Abstract
Competitive elections help to reduce agency problems. Because voters have a choice between different alternatives, candidates are provided with incentives to serve their principals' interests. Unlike elections in democracy, however, director elections in today's corporate world are almost universally non-competitive. This has led to the proposal of making director elections subject to a competitive process. The aim of this paper is to review the claim for more frequent incidences of election contests. In addition to the direct incentive effect of making directors more responsive to shareholder preferences, it is argued that competitive elections also incite directors to build reputation as they move from one corporation to the next during their career. The paper then discusses some of the most frequently voiced objections to such a regime. Theoretical considerations show that - while some of the critical remarks are indeed substantial - none of them turn the proposal invalid. For instance, it can be explained with the help of classical finance theory why the shareholders' option to exit does not sufficiently discipline managers and directors. Thus, shareholder voice must step into the breach.
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