One of the most common arguments against dual class stock is based on notions of corporate democracy. Some argue that shareholder participation in corporate decision making on a one-vote per share basis is desirable in and of itself. This notion makes for powerful rhetoric, but its premise is refuted both by history and modern practice. As the preceding post demonstrated, deviations from the one-vote/one-share standard were historically commonplace. Moreover, the analogy between modern public corporations, even those with a single class of voting shares, and democratic institutions is simply inapt:
The corporation law does not operate on the theory that directors, in exercising their powers to manage the firm, are obligated to follow the wishes of a majority of shares. In fact, directors, not shareholders, are charged with the duty to manage the firm. ... That many, presumably most, shareholders would prefer the board to do otherwise than it has done does not ... afford a basis to interfere with the effectuation of the board's business judgment. [Paramount Communications Inc. v. Time Inc., [1989] Fed. Sec. L. Rep. (CC) 94,514 at 93,284 (Del. Ch. 1989), aff'd, 571 A.2d 1140 (Del. 1990).]
Corporations are not New England town meetings. Nothing in our economic history compels the conclusion that the two institutions ought to be run on the same principles.
