This piece on the results of Dell’s August 12 annual shareholder meeting & vote highlights some interesting contrasts between American democracy and corporate democracy.
“In this week’s annual shareholder meeting, more than 25% of the voting shares withheld Dell’s eponymous founder from re-election. While a 75% majority would be a crushing triumph in an election for public office, these board-seat votes don’t work like that. Remember when Walt Disney (NYSE: DIS) chairman and CEO Michael Eisner was forced out of those jobs? He “won” that vote with a 55% approval rating. Within days, Eisner was demoted from chairman to a plain old director; a year later he was gone.”
Why is a 75% majority considered the beginning of the end of Michael Dell’s control over Dell Inc. while Obama’s 52% majority was widely lauded as a mandate for change? Consider two major differences between American and corporate democracy.
The first major difference between shareholders and citizens is the ability to get out. If shareholders are unhappy with a company’s management they can try to vote different management into office. If this fails, they always have the option to sell their shares and liquidate their position. If, as in the case of Dell Inc., potentially 25% of the shareholders are disgruntled enough to sell, the stock price is poised to take a dive. Never underestimate the power of a massive sell-off. The losses resulting from such a sell off are likely to make anyone sitting on the fence unhappy enough to sell their shares too. Now contrast this with American democracy.
Most citizens face prohibitively high costs which prevent them from liquidating their assets and moving to a different governmental regime. Tax penalties further discourage citizens from expatriating. Even if a substantial portion of tax payers managed to leave and take their tax-dollars with them, the domino effect seen in corporate democracies is substantially mitigated, if not eliminated. This is because the cost of relocating is extremely high for citizens while any lost tax revenue can easily be printed by the Federal Reserve.
The second significant difference between corporate democracies and American democracy lies in the way voting power is determined. In corporate democracies, voting is proportionate to stake in the company. Those with more to lose or gain have more votes. Thus those who have a greater vested interest in seeing the company be run well and profitable have a greater say in who is managing their capital. By contrast, 5% of taxpayers pay over 60% of taxes collected and 47% of Americans pay no federal income taxes; both have the same number of votes.
