THE LAW OF ANNUAL GENERAL MEETINGS EXAMINED FROM A PERSPECTIVE OF CERTAIN ECONOMIC THEORIES by JAMES ARTHUR OJRWOOD B.A. McGill University, 1964 B.C.L. jyfcGill University, 1968 A THESIS SUBMITTED IN PARTIAL FULFTJjyJENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS in the Faculty Of "Law We accept this thesis as conforjiiing to the required standard THE UNIVERSITY OF BRITISH COLUMBIA July, 1975 In presenting this thesis i n pa r t i a l fulfilment of the requirements for an advanced degree at the University of B r i t i s h Columbia, I agree that the Library shall make i t freely available for reference and study. I further agree that penrdssion for extensive copying of this thesis for scholarly purposes may be granted by the Head of my Department or by his representatives. I t i s understood that copying or publication of this thesis for financial gain shall not be allowed without my written penrdssion. Faculty of Law The University of B r i t i s h Columbia Vancouver, Canada i i ABSTRACT The large irsodern corporation possesses characteristics which set i t apart from other corporations both present and past. The existence of the annual general meeting of share-holders within the structure of these large entities suggests problems of a fundamental nature respecting the principles of law governing those meetings. The extent to which these problems, suggested by the characteristics of the modern corporation and their effects, compel a need for a reconsideration of the legal principles respecting annual general meetings, i s the subject of this essay. I t i s the thesis of this essay that the attributes of the large modern corporation and their effects have i n fact shattered the integrity of the law relating to annual general meetings. I t i s submitted that the legal principles governing these meetings no longer serve most of the functions of law and ought, therefore, be reconsidered. The method used to establish this thesis w i l l be to observe the existence of the annual general meeting from the perspectives of law and economics, individually. From these two observations two models w i l l be constructed which w i l l i i i then be compared to discover any discrepancies. As the economic perspective i s assumed, i n this essay, to be the correct one, the discrepancies that exist between the two models must indicate inaccuracies i n the legal perspective. Only the descriptive function of law i s considered i n this essay; the prescriptive function i s not here subject to criticism. i v CONTENTS PART I TJS1TR0DUCTI0N 1 PART II LEGAL MODEL 10 i . intrcxluctiori 10 i i . law - history 12 i i i . law - existing 19 iv . law - policy 56 PART III ECONOMIC MDDEL 61 i . introduction 61 i i . overview 64 i i i . specific concepts 73 iv . model 99 PART IV COMPARATIVE ANALYSIS 102 i . introduction 102 i i . comparison 102 PART V CCiMMENT 121 i . introduction 121 i i . benefits - individuals 122 i i i . benefits - law 124 iv . alternatives 127 v. conclusions 135 PART VI BIBLIOGRAPHY 139 - 1 -I The landscape of modern business bears hardly any resemblance to i t s predecessor of a century ago and scarcely much more to i t s immediate progenitor of forty or f i f t y years. While i t used to be almost homogeneous, exhibiting only the occasional monopolistic exception, i t now reveals clusters of f drrns which overshadow competitors and control them and which rather than being exceptional and local colour the entire landscape. Individually, these firms are characterized by enormous size, baffling complexity and considerable sophistication. Capital and technology are amassed to such a degree of intensity that the resultant entity can assume a degree of power not possessed by other corporations which do not achieve such development. Whereas their primary aim had been pro f i t and their character had been carariercial, these modern corporations transcend market conditions and by the development and deployment of their power reshape the laws of traditional economic theory. Whether i t be by a concentration of economic activity into a few firms, a managerial 'revolution' within the structure of the firm and the resultant separation of - 2 -ownership from control, the development of a vast non-statist bureaucracy or the irnjltinational scope of activity, the landscape of modern business and the nature of the individual modern corporation have altered the traditional assumptions and the traditional explanations concerning property and i t s legitimacy. The actuality of econardc activity need be reinterpreted and explained i n order that activity and power which now appear as raw may be clothed with the dress of legitimacy. The law as a principle actor i n the legitimiza-tion of power and the rationalization of i t s effects need be a primary target of attempts at such a reinterpretation and explanation i f the legal system i s to retain i t s relevance and u t i l i t y . This need has not gone unnoticed by legal scholars i n 1 2 both Great Britain and the United States. Professor Gower 1 See K.W.Wedderburn, "Ctanpany Law Reform", Fabian Tract 363 (1965), also Gower, "The Principles of Modern Ctampany Law", 3rd ed., 1969, p.57 et seq.. 2 The serrLinal work i s Berle and Means, "The Modern Corporation and Private Property", 1932. A.A.Berle has since then written a number of books on the same therne. See also art i c l e s by Rostow and Chayes, i n Mason (ed.), "The Corporation i n Modern Society", 1959. Other writings w i l l subsequently be referred to i n this essay as the context demands. - 3 -has outlined i t i n the following manner under the heading, of "The Future of Ctampany Law i n a Mixed F^ xsnomy" i n his "The Principles of Modern Cornpany Law": . "Modern writers have suggested that the large conpany today does not aim primarily at rraxiinization of pr o f i t and i s not so much a creature of the laws of supply and demand as the creator of market conditions and consumer demands, a theory which, i f i t i s correct would necessarily demand a reconsideration of much 3 of our company law." While legal writers have been assessing the nature of the corporate revolution i t s effects i n the marketplace have been experienced with such a degree of intensity that there has arisen from participants i n that marketplace a chorus for change i n corporate behaviour. These reactions have for the t most part taken the form of demands for shareholder democracy, industrial democracy and corporate social responsibility. These demands are characterized by a desire that the corporation serve a constituency wider than that defined by management alone: that constituency ought include, i t i s argued, i n the case of shareholder democracy, the shareholders, i n industrual democracy, 3 op.cit., at p.58. - 4 -the workers or i n the case of corporate social responsibility, 4 the general public which i s serviced by the corporate system. Of these three, industrial democracy i s the least iirqportant i n the North American context and does not as yet seem to have caught the jljxagination of organized labour. The focal paint of ac t i v i t y for both shareholder democracy and corporate social responsibility as well as the most important medium for the accxanplishment of their ends i s the annual general meeting of the corporation. I t i s obvious that shareholders w i l l attempt to use the annual general meeting to further their ends. What i s not so clear i s that those who seek to extend corporate goals and make them responsible to society also use the general meeting.^ This use has been developed primarily because of the S.E.C. proxy and shareholder proposal jxachinery i n the United States.^ This irjachinery has enabled 4 For a comprehensive bibliography on shareholder democracy and corporate responsibility see Blumberg, 27 Bus. Law. 1275 (1972). 5 Those attending the annual general meeting for purposes of corporate social responsibility must as well be shareholders; but they are usually only such i n the most technical sense, see infra Part II, p.25. 6 • Medical Committee for Human Rights v. S.E.C. (1970) 432 F 2d 659 (D.C.Cir.) i s the recent example of how these proxy rules have been used. This i s the so-called "Dow Chemical" case.I I t concerned the sale of napalm for military use - 5 -the development of a new use for the general meeting - the public interest proxy contest of which Campaign G.M. was the 7 prototype. I t i s not that other media are ignored by the advocates of corporate responsibility but the general meeting receives the major share of their attention and interest. Earlier i n this Introduction i t was stated that much of company law may need reconsideration i n view of the new and changed character of the large corporation. This statement suggests changes to c<3rnpany law as a body of integral and cohesive principles. Later i n this Introduction specific uses of a recent and developing nature for the annual general ireeting were set out. These uses suggest changes of a pragmatic nature which are related to the application of those principles rather than their existence as a theory. In either case the importance to company law of a reconsideration of some of i t s principles and of the annual general meeting i n particular has been indicated. by the Dow Chemical Company and the attempt by a ininority group of shareholders, through proxy rrachinery, to raise the moral and p o l i t i c a l issues of this sale at the OTipany's annual general meeting. 7 Campaign G.M. was undertaken by the Project on Corporate Responsibility, Washington D.C.. See Schwartz, 69 Mich. Law Rev. 421 (1970), for an explanation of i t by a protagonist. - 6 -This essay w i l l attempt a reconsideration of the law of annual general meetings from the perspective of certain new economic theories which concern the behaviour of modern large corporations. Only the annual general meetings of large companies are studied i n this essay. Certainly i t i s true that shareholder meetings of small ccitipanies have their special nature and problems and perhaps also so do the meetings of medium size ccmpanies, but i t i s i n the largest ccmpanies that those characteristics referred to earlier i n the Introduction are g most developed. By a 'large company' i s meant one of the several hundred ccmpanies of the North American economy that produce the majority of goods and services although they represent only a very small percentage of the total number of 9 canpanies. 8 See pp.1-2. For a criticism of the notion that the largest ccmpanies are the most important i n the study of company law and that they are typical see Eisenberg, 57 Cal. Law Rev. p . l at pp. 33-44. 9 Fortune Magazine i n i t s survey of the 1973 industrials stated at p. 231, May issue: "The 500 largest industrials now account for 65 percent of the sales of a l l U.S. industrial corporations, 76 percent of the employees and 79 percent of the profits." - 7 -The methcd to be used to carry out the examination of the law of annual general meetings of large carnpanies w i l l be analytical. One theoretical model of the meeting w i l l be constructed i n accordance with company law principles and a second w i l l be constructed i n accordance with recent economic theory. The legal model w i l l then be ccmpared to the economic model. By this process of comparative analysis, differences between the models w i l l be made apparent. This method i s not intended to prove or disprove the existence or veracity of company law principles. Certainly i n law the annual general meeting does exist and law i s a kind of fact. Furthermore, economics as an intellectual discipline has different goals and uses methods different from law. But i t i s surxnitted that by comparative analysis of the one model with the other, benefits to a reconsideration of the legal model might emerge. For although economics pursues different goals by different itethods, i t seeks an approximation of specific phenomena under study i n order to characterize them i n economic terms much as the law i n order to characterize behaviour i n legal terms must approximate the nature of phenomena. Therefore, there i s benefit to the lawyer to know what approximations related intellectual disciplines have made respecting the nature of specific phenomena. It i s not necessary to accept the economic - 8 -characterization of the phencmena; only the descriptive approxi-mation of that nature need be retained. By such process of cross-fertilization the phenomena to be characterized i n legal terms might be approximated more accurately and their existing approximation cross-checked. The characterization or description of the annual general meeting i n law w i l l be the focus of attention and criticism. The emphasis of this essay, therefore, w i l l be on the descriptive functions of law. The plan of the essay beyond this Introduction i s to present f i r s t l y the legal model of the annual general meeting. This model w i l l be presented i n accordance with the law as expressed by An Act respecting Canadian Business Corporations,''"^ recently assented to by Parliament and the Companies Act of the Province of B r i t i s h Columbia. ^ In Part III the econariic model of the meeting w i l l be present-ed. This model i s constructed i n accordance with the economic theories of J. K. Galbraith. While any choice i s arbitrary, the choice of Galbraith's theories reflects a generally recognized 10 An Act respecting Canadian Business Corporations, S.C. 1974-5, c.33 (hereinafter cited as Business Corporations Act). 11 Ccmpanies Act, S.B.C., 1973, c.18 (hereinafter cited as Companies Act). - 9 -acceptance of his role as a leading exponent of ideas concerning 12 the modern corporation. Whatever inaccuracies or imperfections might exist i n his theories are not here exarrdned or considered; i n this essay they are accepted i n whole as representative of 13 recent thinking on the modern corporation. The remaining two Parts of this essay are concerned with a comparative analysis of the two models and carmentary and conclusions on the effects for company law of the results of this analysis. 12 A more complete explanation of this choice appears i n Part III, pp. 60-63. 13 This i s not to suggest that Galbraith has not aroused considerable controversy; see Hession, "Galbraith and His C r i t i c s " , 1972. - l O -II i . introduction A ccmpany as an inanimate entity can only act through the intermediary of natural persons. Company law doctrine requires that these persons act only at duly called meetings. 1 They may as a c o l l e c t i v i t y then deliberate and resolve a course of action for the company acting through the formal device of a meeting. Shareholders, therefore, cannot act either individually or collectively as intermediaries for the ccmpany unless they are constituted as a duly called meeting at which procedure, and competence as to subject matter, as required by the principles of company law, are respected. Annual general meetings constitute with special general meetings one of the primary organs of the company. But whereas special general meetings are 2 rare, i f they occur at a l l i n the l i f e of a company, the annual 1 Pictou County School Trustees v. Cameron (1879) 2 S.C.R. 690. 2 Special general meetings are of three types: a. Court ordered meetings, see Companies Act, ss. 165, 172; Business Corporations Act, s.138; Getz, "Court Ordered Meetings", 33 Convey. 