The Shareholder Democracy Paradox: An Empirical Examination

Recent corporate scandals have led pundits and shareholder activists to push for a stronger shareholder voice in corporate decision-making. This shareholder democracy movement has mounted a successful campaign to declassify boards in order to have a firm’s entire slate of board members up for election each year. We argue that the general rush to embrace shareholder democracy is premature and the specific movement to declassify boards is misguided. We found support for our argument that classified boards are associated with a higher level of firm performance, suggesting that the governance prescriptions of shareholder democracy merit further examination prior to adoption.