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to have breached their “fiduciary duty" to the other 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" rabbits at the zoo, on the assumption that the lions will represent the rabbits' interests in negotiating with the of shares already exists. The development of the "con
glomerate” corporation and the use of one of its principal keepers for food. Second, the single large shareholder can exercise more
techniques, the “take-over bid,” however, indicate that
there is a similar problem, at least in latent form, for effective control over the management. No question about
any it: it is doubtful whether the control exercised by a
publicly-held company. scattered shareholder electorate through the use of its
The conglomerate corporation is one that grows by
acquiring other companies in related or unrelated lines of votes is even worthy of the name “control,” while the single large shareholder often can, and does, closely business. These acquisitions are sometimes made with the supervise the actions of the elected management (if he is
concurrence of the acquired company's management but not himself the chief executive officer). The question is
in other cases are made by means of a published tender whether the control he exercises is more responsive to the
offer for the publicly-owned stock of the company to be welfare of the scattered shareholders than the self-control acquired, either in exchange for securities of the acquiring
conglomerate or for cash it has accumulated or borrowed. of the management itself. To the extent that the large
The situation here is the same as that involved in the shareholder views himself as the trustee of the business
sale of control to the extent that control of the corporation and the employer of its management, and has no substantial financial or other interests in other firms that
is shifted to a new person or group acquiring a substantial might affect his view of the corporation's affairs, the
part of the corporation's voting shares. The significant ideal may be fulfilled. However, by the nature of the
difference, however, is that the initiative in the take-over beast, there is a much greater likelihood that the single bid comes
from outside the corporation, and the
shift of large shareholder, with more spare money
control is often accomplished by paying a premium above and time
spare than the salaried management of the corporation, will
market price for the interests of the scattered shareholders
rather than those of the incumbent management. The have substantial interests in other businesses than that the salaried managers will have such interests. Also, to
result, in many cases, is simply the unceremonious ousting
of the old management without any compensation the extent that he is less involved than the salaried
whatsoever. managers in the running of the corporation's business, he
As might be imagined, the cries of outrage over this form may lesser sense of identification with the corpo
of transfer of control came not from the scholars but from ration as an entity and a consequently greater inclination
the managers. (The scholars, in fact, were quite taken with to view the corporation as a means of achieving objects
the whole development as a means of securing a more unrelated to the interests of the shareholders and the
efficient utilization of capital assets.)"" The managers ran corporation's other constituencies. 88 On balance, the scattered shareholders are likely to have a more faithful
to Congress and the state legislatures for protection against
the "pirates” who were raiding "fine old companies and agent in the salaried management than in the large shareholder, despite the superficial identity of interest that they has generally limited itself to disclosure requirements
received a rather mixed reception. From Congress, which have with the latter. Furthermore, it is much easier to regulating management-shareholder relations in industrial police the actions of the official managers of the business than those of the controlling shareholder, who may operate the Securities Exchange Act of 1934 to apply to contested
companies, they got the Williams Bill, which amended in an unofficial and indirect manner in achieving his objectives.
take-over bids the same kind of filing and disclosure The public policy argument for favoring large share- requirements that were already applicable to proxy con
tests. In Ohio 93 and Virginia, 04 they secured the passage holder control is that the large shareholder is likely to be closer to the classical economic ideal of the innovative
of laws giving state agencies supplementary authority over entrepreneur, who through his selfish efforts will produce states, such as Illinois " and Pennsylvania, so they were
disclosure and other practices in tender offers. In other a more efficient allocation of productive assets and thereby unsuccessful in putting through broader laws authorizing benefit the entire society. The trouble with this theory, as Galbraith has pointed out, is that for those companies
state agencies to approve or disapprove the acquisition of which have ceased to be "Entrepreneurial Corporations"
a controlling block of a company's shares after considering and have become "Mature Corporations" (which includes
the general interest of shareholders, employees, and
affected communities. The academic opposition of the most of our largest enterprises), the entrepreneurial tech
economists was combined in these cases with the more niques suited to new, small, single-product businesses selfishly-motivated (and more effective) opposition of the simply will not work.89 When such techniques aro actually investment bankers, who make substantial amounts of continued, they may lead to the financial ruin of the company. More often, the "entrepreneurial" image cul
money out of the activities surrounding take-over bids.o7
A second major defense of the threatened managers was tivated by the Mature Corporation merely serves as window dressing for sophisticated financial manipulations, make it more difficult for a raider who acquired a sub
to amend their corporate charters in a variety of ways to such as those that characterized the "conglomerate' developments of the past decade.
