From Corporate Disenfranchisement to Shared Capitalism

James McRitchie, 03/23/2026 ,

Broadening Informed Ownership in Corporate Governance

Debates about shareholder participation often focus on important procedural details — ownership thresholds for shareholder proposals, regulation of proxy advisors, or institutional investor policies. Yet, these debates often miss a deeper structural question:

Why do shareholders who formally possess extensive governance rights so often lack meaningful influence?

A recent paper by Sergio Alberto Gramitto Ricci and Christina M. Sautter, Corporate Disenfranchisement, provides one of the most compelling answers. The authors argue that modern corporate governance suffers from a persistent “rights–power gap.” Shareholders formally retain the right to vote, submit proposals, nominate directors, and challenge corporate actions. In practice, however, most investors lack the information, coordination mechanisms, and institutional capacity necessary to exercise those rights effectively. The rights–power gap, therefore, reflects a structural feature of modern corporate governance rather than a temporary regulatory imbalance.

The result is a governance system that appears democratic in form but frequently operates oligarchically in practice. One response is to preserve and expand the institutional infrastructure that allows dispersed shareholders to participate. For example, I have both tried to prevent the erosion of rights (Restore Shareholder Proposal Rights) and help shareholders more intelligently and automatically (In Celebration of MoxyVote.com and (Free Proxy Advisor From As You Sow & Iconikapp).

Another response, explored here, is to broaden the base of informed owners within firms themselves. Moderate employee ownership without control capture—on the order of three to twenty percent of outstanding shares—offers one potential mechanism for doing so, without altering the basic architecture of shareholder governance. However, for this informational advantage to influence governance outcomes, the law must be amended to allow employee shareholders to exercise voting rights directly, rather than relying solely on trustees or intermediaries. Knowing which companies have moderate employee ownership would then become material information for investors seeking to maximize returns due to increased employee involvement.

Republic of the Company, Long version — Republic of the Company, Short version

Music for a Democratic Corporate Governance

Erosion of Rights

This diagnosis arrives at a moment when the institutional infrastructure supporting shareholder participation is undergoing significant change. Amendments adopted by the Securities and Exchange Commission in 2020 increased eligibility thresholds and resubmission requirements for shareholder proposals under Rule 14a-8 of the Securities Exchange Act. The rule historically allowed qualifying shareholders to place proposals in corporate proxy statements for a vote at annual meetings (SEC Release No. 34-89964. See my final comments on that rulemaking.

More recently, the SEC’s Division of Corporation Finance announced that it would scale back responses to many no-action requests regarding shareholder proposals, effectively shifting greater responsibility to companies to determine whether proposals may be excluded from proxy materials. At the state level, new legislation, such as Texas Senate Bill 1057, imposes significant ownership thresholds for shareholder proposals submitted to companies incorporated in Texas.

Viewed individually, these developments may appear incremental. Viewed collectively, they illustrate the structural dynamics described in Corporate Disenfranchisement.

Yes, we must fight the erosion of rights. However, we should also consider the implications of this insight: Corporate governance works best with informed owners. The shareholder proposal process can also be understood as a corporate analogue to what recently deceased political theorist Jürgen Habermas described as the “public sphere”—a space in which participants exchange views and subject ideas to reasoned scrutiny as part of collective decision-making. Within corporate governance, shareholder proposals have historically provided one of the few structured forums for such communication between investors and management. Weakening that mechanism risks diminishing the deliberative quality of corporate decision-making and investors’ ability to surface emerging risks and concerns.

Below, I summarize the main argument of Corporate Disenfranchisement, which explains the rights–power gap in modern corporate governance. I then turn to their discussion of the “Leopard Paradigm,” which illustrates how governance reforms often evolve in ways that preserve existing power structures even as formal rules change. Then, I examine the shareholder proposal system and other institutional mechanisms that allow dispersed investors to participate in governance. Finally, I consider how moderate employee ownership can broaden the base of informed shareholders within firms and thereby strengthen the informational foundations of corporate governance.