399 (1969). b. Requisitioned meetings, see Business Corporations Act, s.137; Companies Act, s.170; Getz, "The Structure of Shareholder Dernocracy", i n Ziegel (ed.), "Canadian Company Law", 1973, pp. 249-252. c. Director initiated meetings, see Business Corporations Act s.l27b; Companies Act, Table A a r t i c l e 7.3. - 11 -general meeting must occur every year for the regular transaction 3 of the company's af f a i r s assigned to i t by law. Therefore, the annual general meeting emerges as the most important kind of shareholder meeting. At the annual general meeting the shareholders can regularly express their views, exercise their voting and other rights and receive information about the undertaking of the company as required by law or obtain information beyond that legally re-quired through informal exchange with management. Without at this point defining the legal nature of the respective roles of the two involved parties, shareholders and management, annual general meetings provide a mechanism whereby the two organs of the company may converse and exchange views and the shareholders may formally express their opinion through the exercise of their rights. This Part of the essay w i l l examine the mechanisms of the annual general meeting as set out by the law as i t i s under the Business Corporations Act and the Ccmpanies Act and to a limited extent as i t was before the ascendancy of modern doctrines. Philosophical and doctrinal assumptions w i l l also be examined as 3 infra p. 19. - 12 -they relate to and influence the mechanical structure of meetings and the operation of that structure. From those exaniinations i t i s sought to create an image of the legal model of annual general meetings. i i . law - history It i s useful at this point to consider from a hi s t o r i c a l perspective the law respecting annual general meetings. The device of examining what did exist may render what does exist more clear. By hi s t o r i c a l perspective i s meant an exarrLination of the legal role of the annual meeting i n the period up to the series of decisions by the House of Lords at the end of the nineteenth century, which forged a new relationship between the annual meeting and the board of directors and a new concept of the corporate personality. 4 Even before the passage of the Joint Stock Company Act i n 1844, English courts had noted the significance of the general meeting and enunciated the rule that was to govern for over a 4 Joint Stock Companies Act (7 & 8 Vict, cc.110 & 111). This Act for the f i r s t time i n Britain placed the joint stock company on a legal footing. I t was i n a few years superceded by a second Act. See Gower, op.cit., pp. 42-47. - 13 -century relationships of that body to the company and i t s other organs. In 1741 the Lord Chancellor indicated that i t was a principle of English company law that, "whenever a certain number are incorporated, a major part of them may do any 5 corporate act." This view i s an early j u d i c i a l statement of the rule that the general meeting i s the company and can exercise power over the directors and trustees who are i t s agents and subject to i t s control.^ 7 Foss v>.. Harbottle i n 1843 affirmed this rule as a corollary of the principle of majority rule. In that case the Vice g Chancellor made use of the term "supreme governing body" when referring to the general meeting and attributed to that body prjlmary and residual power in the following terms: "...the directors are made the governing body, subject to the superior control of the proprietors assembled i n 5 Att.Gen. v. Davey 26 E.R. 531 (ch.1741). See also R. v. Varlo 98 E.R. 1068 (K.B. 1775). 6 See Slutsky, "The Relationship Between the Board of Directors and the Shareholders i n General Meeting", 3 U.B.C.L. Rev. 81 at pp. 81-82 (1968); Gower, op.cit., at p. 130. 7 (1843) 2 Hare 461, 67 E.R. 189. 8 ib i d . , p. 205. - 14 -general meetings; and, as I understand the Act the proprietors so assembled have power, due notice being given of the purposes of the meeting, to originate proceedings for any purpose within the scope of the company's powers, as well as to control the directors 9 i n any Acts which they may have originated." He further stated: "I attribute to the proprietors no power which the Act does not give them: they have the power, without the consent and against the w i l l of the directors, of c a l l i n g a meeting, and of controlling their acts...""'"^ By this decision the primacy of the general meeting was affirmed i n the corporate structure and i t s proprietorial character was emphasized. The w i l l of the owners was the w i l l of the ccmpany. In the legal structure there was no separation;of ownership from control. A statutory embodiment of this rule was contained i n the Ccmpanies Clauses Consolidation Act"'"''" of 1845 which governed 9 10 11 ib i d . , p. 203. ib i d . , p. 205. 8 & 9 Vict. c.16. - 15 -statutory ccmpanies. Section 90 of that Act stated: "The Directors shall have the Management and Superin-tendance of the Affairs of the Company and they may lawfully exercise a l l the powers of the Company except as to such matters as are directed by this or the special Act to be transacted by a General Meeting of the Company, but a l l the Powers so to be exercised shall be exercised in accordance with and subject to the Provisions of this and the special Act; and the Exercise of a l l such powers shall be subject also to the Control and Regulation of any General Meeting specially convened for the Purpose, but not so as to render in valid any Act done by the Directors prior to any Resolution passed by such General Meeting." 12 The Joint Stock Qsmpanies Act of 1856, the f i r s t of the modern company acts, did not contain a similar provision. Table B to that Act (the model articles, equivalent to the modern day Table A) contained a provision respecting directors 1 powers 13 similar to that in a modern Table A. However, the courts 12 19 & 20 Vict. c.27. 13 See Companies Act, 11 & 12 Geo. 6, c.38 (U.K.), Table A, article 80 for a modern example. B.C. now has a general - 16 -continued to apply the rule contained i n s.90 of the Companies 14 15 Clauses Consolidation Act. In Isle of Wright Ry. v. Tahourdin the Court refused an application by the directors of a statutory company for an injunction to restrain the holding of a general meeting, one purpose of which was to appoint a committee to reorganize the management of the company. Cotten, L.J. said: "It i s a very strong thing indeed to prevent shareholders from holding a meeting of the company when such a meeting i s the only way i n which they can interfere, i f the majority of them ihink that the course taken by the directors i n a matter intra vires of the directors, i s 16 not for the benefit of the company." This decision can be taken as an expression of the law relating to the powers of general meetings i n the late nineteenth century. Doctrinally the rule was expressed as late as 1891 i n the following manner: "The business of a company i s conducted by i t s directors, subject to the general control of the company. The company vesting i n the directors of management powers by the Act, see Companies Act, op.cit., s.140. 14 op.cit. 15 (1883) 25 Ch.D. 320. 16 ibi d . , p. 329. - 17 -being a legal person only, provision i s made by statute or i t s regulations as to the mode i n which i t s w i l l i s to be ascertained and expressed...a majority of the share-holders are entitled to act i n the name of the coipany."''" In 1906 the Court of Appeal enunciated a new rule i n 1 18 Automatic Self-Cleansing F i l t e r Syndicate Co. v. Cunninghame whereby the relationship of the board to the annual general meeting was held to be one of contract; when the articles had vested the board with the power of management, the general meeting could not interfere with i t s exercise. This change was not at f i r s t accepted and i n a decision a year later i t was suggested that the Qiioninghame case depended on a reference i n the relevent a r t i c l e to an extraordinary 19 20 resolution. But since Quin & Axtens v. Salmon the rule of the Cunninghame case has been accepted. The modern rule i s expressed by Gower in the following terms: 17 Hamilton, "A Manual of Company Law", 1891, London, at p.238. See also "Buckley on Company Law", 7th ed., 1892, at p.530. Grant, "A Practical Treatise on the Law of Corporations", 1850, at p.5. 18 1906 2 Ch. 34 C.A. 19 Marshall's Value Gear v. Manning Wardle & Co. 1909 1 Ch. 267. 20 1909 1 Ch. 311, 1909 A.C. 442 H.L. - 18 -" under an a r t i c l e i n the terms of Table A the iriertibers i n general meeting can not give directions on how the company's affair s are to be managed, nor can they over-rule any decision come to by the directors i n the conduct of i t s business. And this applies even as regards matters not spe c i f i c a l l y delegated to the directors provided they are not expressly reserved to a general 21 meeting by the Act or the ar t i c l e s . " By the reversal of the rule i n Tahourdin's case the role of the general meeting was fundamentally altered. No longer was the general meeting the w i l l of the company nor were the directors subject to the superior control of the proprietors assembled i n general meeting. The board of directors now began to assume the power and control i n the company. But, as w i l l be discussed i n section i v . of this Part, the idea that the general meeting i s the w i l l of the company dies hard. It recurs i n commentary on the nature of corporations and i s at the root of the shareholder democracy movement. 21 op.cit., p. 132. - 19 -i i i . law - existing This section attempts to set out the existing state of the law respecting annual general meetings. The irethod used i s to discuss the subject under two headings: procedure and content. (a) procedure This subsection relates to those aspects of the annual general meeting concerned with form and method. While they do not themselves determine what a general meeting can do, they must be observed i n order to render what i s done va l i d . These aspects w i l l be discussed by subject. Holding An annual general meeting of the shareholders of a company must be held within eighteen months from the incorporation of a 22 company under the Business Corporations Act and fifteen months 23 under the Companies Act. Subsequently an annual general meeting must be held not more than fifteen months from the holding of the previous meeting under the Business Corporations 22 s.l27a. 23 s.162 (1) . - 20 -Act and tliirteen rnonths under the B.C. Act. Default to hold any of these meetings gives rise to an application to the court by any shareholder of the company to order the holding 26 of such a meeting. However, default in calling the meeting does not affect the existence of the company or the validity of any acts taken in the name of the company. This is a matter of 27 internal iranagement and the doctrine in Bur land v. Earle would apply as regards third parties. Under the Business Corporations Act a shareholder meeting 28 must be held in Canada. The B.C. Act provides that the 24 s.l27(a). This section is different from s.102(1) its counter-part in the Canada Corporations Act R.S.C. 1970, c.32, which required meetings to be held at least once in every calendar year. The new section gives the directors flexibility in choosing a time more suitable to them. Theoretically there could be no meeting in a given calendar year under this section. A resolution in writing signed by a l l shareholders entitled to vote at that meeting is valid in lieu of the meeting - s.136. This device constitutes the only exception to the mandatory holding rule. 25 s.162(1). This section expressly requires the holding of an annual meeting at least once in every calendar year. A company that is not a reporting company under the Act may have members' consent in writing to the business of a proposed meeting in lieu of that meeting - s.163. 26 Business Corporations Act, s.138(1), "Court" is defined in s.2(l). Companies Act, s.165, "Court" is defined in s . l ( l ) . 27 1902 A.C. 83. 28 s.126(1). - 21 -meeting must be held within the province except as the Registrar 29 may provide otherwise. Quorum Without a quorum the meeting w i l l be a n u l l i t y ; ^ therefore i t i s essential to ensure that a quorum i s present. The by-laws, however, may provide that i f a quorum i s not present the meeting may be adjourned to reconvene later. The quorum requirements 31 32 are usually found i n the by-laws or articles but i f there i s no such requirement, a quorum of shareholders consists of at least two and the shares they represent need not total a majority 33 of the outstanding shares of the company. In unusual circumstances 29 s.169. For a discussion of a similar provision under R.S.B.C. 1911, c.39, see Re lands and Homes of Can. Ltd. 1918 3 W.W.R. 935, which suggests that even i f a meeting were held outside the province with a l l the members1 consent, the business conducted there would bind the company. 30 Lumbers v. Fretz 1929 1 D.L.R. 51. 31 Business Corporations Act, s.98(l) gives the directors that power. 32 Ctarnpanies Act, s,167(a). 33 The conmon law position i s that two constitute a quorum and that they need not represent a majority of shares: Sharp v. Dawes (1876) 2 O.B.D. 26,. Montreal Trust v. Oxford Pipeline 1942 O.R. 490, Report of the Company Law Committee 1962 (Jenkins) Cmnd 1749 para. 458 (H.M.S.O.). This position i s reflected i n the Companies Act s.167. The Business Corporations Act, however, requires the holders of - 22 -as where one person holds a l l the shares of a class, one person may constitute a quorum.^ If by reason of shareholders leaving a meeting before a l l matters are dealt with so that less than a quorum remain in attendance the meeting is a nullity as regards any action taken 35 after the quorum fails . This ccitimon law rule has been 36 reversed by the Business Corporations Act. Voting In the absence of special provisions in the Act or the charter of the company, a l l questions proposed for the consideration of the shareholders at a meeting of shareholders are to be deter-37 mined by a majority of votes. A majority of votes is not con-stituted by a majority of shareholders but by a majority of shares a majority of shares to constitute a quorum - s.133(1). See Proposals for a New Business Corporations Law for Canada (1971) Vol. I, para. 280, (hereinafter cited as "Proposals ComlTJHntary,I). 34 Business Corporations Act, s.l33(4). Companies Act, s.167(b). Also Fast v. Bennet Bros. Ltd. 1911 1 Ch. 163 Re Wcodward 1940 O.R. 387. 35 Limbers v. Fretz, op.cit... Contra see Proposals Commentary para. 282. 36 S.133(3). 37 Foss v. Harbottle, op.cit., Re Horbury Bridge, Coal, Iron & Waggon Co. (1879) 11 Ch. D. 109. For Federal Crmpanies, "The Interpretation Act", R.S.C. 1952, c.158, s.30(l)b. - 23 -represented by shareholders present. J U This rule of one share - one vote i s of fundamental importance i n the legal model of the annual general meeting. A shareholder's vote i s a right of property which he may use as he pleases. The propriety or impropriety of his motive 39 i s normally immaterial; he i s free to exercise his own judgment 40 41 as to how he shall vote or to vote or not vote. The court has no power to go behind the vote and invalidate i t on the ground that the shareholder had a personal interest i n the subject matter different from or opposed to that of the ccmpany and did not exercise his vote i n the best interest of the company. The taking of a vote i s i n the f i r s t instance by a show of 43 hands unless the by-laws provide otherwise; each shareholder Certain matters of a fundamental nature require greater than simple majority approval. These matters are specified i n the respective Acts. 38 Business Corporations Act, s.134(1). Companies Act, Table A a r t i c l e 9.1. 39 Pender v. .Lushington (1877) Ch. D. 70. 