9 - A Firm-Based Approach to Corporate Voting Rights

Summary

This chapter sets out the first of two positive arguments for extending corporate voting rights to employees. The long-standing theory of the firm, in confronting the question why firms even exist, explains the separation of corporate insiders from outsiders in a way that allows firms to most efficiently carry out joint production. Those inside the corporation should have their preferences captured through more direct governance mechanisms such as voting, those outside the firm through processes like contract or regulation. Under this understanding of the firm, employees are, of course, the classic insiders, a conclusion that’s only reinforced by more recent work on the generation and flow of information within firms. The economic theory of the firm, then, provides a powerful argument for extending the corporate franchise to employees.