Corporate Disenfranchisement: The Rights–Power Gap

The central contribution of Gramitto Ricci and Sautter’s analysis is the distinction between formal governance rights and the practical ability to exercise those rights.

Corporate law formally grants shareholders numerous participatory tools:

voting for directors
submitting shareholder proposals
bringing derivative litigation
inspecting corporate records
participating in corporate meetings.

Yet the effective use of these rights requires significant resources. Most investors face several structural barriers.

Information barriers. Modern corporations are complex organizations whose governance structures often require specialized expertise to evaluate.
Collective-action barriers. Shareholders are widely dispersed and frequently hold small stakes across many firms, limiting incentives to invest time in governance monitoring.
Institutional intermediation. Asset managers, proxy advisors, and governance consultants increasingly mediate between beneficial owners and corporate decision-making.

Together, these conditions create a system in which the formal architecture of shareholder democracy remains intact while practical governance power becomes concentrated among a relatively small group of actors. As Gramitto Ricci and Sautter observe, “corporate governance rights may exist formally while the institutional environment prevents most shareholders from exercising them effectively.” The persistence of this gap raises an obvious question: why do governance reforms so often fail to alter underlying power structures?

If we want things to stay as they are, things will have to change.

Corporate Disenfranchisement: The Leopard Paradigm

To explain why this pattern persists, Gramitto Ricci and Sautter introduce what they call the “Leopard Paradigm.” The concept derives from Giuseppe Tomasi di Lampedusa’s 1958 historical novel The Leopard (Il Gattopardo), set in 1860 during the political upheaval of Italian unification. In the novel, the aristocratic character Tancredi famously explains that the aristocracy must support political change in order to preserve its social position:

“If we want things to stay as they are, things will have to change.” [Giuseppe Tomasi di Lampedusa, The Leopard (1958); Wikipedia]

Political theorists often refer to this dynamic as the di Lampedusa principle—the idea that elites adapt institutions in ways that preserve underlying power structures even as formal reforms occur. Applied to corporate governance, the Leopard Paradigm suggests that reforms designed to expand shareholder participation through procedural rules, for example, frequently trigger countervailing institutional adjustments, leaving the underlying distribution of power largely unchanged.

Examples include:

higher ownership thresholds for shareholder proposals
increasingly complex procedural requirements
regulatory changes affecting proxy advisory firms
new restrictions enacted at the state level.

Each change appears modest in isolation. Collectively, however, they can shift governance influence toward elite actors with the resources and expertise necessary to navigate increasingly complex participation mechanisms. If the Leopard Paradigm accurately describes the evolution of corporate governance, reforms that rely solely on procedural adjustments are unlikely to close the rights–power gap. Structural changes that broaden the base of informed shareholders are therefore necessary.

Shareholder Proposals as Governance Infrastructure

One of the arenas where the rights–power gap and the Leopard Paradigm intersect most visibly is the shareholder proposal system. Rule 14a-8 allows shareholders meeting certain ownership requirements to place proposals in a company’s proxy statements for a vote at annual meetings.

Although proposals are typically advisory, they perform several important governance functions.

Proposals allow dispersed investors to signal concerns and priorities to corporate boards.
They facilitate coordination among shareholders who might otherwise remain unorganized.
They generate information for investors, analysts, and markets about emerging governance issues.
Athough proposals are advisory, shareholders can punish directors by withholding votes or filing proxy access candidates when boards fail to heed the votes.

Historically, many widely accepted governance reforms—including majority voting standards for directors and reporting standards—first emerged through shareholder proposals.

For more than three decades, the author of this post has participated directly in this proces, filing shareholder proposal at hundreds of companies as documented at CorpGov.net. These proposals have often addressed governance reforms—such as proxy access, majority voting, and declassified boards—that later became widely adopted governance norms. Fairer nomination guardrails may be next.

That experience illustrates an important point: the shareholder proposal process has long served as a laboratory for governance innovation, allowing dispersed investors to raise issues that can be tested as potential solutions before they become mainstream corporate practices.