40 North-West Transportation Co. v. Beatty (1887) 12 A.C. 589. 41 Greenwell v. Porter (1902) 1 Ch. 530. 42 Fast Pant Mining Co. v. MEirryweather (1864) 2 H & M 254. Burland v. Earle, op.cit. 43 EBusiness Corporations Act, s.135(1). Companies Act, s.181(1). This reflects the ccmmon law rule i n Re Horbury Bridge, Coal, Iron & Waggon Co., op.cit., at p. 115. - 24 -present on such a p o l l has one vote."" Under S.174(2) of the Companies Act a proxy cannot vote on a show of hands unless the articl e s provide otherwise. Whether a proxy can vote on a show 45 of hands at common law i s unclear. For both these reasons the result of such a vote may ref l e c t an imperfect picture of the sense of the meeting. In these circumstances a p o l l by ballot should be demanded. The right to demand a p o l l i s 46 incident to an election at a public meeting. The Companies Act and the Business Corporations Act give a proxy the right to 47 48 demand a p o l l , that right at common law i s uncertain. The by-laws usually provide for the manner of the p o l l ; i f they do 49 not the chairman shall decide. By a p o l l the f u l l voting power of the shares represented at the meeting can be deployed. 44 Companies Act, Table A, a r t i c l e 9.1. Ernest v. Lama Gold Mines 1897 1 Ch. 1. 45 See Fraser & Stewart, "Company Law of Canada", 5th ed., 1962, p. 668. Contra Gower, op.cit., p. 485. 46 Campbell v. Maund (1836) 5 Ad. & E l . 865 47 Business Corporations Act, S.135(2). Companies Act, s.l81(3) . 48 Proposals Commentary, para. 285. 49 Fraser & Stewart, op.cit., p. 670. Gower, op.cit., p. 494. - 25 -Admission As an incident of the right to vote shareholders holding voting shares are entitled to be physically present at the meeting. A company which i s a shareholder may be represented by 50 a person designated by i t . A deceased shareholder's repre-51 sentative may also attend. Also the auditor of the company may attend and receive information that a shareholder i s entitled to 52 receive. Usually also students and reporters are admitted as a matter of courtesy. Whether voteless shares carry the right 53 to attend i s disputed. Getz states no but Eraser and Stewart 54 suggest yes. Or consider shareholders who acquire one share 55 solely to attend the annual general meeting. 50 Business Corporations Act, s,134(2). 51 Business Corporations Act, s.2(l). 52 Business Corporations Act, s.162. Companies Act, s.214. 53 Getz, "Shareholder Democracy", op.cit., p. 242. Also Wainberg, "Company Meetings", 2nd ed., 1969, p. 10. 54 Fraser & Stewart, op.cit., p. 654, suggest a right of atten-dance may be attached to a share. I feel i t would be an advancement to shareholders* rights i f the right to vote were clearly separated frem the right to attend and the latter were granted to a l l shareholders. 55 Consider Campaign G.M. and the Dow Chemical case, where only a handful of the several million shares outstanding were held by the protagonists. - 26 -The right of admission, however, can become a problem i f the poss i b i l i t y of contentious issues being raised exists. Therefore, what has i n the past been granted casually may i n the future give r i s e to seme disputes.^ C^irman A chairman must be provided to preside over the meeting. Usually the by-laws or art i c l e s designate the person who w i l l act 57 as charrman. Subject to any express provisions there i t i s the duty and right of the president to preside at the meeting. 58 In Fremont Canning Co. v. Wall, at page 409, Masten, J.A. said that such conclusion was entirely consistent with the provisions of the by-laws giving the president general charge and control of the business and affa i r s of the company which i n his Lordship's opinion included the business of the annual general meeting of 56 Corporations are becoming aware of the dangers to themselves of a broad admissions policy. See Mooallem, "Conducting a Fair and Informative Stockholders Meeting", Bus. Quart., p. 47, Winter 1971. Mooallem, a legal counsel with Alcan, presumably wrote this a r t i c l e i n response to the disruption of the Spring 1971 Alcan annual meeting by, "some bearded men, seme slim and sexy g i r l s and quite a few black people". Toronto "Globe and Mail", A p r i l 2, 1971, p. B 1. 57 The Business Corporations Act i s silent on the appointment of a chairman. The Companies Act, Table A, a r t i c l e 8.4, requires the president to act as chairman. 58 1941 O.R. 379 (CA.) . - 27 -the shareholders. The by-laws i n this case did not expressly provide that the president should be chairman at shareholder meetings. At common law the chairman has no right to a casting 59 vote. If the chairman i s granted a casting vote he cannot use his casting vote as a means of giving himself control of the 60 company; the casting vote i s only intended as a means of deal-61 ing with occasional t i e votes rather than a settled condition. The position of chairman i s an important and onerous one, 62 for the meeting i s substantially controlled by him. Whether the meeting be long and harried or short and decisive depends on his a b i l i t y to make snap decisions which are acceptable to the majority of those present. In this regard Chitty J. stated in National Dwellings Society v. Sykes: "It i s the duty of the chairman, and his function, to pre-serve order, and to take care that the proceedings are 59 Nell v. Iongbottcm 1894 1 Q.B. 767. Also Companies Act, Table A, a r t i c l e 8.8. 60 Re Bondi Better Bananas Ltd. 1951 3 D.L.R. 522. 61 Re Citizens Coal and Forwarding Co. 1927 4 D.L.R. 275. 62 For a discussion of the role of the chairman i n Canadian (jcmpany law see Fraser & Stewart, op.cit., p. 655 et seq.; Getz, "Shareholder Elemocracy", op.cit., pp. 266-269. - 28 -conducted i n a proper manner, and that the sense of the meeting i s properly ascertained."^ The chairman must ensure that the meeting i s conducted i n 64 accordance with whatever procedural rules are applicable to i t . It has been held that he has prima facia authority, "to decide a l l emergent questions which necessarily require decision at the time"; 6 5 he also must ensure that the meeting does not f a l l into disorder - a task not easy in the presence of 'professional' shareholders who seek to disrupt meetings to advance their cause. 63 1894 3 Ch. 159 at 162. Approved i n Bleuchel and Smith v. Prefabricated Buildings Ltd., 1945 2 D.L.R. 725 at 729. 64 John v. Rees 1969 2 W.L.R. 1294 at 1312-1319. The question of what procedure i s applicable i s usually settled by the by-laws or arti c l e s , otherwise parliamentary rules apply. - Lumbers v. Fretz, op.cit. I t seems that those i n control of the annual general meet-ings of large corporations think otherwise; consider Mcoallem, op.cit., at p. 48: "It i s therefore unnecessary to follow specific rules of procedure such as those outlined i n Robert's "Rules of Order" or Wainberg's "Company Meetings". Accordingly "points of order", "questions of personal privilege", "inquiries", "appeals", and other parliamentary practices need not be considered by the chairman unless he believes i t appropriate and advisable to do so. In fact parlia-mentary rules of procedure often tend to kindle immediate discussion which would usually affect the conduct of the entire meeting by frustrating the major issues at hand and by creating formal iinnpediments to a f a i r , frank and f r u i t f u l discussion." 65 Re Indian Zoedone Co. (1884) 26 Ch. D. 70 at 77. See also Henderson v. Bank of Australasia (1890) 45 Ch. D. 330. - 29 -This problem was discussed by Megarry J. recently i n John v. 66 Rees where i t was held that the chairman has the duty to preserve order and may i n the exercise of that duty adjourn the meeting; this power must be exercised bona fide, "for the purposes of forwarding and f a c i l i t a t i n g the meeting and 67 not for the purpose of interruption or procrastination". The chairman cannot be allowed to defeat the purpose of the 68 meeting by stopping i t or clogging the procedure. In practice the decisions of the chairman w i l l not be 69 challenged. However, his wisdom i n the conduct of the meeting i s a decisive factor i n i t s expedition for the benefit of both shareholders and management. Proxies The proxy system plays a v i t a l role i n the modern annual general meeting. For although the meeting i s structured and intended, "for the furidamental purpose of...a forum for the 66 op.cit. 67 i b i d . , p. 1317. 68 Gray v. Yellowtoife G.M. Ltd. (Nbl) 1946 O.W.N. 138. 69 Few shareholders are wealthy or determined enough to penetrate the legal obstacles, the most imposing of which i s the rule i n Foss v. Harbottle, op.cit., that the acts of the majority bind tJie;Mnority. See Gower, op.cit., p. 490; Palmer, "Company Law", 21st ed., 1968, p. 487. - 30 -expression of a relevent body of opinion on the matters that 70 those assembled have gathered to discuss", the result of any such discussion i s i n r e a l i t y generally deterrnined i n advance through the system of proxy votes. The form and effect of the proxy system respecting the function of annual general meetings i s a subject beyond the scope of this essay. I t w i l l suffice for the purposes here to outline i t s salient features. In a later section of this essay the use made of i t by certain power groups w i l l be related to this examrnation. The word 'proxy' has two different meanings: i t s f i r s t meaning i s an agent appointed by a shareholder to vote on his behalf at a meeting of shareholders; i t s second meaning i s the document by which such agent i s appointed. The proxy system, while capable of much complexity i n law and fact, put simply i s the right of a shareholder to appoint a representative to vote on his behalf at a shareholders' meeting because that shareholder i s unwilling or unable to attend i n person. 71 There i s no common law right to vote by proxy; the right 70 Getz, "Shareholder Democracy", op.cit., p. 268. 71 Harben v. P h i l l i p s 1883 23 Ch. D. 14 CA. McLaren v. Thomson 1917 2 Ch. 261 C.A.. - 31 -has been granted by statute.'^ There are also provincial securities statutes and regulations which regulate proxies for ccmpanies that have shares l i s t e d on stock exchanges or that make a public offering of securities. 73 Management of the company shall, and a shareholder may, s o l l i c i t proxies from shareholders by sending, i f management a management proxy circular and i f non-rtenagement a dissident's 74 7 proxy circular to each shareholder whose proxy i s s o l l i c i t e d . The proxy form sent must be i n what i s called 'two-way' form: the shareholder must be given an opportunity to specify that his 76 vote be cast either for or against a particular proposal. Hence i n practice a dissident shareholder group does not send i t s own proxy form but rather requests that the shareholder 72 The provisions respecting proxies are set out i n the Business Corporations Act, ss. 141-148; (jcmpanies Act, ss. 173-180. 73 Business Corporations Act, S.143(1); exception for companies of fewer than 15 shareholders - S.143(2). (Companies Act, s.176(1), exception - s.178(1). 74 Business Corporations Act, s.144(1). Under the Coirpanies Act "information circular" refers to both types - s.177(1). 75 The requirements for the Circulars are set out i n the Companies Act, s.180(f) and (g). The federal requirements are not as yet enacted. 76 Ccxqpanies Act, s. 180(b). There i s no similar provision i n the Business Corporations Act but see Proposals (Lxarimentary, para. 319. - 32 -complete the proxy i n a particular manner. By means of the proxy machinery the nature of the annual general meeting i s altered. Most of the topics so far set out i n this Part and those that w i l l be are designed to construct a model that possesses the attributes of a forum i n which debate may occur and into which pertinent issues may be injected i n a manner conditioned by a kind of quasi parliamentary procedure. The significant effect of proxy rrachinery i s to remove the debate from the forum and s h i f t i t into other areas. However counterproductive the system may be to the concept of a meeting i t nevertheless exists enmeshed i n the legal framework of the annua]- general meeting. Resolutions Questions for submission to a meeting are expressed i n the form of motions. A motion i s a proposal to do something, to order something to be done or to express an opinion about some-thing. A motion according to the ordinary practice of companies 77 This i s to save costs. Schwartz noted that i t would have cost Campaign G.M. $100,000 to send a proxy statement to each G.M. shareholder. - 69 Mich. Law Rev. 421 at p. 489. Quare - Can a successful dissident group recover this cost from the corporation? - 33 -may be proposed by the chairman or by a shareholder; i t is then put to the meeting by the c±iairman, whereupon i t is open to dis-cussion; when the discussion has closed the chairman puts the motion to a vote by stating what the motion is and that i t has 79 been proposed by A and seconded by B. A motion when duly passed becomes a resolution. Ordinary resolutions require a simple majority of votes. There are also, however, special resolutions which require great-80 er than majority voting. The by-laws or articles may provide in addition that certain corporate acts can only be sanctioned by greater than majority voting. Admeridments At meetings amendments may also be put to motions under deliberation. There is l i t t l e law on the subject of amendments to motions but they would seem to be governed by the same principles as the motion itself: does the amendment f a l l witliin 78 Wainberg, op.cit., at p. 41, believes that the chairman cannot propose a motion. There is no authority for this view however. 79 At common law a motion need not be seconded - Henderson v. Bank of Australasia, op.cit; as a practical matter i f a motion lacks a second i t is unlikely to be passed. 80 Business Corporations Act, s.2(l). Ccmpanies Act, s . l ( l ) . - 34 -the perview of the notice of the meeting."""" Getz questions whether, i n view of the operation of the proxy system, amendments have any value because the person conferring the proxy w i l l not know of possible arrendments at a future meeting and hence the proxy can not vote on the amendment as he may not possess the requisite authority.^ Minutes A company must keep minutes of the proceedings at i t s annual 83 general meeting. Such minutes constitute evidence of the pro-ceedings, " i f purported to be signed by the chairman of the meeting at which the proceedings were taken or by the chairman of the next 84 succeeding meeting". However, the minutes are not exclusive evidence of what took place at the meeting. There i s simply a presumptioncof regularity i n favour of recorded proceedings; i t does not preclude proof that other proceedings which are not re-85 corded took place. Failure to keep minutes as required by the 81 See Palmer, op.cit., p. 489 for a discussion. 82 "Shareholder Democracy", op.cit., p. 265. 83 Business Corporations Act, s.20(l)b. Cornpanies Act, s. 183(1). 84 Companies Act, s.183(2). 85 Companies Act, s.183(2). In Re Fireproof Doors Ltd. 1916 1 Ch. 142 at 149. - 35 -Act i s an offence on the part of the company. Minutes need not contain speeches, arguments or motions 87 that were not passed. A minute i s only a record of what was agreed upon. It i s customary at meetings to move that the previous meeting's minutes be adopted. Closure and Mjourranent A meeting may resolve to close discussion on a motion and to take a vote on i t but the closure may not be moved u n t i l members have had a reasonable opportunity to discuss the substantive motion. If the closure i s being used to suppress discussion the 88 vote taken on the motion for closure i s void. Becuase a quorum i s not present or time does not permit conclusion of the business i n one day or for other factors i t may be necessary to adjourn the meeting. The by-laws can confer the discretion to adjourn, with the consent of the meeting, on the chairman. If the chairman improperly adjourns or stops the meet-ing, the meeting can choose another chairman and go on with the 89 business. If the meeting i s duly adjourned or dissolved 86 Business Corporations Act, s.20(6). (Ccmpanies Act, s.186(4). 