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., 88 Section III infra.
at 53-67, 114-45 (1967). 89 J. GALBRAITH, THE NEW INDUSTRIAL STATE 92 (1967).
02 15 U.S.C. $$ 78m(d)(1)-(e) (2), 78n (d)(1)-(f) (Supp. IV, 1969). 90 Id. at 88-92. Among Galbraith's examples of entrepreneurs who 23 Ohio Rev. CODE ANN. § 1707.04.1 (Page Supp. 1970). carried on in the “entrepreneurial” manner after it had become 94 Va. Code Ann. & 13.1-528 (Supp. 1970). counter-productive are Henry Ford, Sewell Avery of Montgomery As See BNA Sec. REG. & L. REP. No. 5, at A-9 (July 2, 1969). Ward, and Howard Hughes of TWA. The most recent notorious 28 Pa. H.R. 841, 1969 Sess. example is Bernie Cornfeld of IOS. See Ball, Bernie Cornfeld: The 07 See Hearing Before Pennsylvania House Comm. on Business and Salesman Who Believed Himself, FORTUNE, Sept. 1970, at 136. Commerce in re House Bill 841, 1969 Sess.
stantial block of their shares to merge the target company Whether these take-over artists were pirates out to loot into his own. One company, for example, proposed to fine old companies, as the ousted or threatened managers require the approval of the holders of two-thirds of the charged, or enterprising capitalists ousting tired old
shares not held by the raider, as well as the holders of managements to secure a more efficient use of capital, as two-thirds of all the shares, for any such merger.98 The they themselves asserted, is hard to determine. The current most interesting thing about this line of defense was the shakeout of the conglomerates indicates that in most cases reaction of the New York Stock Exchange, on which many they were neither, but rather were enterprising individuals of the principal target companies were listed. The Ex- who took advantage of a "performance” fad and flabby change saw these defensive tactics as a threat to its accounting rules to create an appearance of growth by concepts of "corporate democracy," "which would in effect putting together companies whose financial statements
" discriminate between shareholders based on the size of fooked good together, whether or not their operations fit their investment." " In other words, “corporate democ- well together. racy” means "one share, one vote," and any departure Despite the misgivings of many thoughtful people from that rule is "undemocratic.” As a result of strong concerning the economic, social, and political consequences protests from the management of many listed companies of the conglomerates, the managers of target companies against any implementation of the Exchange's "demo- were unable to put together any satisfactory rationale for cratic" principles, "the Board of Governors of the Ex- imposing legal restrictions on take-over activities. Acchange indicated a deep concern with the problems in this cording to conventional wisdom, if a person or company area but determined not to adopt a formal policy at this was willing to make a tender offer at fifty dollars a share for time."
stock that was selling in the market for forty dollars a The significance of the rise of the take-over bid, and the share, he presumptively had plans for utilizing the commanagerial response to it, insofar as it relates to allocation pany's assets in a way that would make them worth more of corporate voting rights, is that it showed that any than the value the "market” was now assigning to them; company, no matter how large or how widely scattered
that is, he would have to provide better management to its shareholdings, was subject to being brought quickly justify his own investment. The managers could not claim
. under the control of almost any "entrepreneur" who
any vested right in themselves to continue to control the really wanted to take it over. Many take-overs were company, for the conventional theory was that they were motivated, at least in part, by the availability to the
the mere hirelings of the “owners” of the company-its acquiring company of substantial retained earnings in the
shareholders. Hence, their only argument to justify state form of liquid assets which the tax law discouraged it from
interference was that the threatened take-over would harm distributing to its shareholders or investing in income- the interests of some group the state had an obligation to producing securities. However, as many enterprising protect. This could hardly be the shareholders, the conglomerateurs 101 showed, no substantial assets (other owners” who were being offered fifty dollars for shares than stock selling at a high multiple of earnings) were
that were worth only forty dollars in the market. It must, needed to "buy" a large publicly-held company. Little therefore, be other groups, such as employees, suppliers, companies could, and did, swallow much larger ones by or customers, or the economic interest of the people of the simple expedients of issuing their own convertible
the state as a whole. debentures in exchange for the shares they wanted to Thus, under rather unlikely auspices, arising from acquire, or borrowing from banks the money needed to
unusual circumstances, the state was importuned to make buy the shares and pledging the acquired shares as corporate management responsive to a broader constitcollateral.102
uency in directing the corporation's business affairs.