From the perspective of Corporate Disenfranchisement, the proposal process therefore represents core democratic infrastructure within corporate governance. As Ricci and Sautter note:

Shareholder proposals are the miners’ canary of corporate disenfranchisement: when those in power subject participation to deterring requirements and formalities, ordinary shareholders are silenced.

Weakening that infrastructure does more than reduce the number of proposals appearing on proxy ballots. It reduces dispersed shareholders’ capacity to coordinate, communicate, and influence governance agendas.

Recent scholarship similarly highlights the informational role of the shareholder proposal process. As Jill Fisch and Jeff Schwartz observe in Corporate Value(s), “the power of public company shareholders to introduce shareholder proposals… has inspired a powerful backlash.” Yet they caution that eliminating or restricting this mechanism would undermine an important governance channel because “precatory proposals provide a focused and transparent mechanism for management to learn about what their shareholders value (and what they consider unimportant) without interfering with board discretion.”

In this sense, shareholder proposals do more than signal investor dissatisfaction. They serve as an information bridge between dispersed shareholders and corporate decision-makers.

Pass-Through Voting and the Limits of Participation

Recent developments involving pass-through voting illustrate both the promise and limitations of shareholder democracy. Large asset managers, such as Vanguard, BlackRock, and State Street, have begun experimenting with mechanisms that allow clients, to direct how shares are voted rather than relying exclusively on centralized stewardship teams.

These initiatives may broaden participation. Yet they also highlight the structural problem identified in Corporate Disenfranchisement. Expanding voting rights alone does not necessarily resolve the coordination and information barriers that prevent most investors from exercising those rights meaningfully.

Corporate Disenfranchisement: Adam Smith and the Information Problem of Ownership

The rights–power gap identified by Gramitto Ricci and Sautter also reflects a deeper shift in the structure of capitalism itself.

In The Wealth of Nations (1776), Adam Smith warned that large joint-stock companies create monitoring problems because those who manage corporate assets often do not bear the same risks as those who supply the capital. As Smith famously observed, “the directors of such companies… being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance.” Smith’s observation is often viewed as an early description of the monitoring problem later formalized in modern corporate governance scholarship in Jensen and Meckling’s Theory of the Firm.

Modern corporate governance attempts to address this separation through fiduciary duties, disclosure rules, and shareholder voting rights. Yet the structural problem Smith identified persists when ownership becomes widely dispersed, and the shareholders who formally possess governance rights lack the information or incentives necessary to exercise them effectively.

The separation of ownership from information and oversight lies at the heart of the rights–power gap. Corporate governance works best when ownership includes an informed voice. Expanding ownership among those with firm-specific knowledge, such as employees, represents a modern mechanism for addressing the monitoring problem Smith identified nearly 250 years ago.

Smith’s analysis highlights an important feature of corporate governance that remains relevant today. Effective oversight depends not only on formal ownership rights but also on owners with meaningful knowledge of the enterprise. Modern securities law attempts to address the separation of ownership and control through fiduciary duties, disclosure obligations, and shareholder voting rights. Yet these mechanisms do not eliminate the informational asymmetries created by widely dispersed ownership. When most shareholders lack firm-specific knowledge, governance influence tends to shift toward managers and financial intermediaries. The resulting gap between formal rights and practical oversight closely resembles the “rights–power gap” identified by Gramitto Ricci and Sautter.

One implication of Smith’s insight is that governance systems function more effectively when ownership includes participants who possess both economic stakes and operational knowledge. In this sense, moderate employee ownership can be understood as a modern institutional response to the monitoring problem Smith identified in early joint-stock companies.

Shared Capitalism as a Response to the Rights–Power Gap

Under this model, employees hold meaningful but minority equity stakes—typically between three and twenty percent of outstanding shares—while traditional corporate governance structures remain intact. Boards retain fiduciary oversight, voting rights remain proportional to equity ownership, and capital markets continue to discipline managerial performance.

The goal is not to transfer corporate control to employees. Instead, the objective is to increase the number of shareholders who possess both firm-specific knowledge and meaningful economic stakes in corporate performance.