87 Boston Shoe Co. Ltd. v. Frank (1915) 48 Que.S.C. 66. 88 Wall v. London and Northern Assets Corporation 1898 2 Ch.489. 89 National Dwellings Society v. Sykes, op.cit. - 36 -members who remain behind cannot continue the business. In respect of notice, an adjourned meeting i s considered i n law as 91 a continuance of the original meeting; therefore new notice for i t need not be given. Usually upon completion of the business on the agenda, the chairman w i l l ask i f there remains any business unfinished. If anything i s raised he must decide whether i t i s within the purposes for which the meeting was called, before placing i t before the meeting. If there i s no further business he w i l l move that the meeting be closed. (b) content Thus far only the form or structure of the meeting has been considered. Now the content of that form w i l l be examined. This comprises: matters expressly assigned to the meeting by statute and statutory provisions respecting shareholder proposals, and notice which though procedural i n nature affects the content of a meeting by introducing or limiting and excluding certain matters for the consideration of the meeting. Therefore the remainder of this subsection i s concerned with examining the content of,the 90 R. v. Gaborian 1809 11 East 77. 91 Business Corporations Act, s,142(3). Wills v. Murray (1850) 4 Exch. 843. Scadding v. Lorant (1851) 3 H.L.C. 448. annual general meeting under the headings of constitution, notice and custom. By constitution i s meant the documents which govern the powers and duties of the corporation and to which i t owes i t s legal existence. These comprise the governing statute, the Letters Patent, memorandum or articles of incorporation and the by-laws or a r t i c l e s . The principle of constitutionality means that an annual general meeting of shareholders can only perform those acts which are witirLn i t s jurisdiction under the provisions of these documents. Constitution 92 The Statutes state the essentials of business at annual general meetings:by enumerating the mandatory statutory duties which must be performed there. The directors shall place before the meeting a comparative financial statement covering the financial year ending not more than six months before the meeting and the preceding financial year, consisting of the auditor's report and any further information that may be required by the company's articles or by-laws or urianimous shareholders agreement. 92 Business Corporations Act; Companies Act. 93 Business Corporations Act, s.149(1). Ccmpanies Act, s.168(1). - 38 -In addition to reception of these financial statements, the business mandatory by statute includes the appointment of auditors 94 to hold office u n t i l the next meeting, the fixing of their 95 96 remuneration, and the election of directors for the next year. There also are statutory duties at annual meetings respect-97 ing by-laws. Under the Canada Corporations Act the directors may pass by-laws which have effect u n t i l the next annual general meeting where, i n default of confirmation by the shareholders, 98 they cease to have effect. There i s notJhing i n these provisions to stop the directors from reenacting other by-laws substantially the same for the ensuing year and thus circumventing a decision 99 of the shareholders not to confirm them. Hence these provisions give the directors alone de facto power to adopt or alter by-laws and therefore residual power to 94 Business Corporations Act, s.156(1). Ccmpanies Act, s.201(3). 95 Business Corporations Act, s.l56(4). (jcmpanies Act, s.205. 96 Business Corporations Act, s.l01(3). (Companies Act, S.132(2), Table A, a r t i c l e 11.1:. The a r t i c l e s may provide otherwise. 97 op.cit. 98 op.cit., ss.94 & 95. 99 See Proposals Commentary, para. 196. - 39 -control the internal government of the corporation."'"^^ The Business Corporations Act alters this position by conferring on the shareholders the power not merely to confirm by-laws proposed by directors but also to i n i t i a t e changes i n the corporate structure. 1^" By-laws proposed by the directors or arrendments or repeals of by-laws must be submitted to the next meeting of shareholders who may confirm, reject or amend 102 them. If the shareholders reject a by-law the directors are precluded from enacting another substantially the same and thus 103 circojmventing the w i l l of the general meeting. Shareholders may also propose by-laws for the consideration of an annual 104 general meeting through the shareholder proposal mechanism. By these provisions the shareholders i n annua], general meet-ing are given significantly greater power over the internal 'government of the corporation. The Proposals Carmentary noted the changes i n the following manner: 100 Kelly v. E l e c t r i c a l Construction Co. (1908) 16 O.L.R. 232. . Stephenson v. Volkes (1890) 27 O.R. 691. 101 s.98 (2) ,(3), (4). 102, ibid.. 103 Business Corporations Act, s.98(4). 104 Business Corporations Act, s.98(5). - 40 -"While i t may be sensible to vest exclusive management powers i n the directors, as the present Act does, there i s nothing to be said for vesting i n them the power to control the internal government of the corporation to the exclusion of shareholders... In the result this scheme recognizes the r e a l i t y of corporate management by placing residual control of internal govern- ment where i t belongs - with the shareholders - but giving the directors power to administer the corporation from day 105 to day." (Emphasis added) A memorandum company i s not a company i n the same sense as a Letters Patent company; the art i c l e s of association i n the former are contractual i n nature and a l l such companies must have them in either Table A or another form; these art i c l e s are not simply 106 by-laws under another name. There i s some question whether 105 paras. 194 & 195. 106 Companies under the Business Corporations Act are no longer technically incorporated by Letters Patent but by articles of incorporation. However, i t i s submitted that these ccmments remain valid. For a discussion of by-laws under a memorandum company see Neuman, "Letters Patent and JMemorandum of Associa-tion Gsmpanies", i n Ziegel, ed., "Canadian Company Law", 1967, pp. 84-91. - 41 -by-laws (proper) may be passed by memorandum ccmpanies; but there seems no reason why the shareholders cannot by the art i c l e s delegate certain rule making powers to the directors, provided they do not purport to give the directors power to vary the articles themselves. These would be i n the nature of internal rules that the shareholders agree by contract w i l l be binding on themselves; they would serve the same function as most by-laws 108 i n the Letters Patent system. Under the Companies Act the shareholders i n general meeting may by special resolution amend 109 the articles of the company; i n this manner they could delegate to the directors this internal rule making power. Or the share-holders could, by the a r t i c l e s , reserve to themselves the power to adopt internal regulations and thereby maintain direct control over the internal government of the company. Either way, the shareholders i n a merrorandum company have considerable power and f l e x i b i l i t y respecting i t s internal government. In jurisdictions where the Letters Patent system of incor-poration operates such as that of the Canada Corporations Act, 107 Neuman, op.cit., p. 84. 108 By-laws themselves are not contractual i n nature. 109 Companies Act, s.240(1). - 42 -the power of corporate management i s vested by statute i n the board of directors1"'"^ and i t would seem that no derogation from this i s possible.1''""'" The board i s regarded as an original organ of the company whose powers are derived not from the corporation's 112 charter but from the Act i t s e l f . If the Act stipulates that the directors shall manage the affai r s of the company, as the Canada Corporation Act does, the shareholders are powerless to change the allocation of powers. The statutory vesting of management powers i n the directors under a Letters Patent regime allocates to them, by the principle of constitutionality, "the power to do anything not specifically reserved to the shareholders by the Act. If a question arises as to whether a particular transaction i s within the Board's j u r i s -diction, one simply exajriines the statute to see i f there i s an^ express provision requiring the authorization of a general meet-113 mg - i f there xs not, the directors have the power." 110 Canada Corporations Act, op.cit. s.86(l). 111 See Proposals Commentary, para. 191; also cases l i s t e d there. 112 See Beck, "An Analysis of Foss v. Harbottle", i n Ziegel, ed., Vol. 1, op.cit., at p. 553; also Slutsky, "Division of Power between the Board of Directors and the General Meeting", i n Ziegel, ed., Vol 2, op.cit., at p. 171. 113 Slutsky, "Division of Power", op.cit., p. 179. See also Slutsky, "The Relationahip between the Board of Directors and the Shareholders i n General Meeting", op.cit. - 43 -The effect of this legal principle i s to grant shareholders the exercise only of their statutory powers which have i n previous paragraphs been defined and to vest residual power i n the board. 114 The authors of the Federal Draft Act recognized the i n f l e x i b i l i t y of such a statutory vesting of roanagement powers and decided to alter i t by drafting s.901(1) of that Act which provided that: "Subject to the ar t i c l e s , the by-laws and any unanimous shareholder agreement the business and affai r s of a corporation shall be managed by one or more directors." However, this provision was not incorporated into the Business 115 Corporations Act i n that form. The 'articles' and 'by-laws' 116 reference was dropped i n the relevent section. Subsectioni.(l), the relevent part reads: "Subject to any unanimous shareholder agreement, the directors shall manage the business and af f a i r s of a corporation." Eraser & Stewart, "Oarpany Law of Canada", op.cit., p. 603. 114 Proposals for a New Business Corporations Law for Canada, op.cit., Vol II. 115 This provision would allow the management power to be defined by a simple majority of shareholders. 116 Business Corporations Act, s.97(l). - 44 -Thus the powers of the directors to manage the company, under the Business Corporations Act can only be limited by a unanimous shareholder agreement. For a large company such an instrument i s a v i r t u a l impossibility. Therefore, i n large companies the de facto management powers of directors under this Act remain 117 the same as under the Canada Corporations Act. In memorandum companies the relationship between the board of directors and the general meeting i s based on the contract 118 contained i n the memorandum and ar t i c l e s of association. Section 140(1) of the Companies Act vests power of management in the board subject to the a r t i c l e s . Table A to that Act does not alter this general vesting of management power in the 119 directors. The result i s that i f the formula i n Table A i s used, as i t almost invariably i s , residual power rests with the board and i t can do, "everything the company can do except where 120 the authorization of the general meeting i s required." Those 117 op.cit. 118 The contractual effect flows from a provision i n the Act,s.15. 119 Companies Act, Table A, a r t i c l e 10.1. 120 Slutsky, "Division of Power", op.cit., p. 178. See also Gower, op.cit., pp. 130-132. Automatic Self-Cleansing F i l t e r Syndicate Co. v. ajnninghame, ' op.cit.. - 45 -matters which require such authorization have been previously mentioned. Therefore, i f a company were incorporated under the Ctempanies Act using Table A to that Act, the position, i n fact, of the annual general meeting with respect to the board would be almost identical to the position under federal legislation with the important proviso that under the Ccmpanies Act the anniial general meeting can, i n theory by special resolution under Section 240(1), amend the articles to abridge the board's power and s h i f t the allocation of management functions to i t s e l f ; this p o s s i b i l i t y i s not open to shareholders i n general meeting under federally incorporated ccmpanies. It gives to general meetings 121 under this Act, i n theory, considerably more potency. It seems then that the division of powers, either under the 122 federal Act or the Ccmpanies Act and Table A, lirnits the scope of an annual general meeting by allocating to i t only certain specific statutory powers. The most significant of these powers i s the right to elect the directors; although the 121 The v a l i d i t y of this conclusion for corporations governed by the Business Corporations Act i s subject to the possible existence of a unanimous shareholders agreement and to the ensuing discussion of the shareholder proposal. 122 Business Corporations Act, op.cit. - 46 -directors have complete powers of mamgement and the residua], power i n the company, they must secure reelection by the share-holders and therefore must account to them i n some manner. But aside from this power the shareholders have l i t t l e to do at the annual meeting. Trie extent to which this conclusion i s v a l i d under the Business Corporations Act i s subject to the ensuing discussion. There i s a method whereby there may be injected into the content of a meeting business not mandatory under the statutes previously referred to. This method i s a shareholder proposal made under provisions to that effect i n the Business Corporations 123 Act. Under s.131(1) any shareholder entitled to vote at a meeting may submit a notice to the corporation of any matter that he proposes to raise at the meeting with a statement relat-ing to i t . Management must at the expense of the company submit the proposal to a l l shareholders i n i t s circular and i f requested by the shareholder include a statement identifying the proposal by him of not more than two hundred words ...in support of the 123 There i s no proposal mechanism i n the B.C. Companies Act. Under s.133, shareholders holding not less than ten percent of the shares entitled to vote at a meeting may nominate directors but broader grounds for proposals are not authorized by the Act. - 47 -proposal."1"" A shareholder proposal may be excluded by the corporation under certain grounds set out i n the Business Corporations Act. 125 The grounds of exclusion ccmprxse the following: (1) promotion of general economic, p o l i t i c a l causes, etc. or a personal claim or grievance; (2) that the proposal had been included i n a circular at either of the two previous annual meetings and the shareholder had fa i l e d to present the proposal; (3) the rights are being abused to secure publicity; (4) that substantially the same proposal has previously been submitted to shareholders i n the information circular relating to an annual meeting held witJxin the two preceding calendar years and the proposal was defeated; (5) that the proposal has not been submitted at least ninety days before the anniversary date of the previous meeting. In a l l cases the shareholder must be notified of the exclusion within ten days of receipt of the proposal. .124 s.l31(2) f(3). 