Voting on Public Goods: Citizens vs Shareholders

Jun 27, 2024

Working Paper No. 00153-00

shareholder democracy political democracy socially responsible investing public good carbon tax ESG political backlash wealth inequality pass-through voting universal owners
We study the interplay between a "one person-one vote" political system and a "one share-one vote" corporate governance regime. If shareholders push firms for more pro-social policies, political backlash may arise, undoing ESG initiatives. In a frictionless economy, shareholder democracy becomes irrelevant: the political system fully offsets shareholder influence. With public policy frictions, pro-social corporations can mitigate regulatory shortcomings and enhance corporate public goods provision. Nevertheless, shareholder democracy can hurt citizens due to the representation problem: it favors the preferences of the wealthy. Investor diversification, pass-through voting, and lobbying have important implications for these trade-offs of shareholder democracy.

Robin Döttling

Robin Döttling

Erasmus University Rotterdam

Doron Levit

Doron Levit

University of Washington

Nadya Malenko

Nadya Malenko

Boston College

Magdalena Rola-Janicka

Magdalena Rola-Janicka

Imperial College London