The Investor as Citizen in a Changing Capitalist Order

A review of Luigi Zingales’s academic keynote “Citizen Investors”, presented at The First Annual Corporate Governance Academic Forum at the University of Toronto, hosted by the Johnston Centre for Corporate Governance Innovation at the Rotman School of Management, Toronto, Canada, on 3 October 2025.

In a world where a handful of asset managers wield voting power over thousands of companies, Luigi Zingales argues that the problem is not too much shareholder influence—but too little democracy within it. His provocative idea: turn passive shareholders into active participants—citizen-like investors able to set the moral boundaries of corporate conduct through deliberative assemblies.

The lecture began with an unlikely protagonist: Benedictine Sr. Susan Mika, a nun who filed shareholder proposals urging McDonald’s to curb antibiotic use in livestock. Her proposal—one of those “crazy” ideas once analyzed and dismissed in finance and law classrooms—encapsulated Zingales’s challenge to decades of orthodoxy in law and finance. The traditional response to her proposals—that externalities are for governments to fix, not companies—misses the point, he argued. Governments often fail precisely because corporations lobby to make them fail. In such cases, shareholder activism becomes not a substitute for democracy but its defense.

Zingales systematically revisited the standard objections to socially motivated shareholder proposals, many rooted in Milton Friedman’s 1970 dictum that the sole social responsibility of business is to increase its profits. Each, he suggested, fails empirical or logical scrutiny.

First, the claim that only governments should address externalities assumes a level of efficiency that rarely exists in practice. “If we believed that,” he quipped, “we wouldn’t have charity—or universities funded by private donations.”

Second, the notion that “nobody cares” about such issues is refuted by evidence: a 31 percent vote at McDonald’s on antibiotics, and majorities at United Airlines and Exxon in 2021 supporting climate-lobbying disclosures.

Third, the charge that activism is ineffective collapses under history. From Dow Chemical’s withdrawal from napalm production in the Vietnam era to General Motors’ reluctant adoption of the Sullivan Principles in apartheid-era South Africa, Zingales traced a lineage of proposals that began as fringe and ended as corporate policy.

Finally, the argument that activism is economically “wrong” or unfair—Friedman’s idea of “taxation without representation”—rests on an illusion of separability between profits and social outcomes. In many real-world cases, the two cannot be disentangled. It is cheaper to prevent antibiotic resistance than to cure it; cheaper not to pollute than to clean up. Similarly, when Oxfam proposed that Pfizer and Moderna share COVID-19 vaccines freely in Africa, the issue was not philanthropy but efficiency. Giving the product away could achieve greater welfare at lower cost than profit-maximization followed by private charity.

Zingales and co-author Oliver Hart formalize this intuition by replacing “shareholder value maximization” with “shareholder welfare maximization.” Shareholders’ utility functions, they argue, include moral and social preferences as well as financial ones. Maximizing value alone therefore misrepresents what investors actually want. “Most privately held companies don’t maximize profits—they maximize the utility of their owners,” he noted.

This shift also exposes the fallacy of neutrality. When a majority of shareholders want a company to act on moral grounds and are blocked by profit-maximization rules, it is they who are effectively taxed. As Zingales put it, “If 51% of Pfizer shareholders decide not to share vaccines with Africa, they are imposing a utility tax on those who wanted to do it. There is no neutral position. In one case you tax one group; in the other you tax the other.”

This idea of a “utility tax” turns Friedman’s fairness argument on its head: forcing firms to ignore social preferences is not democratic restraint—it is “taxation without representation.” True fairness, Zingales argued, requires collective deliberation about which utilities to prioritize. 

That leads to the practical question: how can firms elicit genuine shareholder preferences when most investors don’t vote? Current systems of “voting choice,” rolled out by major index funds, work for institutions but barely reach individuals. Only 11 percent of retail investors vote their proxies. Yet these abstentions leave corporate power concentrated in the hands of three giants—BlackRock, Vanguard, and State Street—whose CEOs effectively determine policy for much of corporate America. 

His proposed remedy draws inspiration from an ancient democratic device: sortition, or random selection. Instead of expecting millions of dispersed shareholders to study hundreds of ballot items, companies—or large funds—would convene investor assemblies of roughly 100 to 150 randomly selected shareholders. The sample, statistically representative of the broader investor base, would be paid and resourced to deliberate and cast informed votes on questions with moral or social dimensions: antibiotic use, lobbying policy, climate disclosure.

The assemblies would preserve the principle of one-share-one-vote by assigning lottery tickets proportional to shareholdings, but each person could serve only once, ensuring equality within deliberation. Participants could opt out or withdraw if they objected to outcomes. Anti-corruption safeguards would mirror those of juries—an analogy Zingales embraced: “If we trust juries of twelve to decide life and death, why not 150 citizens to decide what Exxon should do?”

Beyond procedural design, he framed the idea as a survival mechanism for capitalism. Asset managers face political attacks from both sides—accused by conservatives of advancing a “climate agenda” and by progressives of financing authoritarian regimes. By devolving moral decisions to shareholder assemblies, funds could escape the impossible demand to be both neutral and omnipotent. Democracy, not managerial discretion, is the only legitimate counterweight.

The discussion from the floor explored implementation challenges: costs, self-selection bias, and technology. Some participants suggested that AI or online platforms could enable large-scale deliberation. Zingales supported experimentation but stressed that genuine dialogue requires people to meet and deliberate in person, since the aim is informed judgment rather than simple polling. He acknowledged the risk of self-selection and bias but expected that many investors would still volunteer for the opportunity to influence major decisions. Stratified sampling and pilot surveys, he added, could help identify and correct participation gaps, while safeguards similar to jury systems would limit manipulation or lobbying. The assemblies, aimed primarily at dispersed retail investors rather than large fiduciaries, would modestly broaden representation —giving a voice to those who “deserve to be represented but are too busy to be represented.” 

Zingales closed with a preditiction that major institutions will embrace reform not out of idealism but necessity. Concentrated voting power is untenable, deliberative shareholder democracy may be the only credible alternative. 

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A review of Luigi Zingales’s academic keynote “Citizen Investors”, presented at The First Annual Corporate Governance Academic Forum at the University of Toronto, hosted by the Johnston Centre for Corporate Governance Innovation at the Rotman School of Management, Toronto, Canada, on 3 October 2025.

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