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Most individual shareholders, even when they own shares directly, are driven away from voting by a system designed for institutional efficiency, not individual engagement.

Let me be blunt: “shareholder democracy” is corporate America’s sneakiest propaganda campaign. For nearly a century, Wall Street has sold us this fairy tale that shareholders control corporations democratically, complete with voting rights, representation, and minority protections. It is time we admit what the data has been screaming for decades: this is fantasy.

The Rhetorical Cheat Code

When Exxon CEO Darren Woods declares his company is a “forceful advocate for shareholder democracy,” when Tesla frames executive compensation battles as democratic mandates, and when BlackRock’s Larry Fink heralds “a new era of shareholder democracy” through pass-through voting—they're all playing the same game. They’re using a rhetorical cheat code, a term so vague and emotionally appealing that it can justify virtually any position.

But here is the uncomfortable truth: there is nothing democratic about a system where institutional investors, which are only thousands of entities, hold 70% of all US equity, and retail investors, who are millions of individuals, hold about 30% of all US equity. A small minority of shareholders—institutional investors—control the vast majority of votes. Moreover, proxy advisory services, effectively with no skin in the game, influence how a consequential portion of shares are voted. What is democratic about this?

Institutional Bureaucracy, Not Democracy

Since the 1980s, we’ve witnessed massive “de-retailization” of share ownership. Individual investors have been systematically pushed out in favor of institutional behemoths. There has been a recent resurgence of retail investing led by “wireless investors”—retail investors who invest via commission-free trading apps and source the bulk of their investing information online. Although American household direct investment rose from 15% in 2019 to 21% in 2022, wireless investors remain largely disenfranchised when it comes to actual corporate governance.

The proxy system compounds this democratic deficit. Most individual shareholders, even when they own shares directly, are driven away from voting by a system designed for institutional efficiency, not individual engagement. Meanwhile, proxy advisory services like ISS and Glass Lewis wield enormous influence over corporate elections, creating another layer of intermediation that distances actual people from corporate decision-making.

The Historical Con Job

The term “shareholder democracy” did not emerge organically from some grassroots movement of empowered investors. It was crafted in the 1920s by Wall Street investment firms and the New York Stock Exchange as a marketing tool to attract everyday investors. Even more cynically, corporate managers and their political allies weaponized this rhetoric to fight government regulation, arguing that mass share ownership could achieve social goals more efficiently than democratic governance through elected officials.

Julia Ott’s historical research reveals the true agenda: proponents promised that mass investment would provide “class harmony” without disrupting the status quo of “economic wealth and power.” In other words, shareholder democracy was sold as revolution that changed nothing fundamental about who actually holds power.

Why This Matters Beyond Wall Street

Some might ask: why obsess over corporate governance terminology? Because words shape reality, and the stakes could not be higher. Corporate power permeates every aspect of our lives—from our income and healthcare to environmental policy and political funding. When we accept the fiction that this power is democratically accountable through “shareholder democracy,” we legitimize a system that concentrates enormous influence in the hands of a small institutional elite.

The modern American republic depends on the corporate sector for critical aspects of existence and citizen welfare. Undemocratic control over corporations does not stay contained in boardrooms—it trickles down into every corner of our society and politics. As I explored in my essay “The Vitruvian Shareholder,” human shareholders have dual natures: as investors and as human beings who inhabit a shared planet. But current corporate governance structures, by disenfranchising individuals, systematically marginalize human dimension of the demos.

The Path Forward

Our forthcoming article in the Florida Law Review does not just diagnose the problem—it lays the foundation for informed policymaking about corporate power. We are not arguing that shareholders should have more or less power; we are insisting that we stop pretending the current system is democratic when it manifestly is not.

Real reform requires acknowledging the mechanics that make shareholder participation tick. Only then can we have serious discussions about whether we want to democratize corporate power—by expanding shareholder participation and power—or openly embrace alternative models that do not hide behind deceptive democratic rhetoric.

The rise of “wireless investors,” particularly those who gather online to discuss companies, offers a glimpse of what bottom-up democratic participation might look like. But channeling this energy requires infrastructural changes that prioritize accessibility and engagement over efficiency and institutional convenience.

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Sergio Alberto Gramitto Ricci is an Associate Professor of Law at the Maurice A. Deane School of Law, Hofstra University.

The ECGI does not, consistent with its constitutional purpose, have a view or opinion. If you wish to respond to this article, you can submit a blog article or 'letter to the editor' by clicking here.

This article features in the ECGI blog collection History of corporate governance

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