125 Business Corporations Act, S.131(5),(7). - 48 -The shareholder proposal i s then a mechanism whereby certain matters of interest to shareholders may be introduced into the content of annual general meetings. But must these proposals be subject to the constitutional rules of the company respecting the division of powers or do they enable a meeting to assume a broader scope than would otherwise be by permitting the share-holders to introduce, deliberate and resolve matters not speci-f i c a l l y assigned to them by the statute and j u d i c i a l decisions? Getz discusses this problem i n relation to the provisions of the Canada Corporations Act at some length with the view to examining whether shareholder proposals may be used as they have been in the U.S. for the application of greater shareholder 127 democracy by widening the scope of the annual meeting. He states that the key phrase i s , "ordinary business operations of the company" i n the exclusionary provisions of section 108.8 of 128 that Act. The problem i s to define this phrase. Does i t go beyond the minutiae of day to day managerial dicisions which 126 op.cit. 127 Getz, "Shareholder Democracy", op.cit., pp. 252-264. 128 i b i d . , p. 262. - 49 -certainly do f a l l within i t s perview, to include broader quest-c ions of general policy of the company? Then questions of the type 129 raised by the Medical Committee for Human Rights i n the U.S. can be raised at meetings. Getz concludes that any proposal concerrdng specific business contracts made by the corporation 130 would be excluded under s.108.8(6)c and a proposal formulated i n terms clearly directed to general corporate policy rather than 131 to routine management decisions i s an uncertain ground. But i t would seem that even i f such general corporate policy decisions 132 were not excluded under s.108.8(6)c, they would be excluded, 133 under s,108.8(6)b, - the proper subject exception. Getz suggests that general policy might come i n as a subject under 134 s.108.8(6)c because, " A l l the case law concerns specific attempts to instruct the directors i n respect of particular trans-actions, and none i s capable of sustaining the view that general 135 policy i s exclusively i n the hands of the directors." 129 Medical Committee for Human Rights v. S.E.C., op.cit. 130 Canada Corporations Act, op.cit. 131 Getz, "Shareholder Democracy", op.cit., p. 262. 132 Canada Corporations Act, op.cit. 133 i b i d . 134 i b i d . 135 Getz, "Shareholder Democracy", op.cit., p. 262. ( - 50 -It seems that matters wittiin the competence of the directors 136 may be excluded either under s.l08.8(6)b - the proper purpose -137 or s.l08.8(6)c - the ordrnary business - provisions. Hence the shareholder proposal mechanism, while giving to the shareholder the right to raise issues at a meeting does not extend the scope of issues that may be considered at a meeting. The rules of constitutionality are not affected and the shareholders are l e f t to consider only those matters expressly assigned to them by the Act. The conclusion seems well founded for the proposal provisions 138 139 i n the Canada Corporations Act and B i l l C-213 which repro-duced almost intact those of the Canada Corporations Act. The 141 shareholder proposal provisions of the Business Corporations Act, however, confuse further an already confused area by omitting the 'proper subject' and 'ordinary business* grounds of exemption by 141 the company contained i n the previous legislation. The intention 136 Canada Corporations Act, op.cit. 137 i b i d . 138 op.cit., s.108.8. 139 Canada Business Corporations Act, 1st Session, 29th Parliament, 21-22 E l i z . II, 1973. 140 s.131. S.131(5) contains the exemption provisions. 141 Canada Corporations Act, op.cit.; B i l l C-213, op.cit. - 51 -of Parliament i n making this omission seems to have been a widening of permissible action when shareholders are assembled 142 in annual general meeting. But this goal may not be achieved. Directors s t i l l remain vested by statute with the management of 143 the company and the case law prohibiting instruction to 144 directors during their tenure by shareholders would s t i l l seem to apply. The conclusions of Getz respecting the limitations on subject matter for shareholder proposals s t i l l seem to be valid for the same fundamental reason he advances: the operation of the principle of constitutionality. The effect of the amission i n the Business Corporations Act of the 'proper subject' and 'ordin-ary business 1 exceptions, however, w i l l have to be definitively settled by the Courts. 142 I make this statement as conjecture. 143 Business Corporations Act, s.97(l). 144 Automatic Self-Cleansing F i l t e r Syndicate v. Cunninghame, op.cit.; Re B r i t i s h International Finance (Canada Ltd.) (1968) 68 D.L.R. 2nd 518. On the'proper subject' and 'ordinary business' grounds, the Proposals CcrarKsntary, para. 277, states: "... (they are) designed to make i t clear that the machinery of this section cannot be used to authorize the taking of decisions by the general meeting which the shareholders are not otherwise competent to make." - 52 -The broader scope of the shareholder proposali'*"' mechanism coupled with the powers given to shareholders i n general meeting to approve, amend or propose by-laws under the Business Gorpora-146 tions Act compels a reassessment of the balance of power formulation i n a company that would be incorporated under this Act. I t seems that notwithstanding the lack of c l a r i f i c a t i o n , respecting the extent of shareholder proposal subject matter, the existence of that device together with the by-law'powers 147 shifts the residual power i n the company to the general meeting, and causes a return to the rule expressed i n the early English cases that the w i l l of the ccmpany i s the w i l l of i t s general meet-ing. By this s h i f t the importance of the annual general meeting within the ccmpany structure i s greatly enhanced. 145 The scope of the proposal mechanism has not only been broaden-ed by the possible increase i n shareholder management powers but also by the reduction from 20 percent to 5 percent of shares required to nominate a director by proposal - the Business Corporations Act, op.cit., S.131(4); Canada Corp-orations Act, op.cit., s.108.8(5). 146 op.cit., s.98. 147 This seems to have been the intention of the Government. See the remarks of Mr. N. Cafik, Parliamentary Secretary to the Minister of Consumer and Corporate Affairs, at the introduction of B i l l C-29 at second reading, House of Ctemmons Debates, November 8, 1974, p. 1202. - 53 -Notice Provisions respecting notice also affect the content of annual general meetings. While i t i s a power of directors to 148 determine the time and place for the holding of meetings, the company must give notice of annual general meetings to each shareholder who i s entitled to vote. The notice must be mailed, prepaid, not less than 21 days or more than 50 days before the 149 meeting. Only shareholders of record on the record date are 150 entitled to notice, but i f no record date i s fixed a share-holder who has not received notice i s s t i l l entitled to vote i f he i s registered on the ccmpany's books on the day set for the i.. 151 meeting. In order that the business transacted at the meeting be va l i d the provisions respecting notice need be followed. A provision may be inserted i n the by-laws that accidental emiss-ion to notify any shareholder does not invalidate the business 148 Business Corporations Act, s.127. Ccmpanies Act, Table A, a r t i c l e 7.1. 149 Business Corporations Act, s.129(1). Ccmpanies Act, s.166. No maximum period i s stated. 150 Business Corporations Act, S.128(2). Crjmpanies Act, s.l84(a) . 151 Business Corporations Act, s.128(3)(a)ii. - 54 -of the meeting.*~J£" Failure to have such a by-lav/ w i l l cause 153 such omission to invalidate the proceedings. As no action may validly be transacted by a meeting unless notice of that action has been given to a l l those entitled to receive notice of the meeting and action going beyond the scope 154 of the notice i s invalid and void, i t i s imperative that the contents of the notice state clearly what business w i l l be transacted. The content of the notice w i l l determine the content of the meeting. This principle requires that every matter to be considered at the meeting be properly identified. Not only must the business of the meeting be disclosed but something about that business must be disclosed. Information must be provided about the matters to be acted upon. In this regard Getz states: "No useful purpose i s served by a detailed examination of the many cases dealing with, whether there has been s u f f i - , cient disclosure about matters to be acted upon. The 152 See Re West Coll i e r i e s Ltd. 1962 1 A l l E.R. 26. 153 Alexander v. Simpson 1889 43 Ch. D. 139 R. v. Longhorne (1836) 4 Ad. & E l . 538. 154 Re Flampshire Land Co. 1896 2 Ch. 743. Zimmerman v. Trustee of Andrew Fotherwell of Can. Ltd. 1.925 3 D.L.R. 953." - 55 -general principle i s clear and, again, i s succinctly stated i n the regulations prescribing the contents of information circulars: the matters to be acted upon must be described i n "sufficient detail to permit shareholders to form a reasoned judgment concerning any such matter.' This i s no more than a statutory formulation of a principle that i s 155 j u d i c i a l l y well established..." Custom There are certain items not mandatory i n law which i n times of acute public relations consciousness when charges of excess profits, pollution and other "rip-offs" are made and corporate management i s sensitive to adverse publicity that may result from a poorly handled shareholders' meeting have become part of most annual meetings as custom. These include the report by the chairman of the board on the present performance and future hopes of the company, the answering of questions from the floor on matters outside the notice of the meeting and the distribution of agendas and other written information both about the meeting and the 156 company. 155 Getz, "Shareholder Democracy", op.cit., p. 245. See also Fraser & Stewart, op.cit., pp. 650-652. 156 Consider the elaborate annual reports sent to shareholders. - 56 -This class of meeting function, not required by law, nevertheless may be considered as a custom of meetings whose usage over a period of time has made i t part of the content of the legal model of annual general meetings. iv . law - policy Both under the provisions of the Companies Act and the Business Corporations Act-the annual general meeting emerges from the discussion i n the previous section as an institution within the structure of the company that possesses considerable influence and power over the whole. The inherent f l e x i b i l i t y i n a memoran-dum company given by the contractual nature of the a r t i c l e s and the recent modifications by the Business Corporations Act to the r i g i d constitutionalism of the Letters Patent regime assure and enhance the existence and v i t a l i t y of annual meetings. But while to understand meetings an exairuination of their mechanics and machinery i s necessary, their occurance and inportance i n the company1s legal structure and their continued v i t a l i t y suggest assumptions and premises that are made or accepted which are furidamental to them. Almost a l l of these assumptions and premises do not exist as exp l i c i t i n the relevent statutory provisions or jud i c i a l decisions but rather must be inferred from these. Never-theless these assumptions have exercised influence, scmetimes - 57 -considerable, i n creating the architecture of meeting structure. This section w i l l outline the more important of those assumptions and premises. (a) proprietorialism Historically as previously noted the general meeting was the ccmpany and the directors were "subject to the superior control 157 of the proprietors assembled i n general meeting." The w i l l of the annual meeting was the w i l l of the company. Although Letters Patent gurisdictions because of their statutory vesting of directors' management powers did not need the case law develop-ment as did memorandum companies whereby the directors ceased to be mere agents of the shareholders and became with the annual general meeting primary organs of the company, there remains i n both types of ccmpanies a his t o r i c a l residue of the earlier concept that the w i l l of the meeting i s the w i l l of the ccmpany. This hi s t o r i c a l sense of the annual general meeting as a proprietorial assembly with a l l the attributes of ownership cannot 158 be discounted solely because i t i s not reflected i n the law; 157 Gower, op.cit., p. 501. 158 As previously noted i n section i i i . of this Part, under the heading "constitution", the Business Corporations Act might be attempting to reenact this character. - 58 -as a fact i t i s part of the legal model of the annual general meeting. (b) constitutionalism The government of corporations l i k e the government of states has as a constitution a basic structure of authority relation-ships. Company law, therefore, i s constitutional law i n the sense that one of i t s functions i s to regulate the, "manner i n which the institution i s constituted, to define the relative rights and duties of those participating i n the institution and to delimit I' the powers of the institution i n relation to the external world." The assignment of distinct functions by company law statutes to both the annual general meeting and the board of directors and the resultant discussion i n company law doctrine of the division of powers, the delimitation of the primary organs and of the locus of residual power i n the company, reflects the assumption of the constitutional law doctrine of the separation of powers and the acccsnpanying techniques for the application of that doctrine. A dogmatic application of the separation of powers doctrine to the internal structure of corporate authority relationships i s not 159 Eisenberg, "Modern Corporate Decisionmaking", 57 Cal. L. Rev.l. See also E e l l s , "The Government of Corporations", 1962. - 59 -being suggested as existing or desirable. But this doctrine of public law and government i s the assumption underlying the existence of an annual general meeting and board of directors i n company law. The t a c i t acceptance i n Anglo American corporate governance, reflected i n the use of the concepts of corporate organs, residual power and division of powers, of the public constitutional model of Anglo American public constitutional law ensures that the annual general meeting, which reflects the enfranchised estate in the public constitutional model, must play a role i n any corp-oration that i s based on these models. Elimination of the annual general meeting in corporate government, therefore, w i l l be r e s i s t -ed u n t i l there i s a rejection of i t s public government counterpart; u n t i l this i s done the annual general meeting w i l l be part of the theory of corporate government. Another concept appropriated from the public constitutional 160 model i s that of majority rule. When transferred to corporate constitutionalism this concept becomes the rule by a majority of shares rather than a majority of persons, and i t becomes subject to the various devices of vote gearing created by ingenious practitioners 160 The law respecting the majority rule principle i s set out earlier under the heading "voting" i n section i i i . of this Part. - 60 -in order to blunt i t s impact"1'0"1" but these adjustments are i n seme sense no different from the gerrymandering of the public model. The majority rule concept i s an integral part of the annual general meeting model and as such represents an assump-tion made by that model. 