VIEWPOINTS : 1 SHARE, 1 VOTE--MAKE IT THE RULE FOR ALL EXCHANGES

More than 50 years ago, as Congress breathed life into a new watchdog agency called the Securities and Exchange Commission, the necessity of equal shareholder voting rights in corporate America was clearly understood.

“Fair corporate suffrage is an important right that should attach to every equity security bought on a public exchange,” the House Commerce Committee reported to Congress in 1934. “Management should not be permitted to perpetuate themselves by the misuse of corporate proxies.”

Managements have been trying to perpetuate themselves ever since, and a growing number are turning to shareholder disenfranchisement as the entrenchment strategy of choice.

Nearly 200 publicly traded corporations, including such stalwarts as Alberto-Culver, Dow Jones, General Motors, Hershey Foods and United Artists, have stripped selected shareholders of voting rights by issuing dual classes of common stock.

Under some schemes, corporate executives and their allies receive a “super” class of stock conveying 10 or more votes per share. In other instances, ordinary shareholders receive shares with reduced or no voting rights.

In either case, the result is the same. Corporate insiders with minority ownership positions and limited financial risk wind up with majority voting control. Accountability is lost, and public shareholders become second-class corporate citizens.

For 61 years, the New York Stock Exchange has prohibited member corporations from violating its one-share, one-vote standard, although it temporarily waived the rule for 26 firms.

If the SEC approves the NYSE’s request to permanently abandon its equal voting rights requirement, the long-feared “race to the bottom” will be on among the NYSE, American Stock Exchange and the NASDAQ over-the-counter market.

Regardless of which one wins, all American shareholders will be losers as the exchanges’ standards are undermined.

Should Deny Request

The SEC should deny the NYSE’s request and act affirmatively to preserve corporate democracy in America. The time has come to adopt a universal one-share, one-vote standard applicable to all securities exchanges.

The one-share, one-vote issue has substantial implications for American shareholders, consumers and the economy at large.

Approval of the exchange’s request would allow corporate executives, as a matter of public policy, to tenure themselves for all time.

It would eliminate any remaining accountability to the 47 million American shareholders who bear the financial risk for the actions of management.

It is no coincidence that the corporate voting rights issue has arisen at this time. In recent years, formerly complacent shareholders have begun to challenge management autonomy and exert pressure for improved performance.

This expanding shareholder movement is enhancing corporate competitiveness and providing net economic benefits to the nation, but not without protests from those whose interests are served by the status quo.

More than 200 years of experience have established equal voting rights as a fundamental tenet of American democracy.

The one-share, one-vote standard adopted by the New York Stock Exchange in 1926 is analogous to the one-man, one-vote principle embodied in the U.S. Constitution. The underlying concept is the same.

Because each share of common stock conveys equal financial risk, each share should cast an equal vote in significant corporate decisions.

The necessity of maintaining this principle transcends the occasional willingness of selected groups of individuals to permanently disenfranchise themselves and their successors in exchange for slightly higher dividends or other temporary inducements.

To argue that shareholder approval of unequal voting rights is a legitimate exercise in corporate democracy is ridiculous. With one vote, shareholders disenfranchise themselves and their successors for all time. The separation of ownership and control becomes complete, and no recall election is allowed.

There is no demand by shareholders for stock with inferior voting rights. All unequal voting rights plans adopted so far have been proposed by incumbent managers.

They have served to insulate managers against shareholder efforts, either real or perceived, to hold them accountable.

When you get down to the blood, guts and feathers of it, managers propose unequal voting rights to entrench themselves and preserve their empires.

The NYSE’s request is based on the assumption that it will soon lose business to other exchanges with lower voting standards.

As a result of the exchange’s proposed rule change, the Amex has voted to entirely revoke its voting rights standards, which already fall short of calling for one share, one vote.

Abandonment of one share, one vote will set a precedent for reducing standards any time an exchange anticipates increased competition.

The way to protect the NYSE’s competitive position is to apply a uniform standard across the board, not to embark on a dangerous regression toward standardless securities markets.

In their testimony before the SEC on Dec. 16, NYSE Chairman John J. Phelan Jr. and Amex Chairman Arthur Levitt Jr. both endorsed the one-share, one-vote concept and indicated their willingness to support a universal standard.

In fact, a significant majority of the witnesses who testified during two days of public hearings encouraged the SEC to preserve one share, one vote.

Several warned the SEC that congressional intervention is likely if the commission allows the exchange to abandon one share, one vote.

If Congress delves into the subject of securities legislation, there is no telling what will happen. America could wind up with federally chartered corporations, which is the last thing we want to see.

When the House Commerce Committee endorsed “fair corporate suffrage” in 1934, its clear intent was to maintain public confidence in America’s securities markets by requiring a basic measure of accountability on the part of corporate executives.

The need for management accountability is as great today as it was then, and Congress is once again becoming concerned. The future of corporate democracy in America depends on the SEC’s leadership. A universal one-share, one-vote standard is the answer.