Many thanks to Peter Dorman for highlighting Citizens United As Bad Corporate Law. I guess we had to endure this comment, which is a really weak rebuttal:
Corporate shareholders are most definitely owners; they alone have the authority to sell their shares or the company’s assets. Their rights are based not on contract law but statutory rules of franchise. They are guaranteed rights of assembly abd representation, and they cannot legally surrender those rights even if they elect Directors who vote to do so.
My first thought to this attempted rebuttal was the complaints of condominium owners in San Francisco. They may own the rights to what is effectively an apartment but they have to deal with management as they really do not own the land. And even the land owner does not have that much control in a city where regulations control land use. My second thought involved the minority shareholders of Yukos Oil during Yeltsin’s Russia, which I noted in this related post:
AB noted yesterday that some of Sinclair Broadcasting’s shareholders were upset the decision of management to aid the Bush-Cheney ’04 campaign with free air time for another smear of John Kerry. Their stock, which was around $10 a share in early August, is trading now for about $7.30 a share.
Now I get that the corporate governance rules in the U.S. are not as pathetic as they were during Yeltsin’s Russia but the idea that an individual shareholder has any real control of how a corporation is run is quite naïve. Peter asked this commenter if he had read the paper. Had he done so, he might have noticed footnote 34 on page 19, which included a seminal paper by Ronald Coase entitled “the Nature of the Firm”. This paper initiated an entire literature on what this recent paper calls the “nexus of contracts theory”. If our commenter has not read this literature, he should.
Yes, to say that the argument is pathetic gives it more dignity than it deserves.
Corporations are an exotic property in which the familiar rules of ownership are replaced by more exotic ones. Usually ownership involves control, but corporate shareholders can only exercise control indirectly if at all. Minority shareholders may no control whatsoever depending on voting rights. Ownership involves benefit, but shareholders only benefit at the whim of management. It’s not like owning a car or hat.
Corporations are government chartered collectives, and as it is constituted, our current corporate structure is a failure of government.