Though tempted, the state by and large did not respond.103 98 Letter from NYSE to Presidents of Listed Companies, Dec. 26, 1968, in NYSE, COMPANY MANUAL, at xxi (1969).
C. Institutional Investors * Id. The American Stock Exchange, two years earlier, had
At the same time that conglomerate adventurers were informed a Canadian company that a provision of its by-laws limiting any shareholder to 1,000 votes was “not consistent with
busy restoring publicly-held companies to single ownerthe Exchange's policy with respect to voting rights. ..." and
ship-sometimes by private individuals or groups but might lead to delisting. The company had stated that the by-law more often as subsidiaries of other companies-another "ensures among other things that any 'take-over offers for the group of investors, with entirely different purposes and Company would be made openly to the Company or to all the shareholders, rather than to the owners of large blocks of stock in
different techniques, had been buying up even larger undisclosed transactions.” Prospectus of Canada Southern Petrol- numbers of shares that were in "public" hands. This eum Ltd. 19 (July 7, 1966). The company still has the restriction group is composed of the so-called “institutional inon voting rights, but is no longer listed on the American Stock vestors," most notably the mutual funds, insurance comExchange. MOODY'S INDUSTRIAL MANUAL 3143 (1969). 100 Letter from NYSE to Presidents of Listed Companies, Feb. 21,
panies, and pension funds, which are becoming (if they 1969, in NYSE, COMPANY MANUAL, at xxiii (1969). See Wall St. J., have not already become the principal vehicle for "pubFeb. 20, 1969, at 6, col. 2.
lic" investment in common stocks. 101 This may be considered an unduly elegant way of referring to
The banks, which are still the largest institutional insomeone who puts companies together. Ogden Nash, commenting on a news story about the marriage of the Marquesa de Portago to
vestors, have, of course, been in this business for decades. “Richard C. Pistell, the conglomerateur," expresses the hope' that Their holdings of common stock, however, have been every oilateur and shipping magnateur and scrap-metalateur,/indeed largely in individual accounts, held in trust or similar every tycoonateur, will soon have a Marquesa of their/own." He
capacity, and voting of the shares may be subject to notes in conclusion, however, that“to eur is human, isn' it?" Nash, Who, Siri Me, Siri No, Sir, The Times Sirl, ATLANTIC MONTHLY, 106 The activities of the conglomerates have been sharply curtailed, June 1970, at 66.
at least temporarily, by a sharp drop in the market price of their 16 One analyst even felt that General Motors, because of its securities and by indirect restrictions on their issuance of convertible "underleveraged" financial structure, would be an "ideal target” securities through changes in the tax laws and in stock exchange for a conglomerateur able to print up “$15 billion worth of de
listing standards. Int. Rev. CODE OF 1954, $ 279, added by Tax bentures and maybe another $10 billion in stock and warrants" to Reform Act of 1969, Pub. L. No. 91-172, 8411(a) (Dec. 30, 1969); offer in exchange for GM's shares. Burck, The Merger Movement Letter from NYSE to Presidents of Listed Companies, supra note Rides High, FORTUNE, Feb. 1969, at 79, 161.
different procedures or consents in each of the separate hardly be unaware of the reciprocal impact of such interaccounts. The distinctive features of the newer breed of vention. If Mr. Smith, as a director of Fund A, underinstitutional investors is that their decisions- -on invest
takes to evaluate the management of X Corporation, in ment, voting of shares, and everything else--are made by
are made by which Fund A has a substantial interest, he does so with a small group of managers on behalf of scattered bene- the realization that Mr. Jones, who is the President of X ficiaries, the great majority of whom have no idea what Corporation, can, as a director of Fund B, undertake a shares their institution owns, let alone how those shares similar evaluation of the management of Y Corporation, are being or should be voted.
in which Fund B has a substantial interest and of which Unlike the conglomerate-builders, who buy shares Mr. Smith is President. It is not too pleasant to contemlargely to amass enough of the votes that are attached to plate one part of the business establishment sitting in them to take control of the company's assets, the insti- judgment on another part of the same establishment, with tutional investors generally want shares only for the the knowledge that their roles may be reversed in a simpossibility of profit or return. They do not really want ilar future situation.108 the votes, which require them to make decisions for which they do not wish to be held responsible.
