Votes for Sale: The Logic of Power in Joint‐Stock Companies

Abstract

The joint‐stock company as an institution rests on two major principles. On the one hand, it embodies the logic of collective choice. The ultimate rights to power are vested in a constituency composed of the stockholders. The constituency elects a board which in turn appoints an executive. Decisions are usually taken by majority rule. In these respects, the joint‐stock company resembles the democratic polity. On the other hand, it also includes important elements of market exchange. Unlike many other instances in which the logic of collective choice applies, the rights to power can be freely exchanged on a stock market. This paper examines the power implications of this combination of principles using illustrations drawn from the corporate world of Sweden. It argues that although there are similarities between the situation of stockholders and that of voters, the incentives to participate in the exercise of control are rather different. Whereas a model based solely on instrumental rationality is insufficient to explain the participation of voters, it does well in accounting for that of stockholders. Further, the prerequisites of the emergence and maintenance of participatory norms are favorable with respect to voters but unfavorable with regard to stockholders. The paper concludes by considering the implications of the results for the alleged autonomy of managers vis‐à‐vis the owners and by examining the importance of the exit mechanism as a means of power for minor stockholders.