vote? Management can presumably justify the first limitation on the ground that shareholder 108 See Rostow, supra note 107. 109 Opinions may differ, of course, about the best way to achieve optimum performance, but the issues to be resolved are usually so complex as to defy rational participation by a substantial electorate. For example, the proxy statements that publicly-held companies are required to furnish to their shareholders when soliciting votes on a proposed merger are considered by experts to be the most useful source for appraising the company's financial prospects. Yet their complexity and length (often running to 100 pages or more) make them incomprehensible to all but the most sophisticated shareholders. 110 SEC rules 14a-8(c) (2), (5), 17 C.F.R. §§ 240.14a-8 (c) (2), (5 (1970). meetings are an intolerably clumsy instrument for making frequent and detailed administrative decisions. It can be questioned whether there is any real danger of shareholder intervention in this direction, but in any event the limitation is not a serious one. Egregious cases of unfairness or impropriety by management certainly deserve and require scrutiny by the shareholders, but this can probably be better achieved by the judicial proceeding of a derivative suit (the game of Corporations II) than by the legislative activity of the shareholders at a meeting. The justification for the second limitation rests on somewhat different footing. One would expect management to argue that shareholders should not vote on "general economic, political, racial, religious, social or similar" issues because those are outside the scope of the corporation's concerns and are matters on which management should take no stand. In fact, management's current position seems to be quite different. In response to the recent proxy solicitation by a group calling itself the Campaign to Make General Motors Responsible (Campaign GM) in favor of changes in the General Motors management structure, "designed to make the Corporation more responsible to the community as a whole," "management did not argue that it had no such responsibilities but instead distributed to its shareholders a twenty-one page defense of how well it was fulfilling them.112 To be sure, the GM management did emphasize its "basic obligation" to "pay dividends to its stockholders." 113 However, it seemed to view this as its intermediate rather than its ultimate goal, stating that "a corporation's ability to fulfill its other responsibilities depends upon how successful it is in achieving a profit." "14 By taking this position, the GM management appeared, at least, to be more concerned with the public responsibilities of an automobile manufacturer than is the management of Yale University. Yale, like Harvard, decided to abstain from casting its 25,000 votes on the Campaign GM proposals "on the principle that the Fellows of the [Yale] corporation do not and should not have the power to take a corporate position on issues of a political or social nature which do not directly affect the university in its relations with the local community." 115 In other words, the universities, along with the other institutional investors that are amassing an increasing proportion of the voting shares of major industrial companies, do not want the votes that come with these shares if it requires them to do anything other than make a decision on how best to increase their investment return to meet their pressing financial needs. This institutional "cop-out" raises some serious questions. Campaign GM broke new ground by persuading the Securities and Exchange Commission, over GM's vigorous opposition, that at least two of its proposals were proper subjects for shareholder consideration.116 Since then, the Court of Appeals for the District of Columbia has ordered the SEC to reconsider its rejection of the attempt by a group of shareholders of Dow Chemical Company to force a shareholder vote on whether the company should continue to manufacture napalm." The court ruled that Proxy Statement of Campaign GM 2 (March 25, 1970). 112 General Motors Corp., GM's Record of Progress (1970). 113 Id. at 20. 114 Id. See also note 118 infra. 115 N. Y. Times, May 11, 1970, at 27, col 1. 116 Wall St. J. April 7, 1970, at 40, col. 2. 117 Medical Comm. for Human Rights v. SEC, BNA SEC. REG. & L. REP. No. 59, at D-1 (D.C. Cir. July 8, 1970). shareholders have the right to be involved in corporate decisions that have social impact and that they must be given an opportunity to vote on these matters at shareholders' meetings.118 Future campaigners should have less difficulty in tailoring their proposals to the liberalized SEC standards and bringing more economic and social issues into corporate meetings. Senator Muskie has introduced a bill entitled the "Corporate Participation Act," which would bar the SEC from excluding a stockholder proposal "on the ground that such proposal may involve economic, political, racial, religious or similar issues, unless the matter or action proposed is not within the control of the issuer." "19 The bill is designed in his words, "to allow shareholders to place on the company ballot any proposal which promotes economic, or social causes related to the business of the corporation." 