D. Campaign GM The divergence of objectives between conglomerates and institutions has led to some rather unattractive sym
The development of conglomerates and the rise of biotic relationships. The conglomerate may interest an
insuitutional investors each involve a process of “reconinstitution in buying up shares of the target company at
centration,” in which previously scattered shareholdings the current market price, with the expectation that the
are brought together to be managed and voted as a block. institution will then tender its shares to the conglomerate Perhaps neither of these two developments standing alone, in a subsequent tender offer at a higher price, or that it or even together, would place any significant new strain will vote its shares in favor of a subsequent merger and on the rules governing corporate elections were it not for a cash them in for the higher valued package of securities
third development which has changed the nature, not of of the attacking company. In either case, the conglomerate the electorate, but of the questions to be decided. gets the votes and the institution gets the profit
by selling policy questions, it does not matter too much who com
If an electorate is not presented with any significant the votes, which it has no desire to use for itself.184
Far more serious than these ad hoc special relationships prises the electorate or what motivates their decisions. As is the general problem created by lodging the power and long as it was assumed that the sole test of the performance responsibility for the selection and legitimation of corpo
of corporate management was the amount of money they rate management in the hands of people who have dis- made "for the shareholders," one man's (or institution's) claimed interest in the election decision. The standard
view of his economic self-interest was pretty much like any line of the institutional manager is: “We vote with the
another's.100 If the management's economic performance management. If we don't like the management, we sell is bad, they have to face the possibility that they will be the stock.” Since institutions now own about one-quarter
ousted. Since the shareholders are voting only their selfish of the shares of the companies listed on the New York
economic interest, there is nothing wrong with their Stock Exchange, 105 this attitude creates a rather large buying and selling votes (through the medium of purchases vacuum in the corporate election process.'
and sales of shares) or with one man buying up enough But what if the job of voting portfolio securities held by
votes to kick the incumbent management out and try his institutions is taken away from the functionaries to whom own ideas on how to make more money (if that is the real it is now generally delegated and exercised directly by the objective of his take-over). directors and top officers of the institutions? Some com- Since the rise of the modern publicly-held business mentators have seen this possibility as the best hope of corporation, two limitations have been recognized on the providing an independent check on the actions of corpo- type of issues that could be brought before the shareholder rate managers."
electorate for decision or ratification (and, by implication, There are at least two problems here. First, the people on the type of issues they could consider in voting on who actually manage the institutions have shown no nominees for the board of directors). First, the issue could more inclination to take the time or trouble to improve not be so narrow as to constitute an interference with the corporate management than have their hirelings; if they directors', (i.e., management's) right and obligation to don't like the management, they will sell (unless they manage the day-to-day affairs of the company. Second, have word that an attractive tender offer or merger pro
the issue could not be so broad that it could be said to posal is coming). Second, and more important, many of
relate primarily to "general economic, political, wracial, the directors of the institutions are also officers or direc- religious, social or similar causes" rather than to the selftors of the companies in which the institutions invest. Al- interest of the shareholders as economic animals.110 though they would presumably disqualify themselves from What reasons underlie this dual limitation which has participating in the institution's evaluation of the com- put a severe squeeze on the range of issues that can be panies with which they are personally involved, they can
put to a shareholder vote? Management can presumably
justify the first limitation on the ground that shareholder 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 108 See Rostow, supra note 107. indicated in congressional testimony that the practice may be wide- 109 Opinions may differ, of course, about the best way to achieve spread. N. Y. Times, May 15, 1970, at 51, col. 7.
optimum performance, but the issues to be resolved are usually so 105 NYSE, 1969 Fact Book 45.