Employees occupy a distinctive informational position within firms. They observe operational decisions, internal processes, and emerging risks in ways that outside investors cannot easily replicate. Adam Smith recognized this informational advantage long ago, noting that many improvements in industrial machinery “were originally the inventions of common workmen” who directly observed the production process (The Wealth of Nations, Book I, Ch. I). When employees also hold equity stakes, their informational advantages can translate into more informed participation in corporate governance.

For this informational advantage to contribute meaningfully to corporate governance, however, employee shareholders must be able to exercise their voting rights directly. In many employee ownership structures—particularly ESOPs—shares are formally held by trustees who vote the stock on behalf of employees. While such arrangements may serve compensation or retirement purposes, they do little to translate employees’ firm-specific knowledge into influence over governance. If employee ownership is to narrow the rights–power gap identified in Corporate Disenfranchisement, employees must be able to vote their shares, communicate with other shareholders, and participate in governance processes, such as filing shareholder proposals. Otherwise, the informational advantages of employee ownership remain institutionally muted.

Limitations

Critics may worry that expanding employee ownership could undermine traditional shareholder governance and access to public markets by introducing competing stakeholder claims or weakening board authority. The model proposed here does neither. Moderate employee ownership—on the order of three to twenty percent of outstanding shares—does not transfer corporate control to employees, alter fiduciary duties, or replace the existing architecture of shareholder governance.

Directors continue to owe duties to the corporation and its shareholders as a whole, voting rights remain proportional to equity ownership, and capital markets continue to discipline managerial performance. The objective is not to create worker-controlled firms but to broaden the base of informed shareholders within them. By increasing the number of investors who possess both firm-specific knowledge and meaningful economic exposure to corporate performance, moderate employee ownership can strengthen the informational foundations of shareholder governance rather than displace it. Importantly, unlike worker-controlled firms, companies with moderate employee ownership benefit from lower capital costs and more liquid markets.

Evidence on Employee Ownership

Empirical research suggests that moderate employee ownership can strengthen both firm performance and organizational resilience. Studies summarized by the National Center for Employee Ownership report that firms with employee ownership plans often demonstrate higher productivity and improved firm performance. Research from Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing similarly finds that employee ownership can improve workplace productivity and firm stability.

While results vary across industries and firms, these findings suggest that broader ownership can strengthen both corporate governance and firm performance.

From the perspective of long-term institutional investors, the question is not whether employees should influence corporate governance as a distinct stakeholder group, but whether governance systems include a sufficient number of informed owners capable of monitoring management. Stewardship teams at large asset managers and pension funds face inherent capacity constraints when overseeing thousands of portfolio companies. Governance structures that broaden ownership among participants with firm-specific knowledge can, therefore, complement institutional stewardship by distributing monitoring capacity more widely.

Moderate employee ownership does not replace institutional oversight; rather, it reinforces it by increasing the number of shareholders with both economic exposure and informational incentives to identify emerging operational risks and governance problems. Realizing these benefits requires governance structures that allow employee shareholders to exercise voting rights directly rather than delegating those votes to company-appointed trustees. In many ESOP structures, shares are voted by plan trustees rather than by employees, except in limited circumstances, such as tender offers or major corporate transactions. See 29 U.S.C. §1103(a). Those provisions would need to be amended to enable employees to contribute their insights more fully to improve corporate governance.

Shared Capitalism and the Stewardship Capacity Problem

Modern capital markets increasingly rely on institutional investors to monitor corporate governance. Yet stewardship teams at large asset managers and pension funds face inherent capacity constraints when overseeing thousands of portfolio companies. From the perspective of long-term investors, the central question is therefore not whether employees should influence corporate governance as a distinct stakeholder group, but whether governance systems include a sufficient number of informed owners capable of monitoring management. Governance structures that broaden ownership among participants with firm-specific knowledge can complement institutional stewardship by distributing monitoring capacity more widely.