161 For a treatment of these devices see Pickering, "Shareholders' Voting Rights and Company Control", Law Quart. Rev. 248 (1965). - 61 -III i . introduction The purpose of this Part i s to set out the economic model of the annual general meeting from an examination of the work of J.K.Galbraith. The mainstream of Galbraith's thought i s contain-ed i n his three books, "The Affluent Society", 1 "The New 2 3 Industrial State", and "Economics and the Public Purpose". He has written other books and numerous arti c l e s i n learned journals as well as magazines which present his views on diverse subjects; but for the purposes of this essay these three books are assumed to set out the essentials of his ideas on the new industrial system. This assumption i s i n accordance with what 4 he and most of his c r i t i c s believe. Each of these books examines a part of the American industrial system i n an attempt to construct the whole; each builds i n a cumulative manner and each relates to the others, to form a pro-gression. Together they constitute a unique and controversial 1 "The Affluent Society", 1958. 2 "The New Industrial State", 2nd ed., 1971. 3 "Fxx>nonics and the Public Purpose", 1973. 4 See "Economics and the Public Purpose", op.cit., Forward. - 62 -study of the dcminant institution i n modern American society: the modern corporation. Galbraith writes as an economist and with the tools of an economist but defines his area as larger than that usually defined as economics and employs methodology and conceptual devices not part of s t r i c t economic method to make an interpretative analysis of society from the viewpoint of corporate dominance. Paul Samuelson, the noted economist and sometime Galbraith foe, stated of this analysis that, "the study of economics w i l l never be quite the same as i n the days 5 before the Galbraithan trilogy." Others, both economists and not, share this sense of the importance of his analysis. The thought of Galbraith i s not necessarily unique or orginal i n either i t s content or method. Studies embodying synthesis and interpretation usually incorporate i n their pre-sentation other studies; the unique quality of synthesis i s an orginal interpretation and an original combination. Galbraith 7 i s no exception to this rule. 5 "Econcmics", 8th ed., 1970, p. 488. 6 See Hession, op.cit., ch. 1. Hetherington, 21 Stan. L. Rev. 248 at pp. 259-260 (1969). 7 Galbraith does i n fact give credit to a group of theorectical economists who have done work i n anticipation of his ideas. These economists include Robin Marris of Cambridge, - 63 -However, lineage i s not as important as existence. The synthesis has been made and the interpretation has been given. Whatever aspects of method or conclusion are questioned or rejected, the existence of this study and the construction of the model of the new industrial system compel an examination of the tenets of this system. Considering that Galbraith's doctrinffi are interrelated and cumulative, the method used i n this essay for their exposition i s to present f i r s t an overview of his three main works in crono-logical order so that the general shape and direction of his ideas can be perceived. In section i i i . of this Part a more detailed exarrdnation of certain of his ideas w i l l be given. Only those which relate to the thesis of this essay w i l l be examined. In section i v . a surariary construction of the relevent parts of the Galbraith model of the new industrial system w i l l be attempted. William Baumol of Princeton, Jack Downie of London and Carl Key sen, a l l of whom did work on managerial behaviour i n the mature corporation. Thurstein veblen's books, especially "The Engineers and the Price System", also refl e c t the lineage of Galbraith's thought although no credit i s given. The book of Berle and Means, "The Modern Corporation and Private Pro-perty", which enunciated the doctrines of the separation of ownership and control, and the ascendancy of management i n large corporations i s also acknowledged by Galbraith. 8 Others relate to criticism of institutions beyond the corporation such as unions and universities. xi. overview 9 "The Affluent Society" xs an examination of poverty, both in the private and public sectors, coexistent with the great wealth of American society. It attempts to explain why pockets of poverty in parts of the U.S."'"^ (urban ghettos and certain rural areas such as Appalachia) can exist while economic growth and a high level of consumption are maintained in an otherwise viable economy. This explanation involves a historical exairu\nation of economic theory which Galbraith calls the tradition of despair and an examination of three unsolved problems that this economic attitude generates. The three are: a r t i f i c i a l creation of demand through advertising, inflation and the imbalance between the public and private sectors."'""'' To solve these problems Galbraith urged a rejection of the ideas of growth and progress; scarcity is no longer the threat i t was for past generations and now society can afford to control its production and allocate that production across a broad spectrum instead of to personal consumption of a needless or conspicuous 9 op.cit. 10 See Michael Harrington, "The Other America", 1963, for a study of this phenomenon. 11 "The Affluent Society", op.cit., chs. XIII, XV, XVII. - 65 -kind, in this manner poverty both individual and public can be eliminated by the vast resources of the affluent society!s pro-ductive capacity. 12 "The Affluent Society" is however more than an explanation of poverty; certainly chapters on poverty are there and explana-tion and solutions offered. Galbraith attacks the neo classical synthesis of economics which began with Adam Smith, Malthus and Ricardo as the classical tradition and later was refined by Keynes and others to become the dominant explanation of economic pheno-mena. This body of thought Galbraith irreverently terms the 13 "conventional wisdom". He attacks the main body of this central economic tradition and questions its applicability at a l l to the economy of the modern day. The rejection by Galbraith of the traditional economic doctrine is characteristic of a l l his work: i t reappears in both 14 the "New Industrial State" and "Economics and the Public Purpose". It is Galbraith's view that this doctrine has imposed a particular viewpoint upon attempts to understand existing economic phenomena, 12 op.cit., the book was originally called "Why People are Poor". 13 "The Affluent Society", ch. II. 14 op.cit. 15 op.cit. - 66 -which preclude by their nature certain interpretations of those phenomena. 16 In "The Affluent Society" he argues that the traditional doctrine has made productivity, inequality and insecurity the main preoccupations of the economic system of North America when i n fact goods and services are abundant. This preoccupation exists because of the acceptance of the "conventional wisdom", a doctrine of despair which no longer applies to the affluence of the present. The tenets of the conventional wisdom must therefore be rejected and new explanations sought. Galbraith professes his purpose to be the seeking of these new explanations: the construction of a new theoretical economic model. 17 "The New Industrial State" i s the second book i n the contin-uance of Galbraith's economics. In his forward to this book, Galbraith emphasized that i t has a close connection with "The 18 Affluent Society 1 1. "I must again rernind the reader that this book had i t s origins alongside "The Affluent Society". It stands i n relation to that book as a house to a window. This i s 16 17 18 op.cit. op.cit. op.cit. - 67 -the structure; the earlier book allowed the f i r s t glimpse inside. 20 But whereas "The Affluent Society"^ emphasized historical economics and the limitations of i t s acccmpanying ideology, "The 21 New Industrial State" i s a study of the industrial system as i t exists i n the present and done in broad strokes. By the phrase 'industrial system' he means the world of the great corporations: those few hundred technically dynamic, massively capitalized and 22 highly organized corporations. He asserts that these giant, mature corporations are the major agents of change and the centres of power in contemporary industrial society. The relation of the state to the industrial system, the growth of mass advertising, the retardation of trade unions, the increase i n university educa-tion and technical development are examined. He insists that these changes must be seen not i n isolation from each other but i n terms of their close interdependence: "This matrix of change has been 23 more than the sum of i t s parts." 19 op.cit., p. v i i i . 20 op.cit. 21 op.cit. 22 These are the same corporations that this essay purports to be considering. 23 "The New Industrial State", op.cit., p. 24. - 68 -He states that whatever i t s ideological b i l l i n g , the economic system has become in substantial part a planned economy. "The imperatives of technology and organization, not the images of 24 ideology, are what deterrtrlne the shape of economic society." This remark can be taken as the major theme of that book. In his view, the imperatives of modern technology have two effects: (1) technology i s so intricate as a process that i t can be carried out only by specialized professionals, operating primarily i n groups, whose individuality i s submerged i n a world of committees. They constitute what he terms, "the techno-structure"; (2) the only entity able to supply the organization of effort and capital required to realize this technology i s what he terms the "mature corporation". A secondary theme of the book i s how mature corporations manage the economy that their security and growth are assured. This process of management he c a l l s industrial planning. The central concept of neo clas s i c a l economics i s that of the market. By supply and demand and diixiinishirig marginal u t i l i t y , price, supply and p r o f i t a b i l i t y are determined. But, Galbraith maintains mature corporations cannot because of the technological imperatives 24 i b i d . , p. 26. - 69 -rely on the market mechanism. It injects into corporate activ-i t i e s too many uncertainties; the market must be replaced by corporate planning and control. The market i s too uncertain even i f i t were to exist as described i n the economic textbooks. Thus planning emerges; he describes i t as: "...replacing prices and the market as the mechanism for determining what w i l l be produced, with an authoritive determination of what w i l l be produced and consumed and 25 at what price." Galbraith ascribes to mature corporations through his develop-ment of the concept of planning a role far beyond that of the traditional economic textbooks. Rather than being entities sub-ject to the laws of the market, they regulate the market. This regulation, because of the vast scope of their undertakings and their degree of involvement i n the total economy, amounts to macro economic planning similar i n effect to the planned economies of East Europe and the Soviet Union. Free enterprise, the hallmark of American p o l i t i c a l and economic theory, has become a myth to which corporate leaders pay l i p service while the entities they represent continue the process of planning. 25 "The New Industrial State", op.cit., p. 42. - 70 -With the degree of control exercised by corporations goes the acessory of control - power. No longer the landowner or the class-i c a l enterpreneur but the corporation i s i t s possessor. Galbraith states: "Power has, i n fact, passed to what anyone in search of novelty must be j u s t i f i e d i n c a l l i n g a new factor of produc-tion. This i s the association of men of diverse technical knowledge, experience or other talent which modern industrial 26 technology and planning require." Galbraith has been accused of being an apologist for the large 27 corporation but this i s not the main thrust of this book. He assumes as a f i r s t premise that the corporations exist and that certain of them are very large (others have established the extent of this existence and size); his main concern i s to examine the significance and effect of their existence and size on society as a whole. In the third book by Galbraith on the industrial system, the world of the large corporation i s brought into focus with the market system as i t does exist i n the economy. This book, 26 "The New Industrial State", op.cit., p. 72. 27 See Mintz & Cohen, "America Inc.", 1971, p. 53. - 71 -"Ecxmcmics and the Public Purpose",^0 accepts the conclusions of earlier works and then attempts to construct a model of the Ameri-can economy in t o t a l i t y . 29 Even more than "The New Industrial State", this latest book i s a study of power. Economics and i t s tools are used by the author to ascertain the nature and function of power i n an industrial economy of the 'capitalist' variety. The traditional view regarding the locus of power, i n the corporation, the direc-tors, i s shown to be, i n the model constructed, invalid. Power which had shifted from the owners to the directors has now shifted to the technostructure. As with any group which possesses the attributes of power, the technostructure concerns i t s e l f with maintaining i t s privileges; therefore, most corporate a c t i v i t i e s are directed towards preserving the structure of that particular corporation and the corporate world i n general. The more tr a d i -tional a c t i v i t i e s of the firm such as the maximization of profits and active competition under the market system are abandonned. Whereas "The New Industrial S t a t e " 3 0 and "The Affluent 31 Society" by implication dealt mth the world of great corporations 28 op.cit. 29 op.cit. 30 op.cit. 31 op.cit. - 72 -which Galbraith c a l l s , "the decisive part of the economy", 33 "Economics and the Public Purpose" attempts to consider the whole system. The segment of the economy occupied by small businesses, about half of the G.N.P., i s discussed under the t i t l e "market system". This segment ressembles a mixture of the neo class i c a l monopoly, oligopoly and competition. The entrepreneurial firm i s i t s characteristic form. An explanation of the market system i s important because 34 many of the c r i t i c s of "The New Industrial State" stressed that competition as defined by the traditional economics did exist i n the American economy and that Galbraith simply chose to ignore 35 i t . If a market system of the traditional kind does exist or even coexists with the planning system of mature corporations, then i t can be argued that the planning system a mere per-version of the market system and appropriate legislative measures ought be taken to arrest i t s development and stimulate the market 32 "Econaru.es and the Public Purpose", op.cit, Forward p. ix. 33 op.cit. 34 op.cit. 35 See Samuelson, "Fxxsncmics", 3rd Cdn. ed., pp. 610-621. - 73 -system which otherwise would be viable. Furthermore, i f a t r a d i -tional market system exists at a l l , from that existence i t can be argued that such.system i s normative; this i s i n fact the argu-ment of traditional economics which i s empirical i n nature. But while acknowledging the existence of a market system, the book states that this system exists only to perform a supportive role to the large corporation; i t i s allowed to exist only to give services which the mature corporations do not wish to offer. Re-muneration of i t s employees i s low - lower than i n the planning system. Independence of business opportunity - one of the h a l l -marks of a free enterprise economy, does not exist even for the firm i n the market system. This system i s predominantly a service industry. 