complex as to defy rational participation by a substantial electorate. 106 There are, of course, many individual investors whose views For example, the proxy statements that publicly-held companies are identical to those ascribed to institutional managers. The dif- are required to furnish to their shareholders when soliciting votes ference is that the individual investor is normally not subject to on a proposed merger are considered by experts to be the most any fiduciary obligation that prevents (or that he believes prevents) useful source for appraising the company's financial prospects. Yet his taking a more active role in the selection process.
their complexity and length (often running to 100 pages or more) 107 See A. BERLE, ECONOMIC POWER AND THE FREE Society 12- make them incomprehensible to all but the most sophisticated 13 (1958); Rostow, To Whom and for What Ends Is Corporate shareholders. Management Responsiblei, in The CORPORATION IN MODERN So- 110 SEC rules 148-8(c)(2), (5), 17 C.F.R. $$ 240.14a-8(c)(2), (5 CIETY 46, 55 (E. Mason ed. 1961).
meetings are an intolerably clumsy instrument for making shareholders have the right to be involved in corporate frequent and detailed administrative decisions. It can be decisions that have social impact and that they must be questioned whether there is any real danger of shareholder given an opportunity to vote on these matters at shareintervention in this direction, but in any event the lim- holders' meetings.118 Future campaigners should have less itation is not a serious one. Egregious cases of unfairness difficulty in tailoring their proposals to the liberalized SEC or impropriety by management certainly deserve and standards and bringing more economic and social issues require scrutiny by the shareholders, but this can probably into corporate meetings. be better achieved by the judicial proceeding of a deriva- Senator Muskie has introduced a bill entitled the “Cortive suit (the game of Corporations II) than by the legis- porate Participation Act,” which would bar the SEC from lative activity of the shareholders at a meeting.
excluding a stockholder proposal “on the ground that such The justification for the second limitation rests on proposal may involve economic, political, racial, religious somewhat different footing. One would expect management or similar issues, unless the matter or action proposed is to argue that shareholders should not vote on “general not within the control of the issuer.” 119 The bill is designed economic, political, racial, religious, social or similar" in his words, “to allow shareholders to place on the issues because those are outside the scope of the corpora- company ballot any proposal which promotes economic, tion's concerns and are matters on which management
or social causes related to the business of the corporashould take no stand. In fact, management's current posi- tion." " 120 He indicated that his proposed bill was a consetion seems to be quite different. In response to the recent quence of the inadequate results of Campaign GM,19 and proxy solicitation by a group calling itself the Campaign it would indeed have ensured that all of the proposals to Make General Motors Responsible (Campaign GM) in made by that group would have been brought to the floor favor of changes in the General Motors management of the meeting. structure, "designed to make the Corporation more re- The Muskie proposal, however, would have no direct sponsible to the community as a whole,” 111 management effect on the reception accorded proposals of the Campaign did not argue that it had no such responsibilities but in- GM type when they reached the floor. Although the Camstead distributed to its shareholders a twenty-one page paign leaders had hoped to derive their principal support defense of how well it was fulfilling them."12 Ťo be sure, from public-spirited institutional managers holding large the GM management did emphasize its “basic obligation” blocks of shares, their principal support, in fact, came from to “pay dividends to its stockholders.” 113 However, it the smaller shareholders. Their two proposals, for the seemed to view this as its intermediate rather than its establishment of a Committee on Corporate Responsibility ultimate goal, stating that "a corporation's ability to and for the addition to the board of three “public-interest" fulfill its other responsibilities depends upon how successful directors, received the support of 7.19 percent and 6.22 it is in achieving a profit." 114
percent, respectively, of the shareholders, but only 2.73 By taking this position, the GM management appeared, percent and 2.44 percent, respectively, of the shares at least, to be more concerned with the public responsi
voted.122 The shareholders who voted for the Campaign bilities of an automobile manufacturer than is the manage- GM proposals owned an average of 103 shares as against ment of Yale University. Yale, like Harvard, decided to an average of 284 shares for those who voted against the abstain from casting its 25,000 votes on the Campaign
proposals and an average of 210 shares for all GM shareGM proposals “on the principle that the Fellows of the holders. 123 (Yale) corporation do not and should not have the power
While neither proposal came close to achieving a to take a corporate position on issues of a political or majority, no matter how the vote is sliced, the indication social nature which do not directly affect the university is that on a vote of this nature the result may differ sharply in its relations with the local community." 115 In other depending on whether one is counting shares or voters. words, the universities, along with the other institutional Of course, the vote of an institutional investor may itself investors that are amassing an increasing proportion of reflect a division among its managers. College Retirement the voting shares of major industrial companies, do not Equities Fund (CREF), a pension fund for university want the votes that come with these shares if it requires professors, cast 608,700 votes against the Campaign GM them to do anything other than make a decision on how proposal to add public-interest directors to the GM board best to increase their investment return to meet their on the basis of a nine-to-seven vote against the proposal pressing financial needs. This institutional "cop-out”
in its own board of trustees.124 Thus, on that vote, the raises some serious questions.
