One Share, One Vote: A Perception of Legitimacy

Vital in preserving managerial accountability, the firmly established one share, one vote rule provides shareholders with limited rights to elect directors who appoint managers and to approve certain extraordinary transactions. Without the deterrents of risk of capital loss and fear of removal, management may exercise power without responsibility. The New York Stock Exchange (NYSE) embraced the one share, one vote model, and its leadership continues to emphasize the rule as good for investors and their public markets. Managers who fear the acquisition of voting control, and their subsequent removal, by new owners, favor moving their companies to markets where disproportionate voting rights are permitted, thus allowing their control of voting power. As a result, the NYSE proposed the elimination of the rule, out of fear of losing these companies from their listings, and the Securities and Exchange Commission (SEC) has indicated its willingness to permit access to the trading markets of common stock with disproportionate or no voting rights. Accordingly, the continued vitality of the one share, one vote rule is dependent upon the will of Congress. This article, after reviewing the rule’s controversial background, addresses disenfranchisement techniques, the value represented by voting rights, the effects on present public policies, and most importantly, the long-term impact on public confidence in the fairness and integrity of our securities markets. The transcendent question, and the focus of any analysis dealing with the protection of investors and the securities markets, is whether the ultimate resolution of the controversy will weaken or support a perception of legitimacy.