36 "Economics and the Public Purpose" i s important i n construc-tion of the Galbraith economic model because i t refines the ideas contained i n the earlier books and offers a new interpretation of what remains of the traditional market economy. i i i . specific concepts This section examines i n greater detail several concepts of 36 op.cit. - 74 -Galbraith respecting the behaviour of corporations which affect shareholders assembled i n annual general meetings. These concepts may be seen under two divisions: those that directly alter the traditional model of shareholder attributes and those that affect the corporate structure generally and thereby have repercussions for shareholder attributes. The Imperatives of Technology This concept i s a main building block i n Galbraith's thesis 37 argued i n "The New Industrial State", Although he explains i t only i n a short chapter, once postulated i t i s used to support most of his subsequent ideas on corporate behaviour. Another phrase for the imperatives of technology i s techno-logical determinism. The rapid and vast advances i n technology, almost a l l of which are v i s i b l e to the public i n their effects, compel the corporation to produce a range of products whose com-plexity was unknown in the last century. Technology i n the economy i s no longer a static factor, as i t was i n 1875 with changes from time to time i n the product or i t s manufacturing process, but a powerful and dynamic force having i t s own i n i t i a -tive. Technology i s treated as i f i t were a primary, autonomous 37 op.cit. -75 -force i n i t s own right - i t s imperatives must be followed. As well as being a change, i t causes change: change i n organizations 38 and hence change in society. The more sophisticated the techno-logy, the greater, Galbraith contends, w i l l be the need for the imperatives. The purpose of the emphasis by Galbraith on the role of tech-nology i s his desire to construct a new model of the corporate . structure. While technological change i s a familar idea, and has been so since the industrial revolution, the rate of change and the i n t r i n s i c nature of i t or both have i n the l a s t three decades caused a second industrial revolution. Although Galbraith does 39 not use that phrase (others have) this i s what he seems to be 38 Galbraith l i s t s six major consequences of the imperative of technology-, "The New Industrial State", op.cit., p. 84: (1) a lengthening span of time to separate the beginning from the completion of a task; (2) a more complex technology and specialized knowledge requires considerably more capital to achieve production; (3) an inflexible ccmmitment of physical capital (tools and other equipment) to the particular task as i n i t i a l l y defined; (4) specialized personnel not only for production but for guidance and planning of output and i t s distribution; (5) large and complex business organizations to assemble the components from the specialized task; (6) planning of a l l aspects of the task. 39 See Berle i n Berle and Means, "The Modern Corporation and Private Property", 2nd ed., 1968, Preface to the Revised Edition. - 76 -saying. The corporate model of the entrepreneurial and capi-t a l i s t i c variety, which served so well for the f i r s t industrial revolution, w i l l not function i n the world of the second. The outstanding imperative of technology i s the need for an organization that can control that technology. The mature corp-oration evolved to meet this imperative; i n the economies of the U.S. and Western Europe this institution f u l f i l l s the imperatives of technology. I t i s the contention of Galbraith, mainly express-40 ed i n the f i r s t ten chapters of "The New Industrial State", that this entity was unknown and unneeded before this techno-logical explosion. The idea that technological change can spawn a culture,, i s not new. Many interpretations of history have demonstrated that various cultures or c i v i l i z a t i o n s depended on particular inventions 41 - the plow, seed planting, smelting of metals and others. Galbraith applies this kind of interpretation, technological deterirLinism, to the corporate world at mid twentieth century andanot only "discovers" the new industrial state but attempts to explain i t s attributes. 40 op.cit. 41 See Bronowski, "The Ascent of Man", 1973, for such an interpretation. - 77 -Technostructure Galbraith argues that mature corporations are controlled by large staffs of professional employees who are experts i n the various aspects of the corporation's operations. This group he ca l l s the "technostructure". He defines the technostructure i n the following terms: " . . . i t extends from the most senior o f f i c i a l s of the corpor-ation to where i t meets, at the outer perimeter, the white - and blue - collar workers whose function i s to conform more or less mechanically to instruction or routine. It embraces a l l who bring specialized knowledge, talent or 42 experience to group decision-making." Galbraith does not intend the concept of the technostructure to include the chairman of a company, the president or those vice-presidents with important staff responsibilities; these persons are part of management but not part of the technostructure; therefore, the more traditional term 'management' i s not cotermin-ous with the term 'technostructure'. The need for a technostructure i n the mature corporation i s 43 caused by several factors: (1) technological requirements i n 42 "The New Industrial State", op.cit., p. 84. 43 "The New Industrial State", op.cit., p. 71. - 78 -modern industry force the corporation to bring together those experts who possess the required s k i l l for a particular technical operation; (2) the planning inherent in mature corporations; (3) the need to coordinate the specialized technical skills and the industrial planning. "Talent must be brought to bear on the 44 common purpose", Galbraith states. Decision-making is diffused throughout the ranks of techni-cally skilled personnel: no single group or individual has control. Decisions once made move upward through the various reviewing groups for approval and action. "One can do worse than think of 45 a business organization as a hierarchy of ccmmittees". As no one person has more than a fraction of the knowledge necessary for the design, marketing or production of a new product, i t follows that no one person should make the investment decision respecting a proposed product. These matters must be resolved by groups in which each participant contributes the specialized knowledge which he possesses. As the size of the corporation increases, the number and the technical complexity of decisions increase; accordingly, the size of the technostructure increases. 44 ibid. 45 ibid. - 79 -In the past the leadership and control i n business organiza-tion was identified with the entrepreneur - that individual who united ownership or control of capital with a capacity for uniting i t with the factors of production and a further capacity for innovation. It i s Galbraith's contention that the entrepreneur can withstand a substantial degree of industrial development. Even i f the entrepreneur no longer owns the majority of shares i n the 46 corporation, he may retain control through strong leadership. In fact the corporation may be an excellent vehicle for these entrepreneurial purposes. However, with the emergence of the technostructure required by modern technology and planning the entrepreneur can no longer exist as an individual i n the mature corporation. Galbraith summarizes as follows: "...what the entrepreneur created passed inexerably beyond the scope of his authority. He could build. And he could exert influence for a time. But his creation, were i t to serve the purposes for which i t was brought into being, required his replacement. What the entrepreneur created, only a group of men sharing specialized information could 46 Consider the power of the Bronfman family over Seagrams Ltd. At his death in 1972, Samuel Bronfman owned only 12 shares i n that company - 1973 Annual Report D i s t i l l e r s Seagrams. - 80 -ultirrately operate." 48 Control has, therefore, necessarily shifted from management to the technostructure. An outsider to the technostructure, with-out i t s collective technical knowledge cannot participate either collectively or solely i n the decision-making process of the corporation. There i s no poss i b i l i t y of intervention inv.this process from those in the conventional model, either legal or 49 economic, who are not members of the technostructure. If an exclusive right i s given to the technostructure due to i t s monopoly of knowledge required to make decisions, i t effectively controls the corporation whatever the conventional model might otherwise dictate. The exclusive right i s ascribed to this group by Galbraith, because of the monopoly. He explains that as land i n the Middle Ages and capital i n the period from the renaissance to the present have given to their possessors control and power, now a new factor of production, the collective s k i l l s of the technostructure, give to that group control and power. 47 "The New Industrial State", op.cit., p. 101. 48 "management" i n the sense of the directors or the most senior officers. 49 Galbraith gives examples of management who have interferred with decisions of the technostructure with negative results for the corporation - "The New Industrial State", op.cit.., p. 101 et seq. - 81 -He states: "Power goes to the factor of production which i s hardest to obtain or hardest to replace. In precise language i t adheres to the one that has the greatest i n e l a s t i c i t y of supply at the margin." 5 0 The term 'technostructure' as used by Galbraith i s simply a neologism for the term 'bureaucracy'. But whereas i n government i t i s recognized that considerable power i f not almost complete power i s exercised by the bureaucrats as opposed to the Ministers and other elected o f f i c i a l s although the theoretical model grants total power to elected o f f i c i a l s , i n corporate organizations i t i s not generally recognized that a bureaucracy exercises almost complete power. The accepted view of economists i s that the shareholders i n general meeting are the primary locus of power 51 and the directors are the intermediate locus. By development of the concept of a technostructure, Galbraith attempts to explain the power structure of a mature corporation. He rejected the conventional wisdom which ascribes to the mass of employees of the corporation no authority and l i t t l e power; instead he maintains i t i s the reverse. 50 "The New Industrial State", op.cit., p. 70. 51 See Samuel son, "Econaru.cs" 7th ed., ch. 5. - 82 -Planning Planning is a word that is used several different ways in several different contexts. A planned economy usually refers to the economies of the corirnunist states of Eastern Europe and the U.S.S.R.. In these economies a l l economic activity is under the direction and control of the state; 'free' or individual enter-prise is prohibited. It has been assumed that planning is alien to Western economies because of the market assumptions made in the model of these economies. In a planned economy prices, production and profits are set by regulation; in a market economy these factors are controlled by the "invisible hand" of competition. Galbraith rejects this dichotomy between the two types of economies and questions the market assumption for the complete spectrum of Western economies. He states that although the market system may exist for part of the economy, the part occupied by mature corporations which is the larger part is not governed by the market mechanism but by planning carried out by the corporations. In taking this position he contradicts the main body of economic 52 thought of the Western economies. 52 • Respecting the 'market' concept held by neo classical economists Galbraith comments: "To them the market is more than an insti-tution. It is a mystique, a supernatural endowment which evokes not technical but religious attributes." New York Times, June 25, 1967, Book Review, p. 3. - 83 -In two chapters near the beginning of "The New Industrial 53 54 State", Galbraith sets out his concept of planning. To the same extent as the other subject headings under exarnination i n this subsection of the essay, Galbraith's concept of planning i s related to his other ideas concerning the industrial economy. Technological imperatives and the technostructure are interrelat-ed with the concept of planning i n a cause and effect symbiosis. What follows i s an outline of Galbraith's views on the need for the industrial planning practiced by mature corporations and the nature of that planning. Planning by corporations i s necessary because the uncertain-tie s of the market must be superceded. The unknown with i t s inherent risks cannot be tolerated when advanced technology with i t s companion commitment of time and capital are employed. Under the usual market system there i s no guarantee that investment i n a product which represents a high proportion of the corporation's assets w i l l be profitable because there i s no secure market for that product at a pr o f i t or even a market at a l l . This i s a condi-tion that cannot be tolerated by a large corporation; i f i t makes 53 54 op.cit. These two chapters were revised for the 2nd edition. - 84 -a mistake i n an investment decision i t may become bankrupt. Galbraith states: "The needed action...is evident: i n addition to deciding what the customer w i l l want and w i l l pay, the firm must take every feasible step to see that what i t decides to produce i s wanted by the consumer at a remunerative price. And i t must see that the labour, materials and equipment that i t needs w i l l be available at a cost con-sistent withithe price i t w i l l receive. It must exercise control over what i s sold. I t must exercise control over what i s supplied. It must replace the market with -, • „56, 57 planning. Planning also extends to capital. As.has previously been stated, Galbraith associates with the use of technology large 55 There are certainly mistakes made such as the Edsel of Ford Motor Company or the corf am leather substitute of Dupont Chemicals but the notoriety of these examples affirms the rule. 56 "The New Industrial State", op.cit., p. 40. 57 Having defined planning and having established i t s need, Galbraith outlines the strategies available for i t s implementation: (1) The market can be superceded. (2) Market control, (3) Market suspension for an indefinite time. "The New Industrial State", op.cit., p. 44. - 85 -amounts of capital. The supply of capital therefore cannot be l e f t to chance; i t must came within the ambit of planning. Galbraith states that capital formation i n the mid twentieth century corporate economy i s not accomplished by individual personal savings. Corporations with their great size and capi-t a l flow are the source of capital. This fact i s useful to planning by the corporation. The happy coincidence of a large capital formation by the corporations and the need to plan their capital irovements results i n the phenomenon of corporate finan-cing from internally generated funds. Galbraith !s view of corporate financial planning i s conten-tious but whatever side of the debate i s taken two statements are 58 clear: (1) his analysis of corporate finance and i t s uses i s consistent with the rest of his theory, (2) whatever s t a t i s t i c a l evidence i s adduced a large part of corporate financing (at least 59 a third of requirements) i s internally generated. 