118 The Dow management's position was weakened by their baving Campaign GM broke new ground by persuading the been Securities and Exchange Commission, over GM's vigorous
repeatedly quoted in sources which include the company's opposition, that at least two of its proposals were proper
own publications as proclaiming that the decision to
continue manufacturing and marketing napalm was made subjects for shareholder consideration. i16 Since then, the not because of business considerations, but in spite of Court of Appeals for the District of Columbia has ordered them; that management in essence decided to pursue å the SEC to reconsider its rejection of the attempt by a
course of activity which generated little profit for the
shareholders and actively impaired the company's public group of shareholders of Dow Chemical Company to force
relations and recruitment activities because management à shareholder vote on whether the company should con- considered this action morally and politically desirable. tinue to manufacture napalm.11? The court ruled that Id. at D-11 (emphasis in original).
119 S. 4003, 91st Cong., 2d Sess. (1970). 111 Proxy Statement of Campaign GM 2 (March 25, 1970).
130 116 Cong. Rec. S 9568 (daily ed. June 23, 1970); N. Y. Times, 112 General Motors Corp., GM's Record of Progress (1970). June 23, 1970, at 59, col. 2. 113 Id. at 20.
121 116 CONG. Rec. S 9568 (daily ed. June 23, 1970). 114 Id. See also note 118 infra.
192 Wall St. J., May 25, 1970, at 4, col. 3. 116 N. Y. Times, May 11, 1970, at 27, col 1.
123 These calculations are based on data in Moody's INDUSTRIAL 116 Wall St. J. April 7, 1970, at 40, col. 2.
MANUAL 2278, 2281 (1969). 117 Medical Comm. for Human Rights v. SEC, BNA Sec. Reg. & 134 Letter from William C. Greenough, Chairman of CREF, to L. REP. No. 59, at D-1 (D.C. Cir. July 8, 1970).
James M. Roche, Chairman of GM, May 13, 1970.
individual decisions of two members of an institutional Employees would not be too difficult a group to delimit. board offset the individual decisions of approximately They could be given voting power in either of two ways: the 6,000 other GM shareholders. 125
German system, under which they vote separately for
"labor directors," or a system under which they would III
vote along with shareholders for a single slate of directors.
Consumers present a different problem. In the case of a Management and Its Constituencies
large manufacturing concern, "consumers" may include
the wholesalers and retailers who distribute the corporaIn the spring of 1932, a debate was conducted in the pages of the Harvard Law Review on the question: "For
tion's products, as well as the ultimate consumers. Not Whom Are Corporate Managers Trustees?" Professor E.