120 He indicated that his proposed bill was a consequence of the inadequate results of Campaign GM,121 and it would indeed have ensured that all of the proposals made by that group would have been brought to the floor of the meeting. The Muskie proposal, however, would have no direct effect on the reception accorded proposals of the Campaign GM type when they reached the floor. Although the Campaign leaders had hoped to derive their principal support from public-spirited institutional managers holding large blocks of shares, their principal support, in fact, came from the smaller shareholders. Their two proposals, for the establishment of a Committee on Corporate Responsibility and for the addition to the board of three "public-interest" directors, received the support of 7.19 percent and 6.22 percent, respectively, of the shareholders, but only 2.73 percent and 2.44 percent, respectively, of the shares voted.122 The shareholders who voted for the Campaign GM proposals owned an average of 103 shares as against an average of 284 shares for those who voted against the proposals and an average of 210 shares for all GM shareholders.123 While neither proposal came close to achieving a majority, no matter how the vote is sliced, the indication is that on a vote of this nature the result may differ sharply depending on whether one is counting shares or voters. Of course, the vote of an institutional investor may itself reflect a division among its managers. College Retirement Equities Fund (CREF), a pension fund for university professors, cast 608,700 votes against the Campaign GM proposal to add public-interest directors to the GM board on the basis of a nine-to-seven vote against the proposal in its own board of trustees. 124 Thus, on that vote, the 118 The Dow management's position was weakened by their having been repeatedly quoted in sources which include the company's own publications as proclaiming that the decision to continue manufacturing and marketing napalm was made not because of business considerations, but in spite of them; that management in essence decided to pursue a course of activity which generated little profit for the shareholders and actively impaired the company's public relations and recruitment activities because management considered this action morally and politically desirable. Id. at D-11 (emphasis in original). 119 S. 4003, 91st Cong., 2d Sess. (1970). 120 116 CONG. REC. S 9568 (daily ed. June 23, 1970); N. Y. Times, June 23, 1970, at 59, col. 2. 121 116 CONG. REC. S 9568 (daily ed. June 23, 1970). 122 Wall St. J., May 25, 1970, at 4, col. 3. 123 These calculations are based on data in MOODY'S INDUSTRIAL MANUAL 2278, 2281 (1969). 124 Letter from William C. Greenough, Chairman of CREF, to James M. Roche, Chairman of GM, May 13, 1970. In the spring of 1932, a debate was conducted in the pages of the Harvard Law Review on the question: "For Whom Are Corporate Managers Trustees?" Professor E. Merrick Dodd postulated that corporate managers owed duties to employees, consumers, and the general public, as well as to shareholders. 126 Mr. A. A. Berle, on the other hand, considered it unwise to depart from the view that corporate managers should act solely for the purpose of making profits for the shareholders "until such time as you are prepared to offer a clear and reasonably enforceable scheme of responsibilities to someone else." 127 It is now popularly supposed that Professor Dodd had the better of the argument; indeed, Mr. Berle himself has since conceded that "the argument has been settled (at least for the time being) squarely in favor of Professor Dodd's contention," "128 and that "modern directors are not limited to running business enterprise for maximum profit, but are in fact and recognized in law as administrators of a community system." " 129 My concern here is not with whether Dodd or Berle was right; in fact, while corporate management today may prefer to quote the former than the latter, its actual motivation is probably closer to Galbraith's formulation of "a secure minimum of earnings" which is necessary to "preserve the autonomy on which its decision-making power depends." 130 My purpose is rather to question whether the present system of "one share, one vote" is a desirable method of selecting (or ratifying the selection of) corporate managers under either of the alternative formulations of their fiduciary obligation. At first glance, it would seem that if there is to be an electorate, it should include all the groups to which the management owes responsibility. If Professor Dodd was right, this should include employees, consumers, and the general public, as well as shareholders.131 However, the determination of the boundaries of these other groups raises serious difficulties. 