Moderate employee ownership—on the order of three to twenty percent of outstanding shares—offers one such mechanism. This model does not alter the basic architecture of shareholder governance. Directors continue to owe fiduciary duties, voting rights remain proportional to equity ownership, and capital markets continue to discipline managerial performance. Instead, employee ownership broadens the base of shareholders who possess both meaningful economic exposure and operational knowledge of the firm, strengthening the informational foundations of corporate governance. These benefits are realized most fully when employee shareholders can exercise their voting rights directly, rather than delegating them to company-appointed trustees.

The rights–power gap identified in Corporate Disenfranchisement is closely related to the problem of stewardship capacity. Large institutional investors now hold diversified portfolios across thousands of companies, limiting the amount of firm-specific monitoring they can realistically provide. By increasing the number of informed shareholders within firms, moderate employee ownership can supplement institutional stewardship. Employee shareholders are often well-positioned to identify emerging operational risks, communicate concerns internally, and support governance reforms that improve long-term performance.

In this sense, moderate employee ownership represents a modern institutional response to the monitoring problem Adam Smith identified in early joint-stock companies. Allowing employee shareholders to exercise voting rights directly helps transmit this firm-specific information into the broader shareholder governance process. In this way, employee voting does not displace institutional stewardship but complements it by improving the informational environment in which shareholders evaluate management performance and governance proposals. Again, 29 U.S.C. §1103(a) would need to be amended for employees to improve corporate governance.

This argument does not suggest that employee ownership alone can resolve the governance challenges associated with dispersed ownership. Corporate governance will continue to rely on institutional investors, fiduciary duties, disclosure regimes, and market discipline. The claim advanced here is more modest: broadening ownership among participants with firm-specific knowledge can improve the informational environment in which governance decisions are made and provide one practical mechanism for narrowing the rights–power gap.

The argument also suggests a testable empirical hypothesis. If governance failures arise partly because dispersed investors lack the information and incentives necessary to monitor corporate management, firms that broaden ownership among informed participants should exhibit stronger governance outcomes. Public companies with moderate employee ownership may therefore demonstrate higher shareholder participation, more informed voting patterns, and stronger long-term performance than otherwise comparable firms without such ownership structures. Empirical research comparing governance outcomes across firms with differing levels of employee ownership could provide valuable evidence on whether broader informed ownership helps narrow the rights–power gap identified by Gramitto Ricci and Sautter.

Conclusion

Debates about shareholder governance often focus on procedural details—proposal thresholds, voting rules, or proxy advisory regulation. Corporate Disenfranchisement reminds us that these debates reflect a deeper structural challenge. Modern corporate governance faces a persistent gap between formal shareholder rights and the practical ability to exercise them.

The Leopard Paradigm suggests that governance reforms frequently evolve in ways that preserve existing power structures even as formal rules change. Addressing the rights–power gap, therefore, requires more than expanding procedural rights; it requires governance systems that include a sufficient number of informed owners capable of exercising them.

Moderate employee ownership offers one practical mechanism for doing so. Employees possess firm-specific knowledge and direct exposure to corporate performance. When employee shareholders can exercise voting rights directly, that knowledge can enter the shareholder governance process, rather than remaining confined within the workplace. In this way, employee voting rights convert employee knowledge into governance influence.

Modern public corporations can be understood as institutional republics of capital: systems of delegated authority in which shareholders elect directors, directors oversee management, and fiduciary duties constrain the exercise of power. Like political republics, however, corporate governance can suffer from a gap between formal rights and effective participation. When ownership becomes widely dispersed, and most shareholders lack the information or incentives necessary to participate meaningfully in governance, republics risk becoming oligarchic in practice even if formal structures remain representative.

Strengthening corporate governance, therefore, requires more than expanding formal shareholder rights. It requires ensuring that Republics of Capital include a sufficient number of informed owners capable of exercising those rights effectively. Moderate employee ownership—particularly when employee shareholders can exercise voting rights directly—offers one practical way to broaden that base. By bringing firm-specific knowledge into the shareholder voting process, employee voting rights convert employee knowledge into governance influence.

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