Bill McClellan makes a common-sense argument for more democracy in corporate elections, but business groups like the US Chamber of Commerce will tell you there's no economic argument. When they sued to block a Securities and Exchange Commission rule that would have resulted in more contested board elections, the Chamber and the Business Roundtable said that
The rules would impose unnecessary costs and allow special interest groups to disrupt corporations' focus on long-term sustainable growth.
The challenge was successful, and a court threw out the rule last summer. Recently, three scholars used that episode to study the basic question that the challengers raised: Were the costs really unnecessary, or did easier ballot access have value to shareholders?
Bo Becker and Guhan Subramanian of Harvard University, along with Daniel Bergstresser of Brandeis University, looked at stock prices on two specific days -- Oct. 24, 2010, when the SEC delayed the ballot-access rule, and July 22, 2011, when a court threw it out. They paid close attention to firms in which activist hedge funds held a stake, because those are the type of investors who would be most likely to nominate their own board candidates.
Looking at the 2010 date, the authors say,
we find that share prices of companies that would have been most vulnerable to the Rule declined significantly compared to share prices of companies that would have been most insulated from the Rule.
They found similar results on the date of the court ruling. If the authors' interpretation of this natural experiment is correct, then, investors would prefer to avoid what McClellan calls "rigged elections." If the SEC ever chooses to revisit the issue, perhaps it can use this study as evidence that democracy has real value.