The Feb. 21 editorial calling for corporate elections on the basis of one shareholder-one vote may address management's concerns about domination by large shareholders, but the proposal is such a radical departure from one vote per share that it isn't likely to win many converts. Large shareholders will resist any reduction in their power, just as management has. However, the idea of secondary-level watchdog boards elected on such a basis holds merit as a means of reducing the cost of capital by protecting small shareholders. Such "shareholder panels" were recommended by pension funds in the United Kingdom to replace board audit committees (Accountancy Age, www.accountancyage.com/news/1138949) and the World Bank has promoted the idea as an anti-corruption strategy (see Corporate Structure and Ethics: A case for corporate senates at www.worldbank.org/devforum/comm_anti-library.html).
It could also address issues where boards have a conflict of interest, such as: recommending to shareholders the board's level of pay and determining benefits that don't require shareholder approval; nominating board members; selecting the auditor and approving applicable accounting standards; selecting other external experts, such as corporate monitoring firms, used to advise shareholders on matters put forward by the board; and providing the chairperson for shareholder meetings when shareholders question directors or express opposition to their actions.
The current use of board subcommittees made up of "independent" directors improves the appearance of how such conflicts are managed by boards but does not address their absolute power, nor do such subcommittees link the interests of boards to shareholders, instead of management. Watchdog boards nominated and elected on a one-shareholder-one-vote basis could address conflicts of interests, align board interests to those of shareholders, avoid domination of minority shareholders by large shareholders, and would reduce the need for regulatory oversight.
For additional information on watchdog boards, see the works of Shann Turnbull, such as "Corporate Watchdogs: Past, Present and Future?" at http://papers.ssrn.com/
sol3/papers.cfm?abstract_id=608244. Mr. Turnbull has personal experience and has written extensively on the subject.
Elk Grove, Calif.