125 Dr. Roger Murray of CREF is quite concerned about the situation: The people who have control over the stock have a great Landau, Do Institutional Investors Have a Social Responsibility?, INSTITUTIONAL INVESTOR, July 1970, at 25, 87. His only suggestion, however, is that "it should be seven times more difficult for Metropolitan Life to take a stand." Id. 125 Dodd, For Whom Are Corporate Managers Trustees?, 45 HARV. L. REV. 1145, 1156 (1932). 127 Berle, For Whom Corporate Managers Are Trustees: A Note, 45 HARV. L. REV. 1365, 1367 (1932). 128 A. BERLE, THE TWENTIETH CENTURY CAPITALIST REVOLUTION 169 (1954). 129 Berle, Foreword to THE CORPORATION IN MODERN SOCIETY, supra note 107. at xii. 130 J. GALBRAITH, supra note 89, at 167-68. 131 In fact, we might first question whether shareholders should be included at all. Chayes maintains, not without justification, that "of all those standing in relation to the large corporation, the shareholder is least subject to its power." Chayes, The Modern Corporation and the Rule of Law, in THE CORPORATION IN MODERN SOCIETY, supra note 107, at 25, 40. Employees would not be too difficult a group to delimit. They could be given voting power in either of two ways: the German system, under which they vote separately for "labor directors," or a system under which they would vote along with shareholders for a single slate of directors. Consumers present a different problem. In the case of a large manufacturing concern, "consumers" may include the wholesalers and retailers who distribute the corporation's products, as well as the ultimate consumers. Not only are the interests of these two groups divergent in many respects, but expansion of the electorate to the latter group would, in the case of some corporations, extend the franchise almost without limit. If every person who had ever purchased a General Electric light bulb had a right to participate in choosing the directors, the corporation would be forced to say that anyone in the world who wants to vote at a GE election can do so. This is absurd, but absurd only because it is unworkable. The purchasers of GE light bulbs, as a group, have a real and substantial interest in whether GE management incorporates known improvements in the product. The problem is finding the most appropriate means by which this interest can be taken into account in management decisions. To say that the customers' only right is to buy the goods of a competing manufacturer is akin to saying that a shareholder does not need a vote in a publicly-held corporation because he is fully protected by his right to sell his shares on the market at any time. The light bulb users have an interest, and they have a right to have it considered by the management; the real question is the procedure, if any, by which they should be able to express their dissatisfaction. If consumers are indeterminate, the general public is virtually indefinable. The inhabitants of areas around the corporation's plants are certainly part of it, but how large an area? And what of communities all along the river into which the wastes from the corporation's plants are discharged, or communities around the plants of the corporation's suppliers? This brief catalogue is enough to show that an electorate-if there should be an electorate-cannot be defined by the groups to whom managers are said to have responsibility. Yet if we expect managers to act in the interest of their various constituencies, we must give them some incentive to do so. The pluses and minuses of their stewardship should be subject to genuine debate at the time they seek re-election or when a particular action requires ratification by their constituents. We cannot expect them to continue indefinitely to aim for higher levels of "statesmanship" in the management of the institutions for which they are responsible if we continue at the same time to structure the electorate so that it will perforce be guided only by the most selfish and limited economic interests in casting its votes. The absence of workable alternatives forces us to return to the concept of the shareholders as the electorate. The system has shown that it works, and perhaps some modification could make it an effective instrument for the conduct of a plebiscite. The difficulty with the system of "one share, one vote" as it applies to the publicly-held corporation is that it makes it virtually impossible for any constituency, no matter how large, to make any impression in the vote for directors unless its members have an enormous amount of money available to buy shares. Take General Motors Corporation (admittedly an extreme example, but an important one). GM has 285 million shares outstanding |