only are the interests of these two groups divergent in Merrick Dodd postulated that corporate managers owed
many respects, but expansion of the electorate to the latter duties to employees, consumers, and the general public, as
group would, in the case of some corporations, extend the well as to shareholders. 126 Mr. A. A. Berle, on the other
franchise almost without limit. If every person who had hand, considered it unwise to depart from the view that
ever purchased a General Electric light bulb had a right corporate managers should act solely for the purpose of
to participate in choosing the directors, the corporation making profits for the shareholders "until such time as
would be forced to say that anyone in the world who wants you are prepared to offer a clear and reasonably enforce
to vote at a GE election can do so. This is absurd, but able scheme of responsibilities to someone else." 127 It is
absurd only because it is unworkable. The purchasers of now popularly supposed that Professor Dodd had the
GE light bulbs, as a group, have a real and substantial better of the argument; indeed, Mr. Berle himself has
interest in whether GỀ management incorporates known since conceded that the argument has been settled (at improvements in the product. The problem is finding the least for the time being) squarely in favor of Professor
most appropriate means by which this interest can be Dodd's contention,” ” 128 and that "modern directors are
taken into account in management decisions. To say that not limited to running business enterprise for maximum
the customers' only right is to buy the goods of a competprofit, but are in fact and recognized in law as admin- ing manufacturer is akin to saying that a shareholder does istrators of a community system.” 129
not need a vote in a publicly-held corporation because he My concern here is not with whether Dodd or Berle
is fully protected by his right to sell his shares on the marwas right; in fact, while corporate management today may
ket at any time. The light bulb users have an interest, and prefer to quote the former than the latter, its actual
they have a right to have it considered by the managemotivation is probably closer to Galbraith's 'formulation ment; the real question is the procedure, if any, by which of “a secure minimum of earnings” which is necessary to
they should be able to express their dissatisfaction. “preserve the autonomy on which its decision-making
If consumers are indeterminate, the general public is power depends.” 130 My purpose is rather to question virtually indefinable. The inhabitants of areas around the whether the present system of "one share, one vote” corporation's plants are certainly part of it, but how large is a desirable method of selecting (or ratifying the selection an area? And what of communities all along the river into of) corporate managers under either of the alternative
which the wastes from the corporation's plants are disformulations of their fiduciary obligation. At first glance, charged, or communities around the plants of the corit would seem that if there is to be an electorate, it should poration's suppliers? include all the groups to which the management owes
This brief catalogue is enough to show that an electorresponsibility. If Professor Dodd was right, this should
ate if there should be an electorate-cannot be defined include employees, consumers, and the general public, as
by the groups to whom managers are said to have rewell as shareholders.131 However, the determination of the sponsibility: Yet if we expect managers to act in the boundaries of these other groups raises serious difficulties.
interest of their various constituencies, we must give them
some incentive to do so. The pluses and minuses of their 129 Dr. Roger Murray of CREF is quite concerned about the stewardship should be subject to genuine debate at the situation: The people who have control over the stock have a great
time they seek re-election or when a particular action deal of power that no one ever really gave them. They
requires ratification by their constituents. We cannot speak, not with their own voices, but with the voice of the expect them to continue indefinitely to aim for higher size of their stock. Do you really think that your counter- levels of "statesmanship” in the management of the part at Metropolitan Life ought to be seven times as influential as you are because he has seven times more
institutions for which they are responsible if we continue stock?
at the same time to structure the electorate so that it will Landau, Do Institutional Investors Have a Social Responsibilityi, perforce be guided only by the most selfish and limited INSTITUTIONAL INVESTOR, July 1970, at 25, 87. His only suggestion, economic interests in casting its votes. however, is that it should be seven times more difficult for Metropolitan Life to take a stand." Id.
The absence of workable alternatives forces us to return 129 Dodd, For Whom Are Corporate Managers Trustees?, 45 Harv. to the concept of the shareholders as the electorate. The L. Rev. 1145, 1156 (1932).
system has shown that it works, and perhaps some modifi127 Berle, For Whom Corporate Managers Are Trustees: A Note, 45 Harv. L. Rev. 1365, 1367 (1932).
cation could make it an effective instrument for the con128 A. BERLE, THE TWENTIETH CENTURY CAPITALIST REVOLUTION duct of a plebiscite. 169 (1954). 120 Berlé, Foreword to THE CORPORATION IN MODERN SOCIETY,
The difficulty with the system of “one share, one vote" supra note 107. at xii.
as it applies to the publicly-held corporation is that it 130 J. GALBRAITH, su pra note 89, at 167-68.
makes it virtually impossible for any constituency, no 131 In fact, we might first question whether shareholders should be matter how large, to make any impression in the vote for included at all. Chayes maintains, not without justification, that directors unless its members have an enormous amount of "of all those standing in relation to the large corporation, the shareholder is least subject to its power." Chayes, The Modern Corpora
money available to buy shares. Take General Motors tion and the Rule of Law, in THE CORPORATION IN MODERN SOCIETY,
Corporation (admittedly an extreme example, but an supra note 107, at 25, 40.
important one). GM has 285 million shares outstanding