58 See Lintner, "The Financing of Corporations", i n Mason, ed., "The Corporation i n Modern Society", op.cit., for a criticism of the Berle and Means viewpoint. Galbraith followed the conclusions of the s t a t i s t i c a l analysis of Dr. Means. 59 Lintner, "The Financing of Corporations", op.cit., pp. 179-181. - 86 -The great advantage of internally generated funds to cor-porate management i s that they are not owned externally to the corporation and therefore do not represent a debtor or share-60 holder relationship with the corporation. Both debtors and shareholders have legal prerogatives inherent i n the nature of their quality; i t i s these legal prerogatives that the corpora-tion desires to avoid. Any rights not possessed by the corpor-ation w i l l impair i t s a b i l i t y to plan; therefore, these rights against the corporation must be eliminated or minimized. Galbraith summarizes the advantages of self-funding as follows: "A basic level of earnings also provides the firm...with a source of savings, and thus of capital that i s f u l l y under i t s own control. This protects i t from creditors. Not needing outside funds, i t does not have to make any concessions to the views of those who would provide them." Secure with i t s internally generated funds, a corporation can make decisions without external interference from those with claims to i t s capital. The planning process can continue success-f u l l y by engulfing the area of capital formation. This aspect of 60 I assume the two classifications of corporate funding: debt - bonds, debentures, notes - and equity - stock issues. 61 "Economics and the Public Purpose", op.cit., p. 95. - 87 -planning i s a significant departure from the orthodox view. If there are few or at least a diminished number of 'capitalists' (those with claims to capital) i n a relationship with the corpora-tion, can the carrying on of activity by these corporations be termed 'capitalism 1? Revised sequence part a. Building on his concepts of technological imperatives, bureaucratic control and industrial planning, Galbraith i s then ready to set out the l a s t major characteristic of the mature corporation - the revised sequence. By this concept the features of the industrial state are brought into focus and the differences from previous economic models of the corporate system are outlined.. The accepted or traditional.sequence i s based on the concept 62 of the margin as developed i n economic theory. This concept 62 Samuelson expresses this concept i n the following terms: "Each good...is demanded up to the point where the marginal u t i l i t y per dollar (or penny) spent on i t i s exactly the same as the marginal u t i l i t y of a dollar (or penny) spent on any other good - such as salt. If any one good gave more marginal u t i l i t y per dollar, one would gain by taking money away from other goods and spending more on that good ...If any good gave less marginal u t i l i t y per dollar than the common level, the consumer would buy less of i t u n t i l the marginal u t i l i t y of the~::last dollar spent on i t had risen back to the common level." - Samuelson, 7th ed., op.cit., p. 414. - 88 -explains the behaviour of prices, supply and demand i n the market. The theory of the margin postulates a model whereby the consumer i s sovereign. He ini t i a t e s the responses of the market; the firm responds to the message of the market. The firm cannot act i n a profitable manner except i n accordance with the market. Price and product are as well determined by consumer sovereignty. This 63 concept Galbraith terms 'the accepted sequence'. In contradiction to this Galbraith postulates the concept of the revised sequence whereby he maintains that rather than being sovereign the consumer i s subject: demand and prices are managed by the firm. By this inversion of conventional market behaviour, the market i s superceded and managed by the firm. The management of demand and the setting of prices are a further example of i t s desire to plan the environment i n which i t operates. The implementation of the revised sequence involves not only the persuasion of advertising but also an overall sales strategy. I t consists i n devising a product or features of a product, around which a sales strategy can be b u i l t . These techniques comprise what i s usually termed 'marketing'. 63 "The New Industrial State", op.cit., p. 212. - 89 -By means of the main marketing tool, advertising, a market for a product can be created and the price of that product can be set by the firm irrespective of conventional supply and demand mechanisms because advertising maintains the consumer's demand for the product at an a r t i f i c i a l price. Marketing strategies, i n addition to advertising, involve the use of sales and merchandising staffs and of sales and dealer organizations. They make use of market research and testing to ascertain to what extent the consumer can be persuaded and by what means at what cost. These strategies influence the choice and design of products to ensure that they incorporate features that lend themselves to persuasion. Products, brands and packaging are examined against the c r i t e r i a of persuasion i n order that money and effort may be expended to best effect this end. By these strategies consumer needs are not simply ascertained and f i l l e d thus affirming consumer sovereignty as conventional economic doctrine maintains but rather exploited and developed i n order to meet the needs of the corporation. 64 In treating this subject i n "The New Industrial State", Galbraith employs an analytical structure which i s different 64 op.cit. - 90 -from that employed i n "The Affluent Society". 6 5 In the "Affluent 66 Society", he treated advertising i n a competitive context and i n relation to demand theory and modern want creation. The im-balance between the public and private sectors of the economy, the theme of the book, i s attributed i n part to the persuasion 67 for private goods. However, i n "The New Industrial State" advertising and sales strategy are assumed to have an organic role i n the industrial system. The purpose of demand management i s to ensure that people buy what i s produced and not the reverse. 68 The "invisible hand" of Adam Smith i s by these processes excluded. Production does not follow the need of the aggregate of consumers but the need of the corporation to plan their profits and productive runs. Products are offered which f i t the particular situation of the corporation at that time rather than the corpora-tion adjusting i t s structure to produce the product that the market demands. The advantage to the corporation i s obvious: i t gains control of i t s environment and therefore can plan i t s undertakings. The advantages to the consumer are nebulous at best. Unwanted, 65 op.cit. 66 i b i d . 67 op.cit. 68 This phrase was used by Adam Smith to explain the self regulat-ing character of the market. See "The Wealth of Nations", Modern Library Edition, 1937, p. 423. - 91 -dangerous, and useless products are dumped on the market at prices above even their objective value. The consumer does not have a 69 choice and cannot complain about quality or product ut i l x t y . Galbraith qualifies the concept of the revised sequence. It varies as to the kind of producers involved. It i s greatest where the industrial system i s most developed - where the firm i s large and the technostructure i s i n control. He further qualifies the existence of the revised sequence by admitting the existence of the accepted sequence coexistent with i t . The accepted and revised sequences exist, "side by side i n the manner of a revers-70 ib l e chemical reaction". The accepted sequence xs the rule xn the market system: here the power of the producer i s minimal or nonexistent and therefore the rules of economic behaviour as enunciated i n the traditional textbooks operate. "Outside the industrial system - beyond the limits of the large corporation -71 the accepted sequence s t i l l rules." Furthermore even within the industrial system where the revised sequence operates the consumer may reject the persuasion 69 70 71 Consider the American automobile industry. "The New Industrial State", op.cit., p. 313. ib i d . , p. 212. - 92 -of advertising and other marketing strategies. "That the power to manage the individual consumer is imperfect must be emphasiz-72 ed", he concedes. Ford Motor Company could not sell Edsels and tobacco and soap companies cease production of certain brands where consumer manipulation has failed. Qualified in such manner, Galbraith anticipates that the concept of the revised sequence ought to be acceptable: "In the form just presented, the revised sequence will not, I think, be challenged by many economists. There is a certain difficulty in 73 escaping from the inescapable." But this concept has attracted a substantial degree of criticism for i t attacks the central core 74 of conventional economic thought. Revised sequence part b. If the theory of the revised sequence as set out in part a. is correct then certain assumptions fundamental to explanations of the behaviour of firms in the market are invalid. In the market system where the traditional economic doctrines 72 ibid., p. 313. 73 "The New Industrial State", op.cit., p. 213. 74 See New York Times, June 25, 1967, op.cit., for a criticism. It has also, of course, been attacked by many corporate executives. - 93 -prevail, a firm w i l l seek the maximum pr o f i t from i t s operations. This rule i s expressed i n the economic formula that a firm w i l l seek to produce u n t i l the last unit i t se l l s brings i n extra 75 revenue just equal to i t s extra cost. While modern economists are aware of the imperfections of competition, i t s t i l l remains a fundamental assumption of economic 7( theory that a firm w i l l seek to equate revenue with marginal cost. But i f the attributes of the revised sequence so far delineated are applied to a firm, the aim of pro f i t maximization w i l l not emerge as the primary goal. The control exercised by the firm over the market, as explained i n the revised sequence part a., liberates the firm frcm any need to follow the dictates of the market. No longer are prices set by the market but by the firm. No longer does the rule of the survival of the f i t t e s t compel a firm to seek p r o f i t maximization i n the interests of i t s own survival. The mature corporation i n control of i t s economic environment can then choose i t s goals. The traditional goal of pr o f i t iroximization i s further eroded by the concept of the technostructure. Galbraith assumes that 75 See Samuelson, 7th ed., op.cit., ch. 25. 76 i b i d . - 94 -i t i s an established fact that the mature corporation i s con-troled by i t s technostructure. Also he assumes that the tech-nostructure i s i n no danger of being displaced from power as long as earnings are above a certain minimum. Therefore, he asserts, i t seems remote and contradictory assuming usual patterns of human behaviour that the technostructure w i l l seek to maximize profits only to reward a group extrinsic to i t s e l f when that group 77 78 i s already happy with p r o f i t a b i l i t y at a level below maximum. ' From the viewpoint of this essay the abandonment of pr o f i t maximization i s of considerable importance. Its acceptance by a firm effectively excludes other goals; i t s affirmation i s essential to maintain the conventional economic model of the firm and the explanation of i t s behaviour. But i n view of the various attributes of the mature corporation as already set out, i t i s a logical step i n the construction of Galbraith's model to conclude the abandonment of this goal. 77 Consider that members of the technostructure own l i t t l e or no stock i n the corporation for which they work. 78 This argument i s presented i n "The New Industrial State", op.cit., pp. 130-133, and i n "Economics and the Public Purpose", op.cit., pp. 89-91. - 95 -Corporate Goals If according to the theory of the revised sequence profits are no longer sought to be maximized, earnings are no longer the goal and the market no longer controls the firm's a c t i v i t i e s , there exists a lacuna that must be f i l l e d by another set of values for the firm to pursue. This lacuna i s f i l l e d by what Galbraith 79 c a l l s the "protective purposes" and the "affirmative purposes". These new purposes replace the old ones which are related to the economic doctrines he rejects; these purposes are consistent with the new doctrines relating to corporations that he has set out. The postulation of new corporate goals i s the last act i n the construction by Galbraith of his corporate model; i f a l l the pre-vious concepts he has set out are v a l i d then i t follows that the new structure cannot be motivated by the previous structure's values. He therefore seeks to reveal these new values. It has been stated i n previous sections of this Part that i n the Galbraith model the technostructure i s i n control of the mature corporation and that this corporation i s , wittiin a broad range, free to chose i t s goals as a result of the revised sequence. In 79 These terms f i r s t appear in "Economics and the Public Purpose", op.cit., ch. X and ch. XI, although they are implied i n "The New Industrial State", op.cit. - 96 -this model i t i s therefore within the power of the technostructure to define the direction of corporate activity. The principal "affirmative purpose" i s the growth of the firm. This growth secures for the technostructure several advantages. A large firm i s subject to certain exceptions, better able to control i t s economic environment than a smaller one: the greater the size of the firm the greater the v a l i d i t y of the revised sequence theory. Growth also serves the direct pecuniary interests of the tech-nostructure. Jobs are created by expansions and therefore promotion chances are greater. As annual gross revenues increase so do chances for benefits expressed as a percentage of that revenue. "The scale of his office and the excellence of i t s furnishings are enhanced; his access to private lavatory and company plane are assured. So 80 i s his reward from employee obeisance and peer group homage." Growth, Galbraith points out, rewards the person responsible 81 for i t . A division of a company that shows exceptional growth i s noticed by other divisions, comments are made and management at the highest level i s made aware of the achievement. Growth, he maintains, i s accomplished not only by expanding 80 "Economics and the Public Purpose", op.cit., p. 101. 81 i b i d . > - 97 -existing sales ranges or by inventing new products but also by 82 a policy of acquisition. Such acquisition i s effected by the conventional techniques of merger and amalgamation and by the recently more popular technique of conglomerate merger whereby the acquisition of voting control of one corporation by another i s done with the purpose of leaving the former's technostructure and product l i n e intact. This type of merger was most spectacu-l a r l y and successfully employed by ITT which rose from fourty-seventh place i n 1961 among the Fortune 500 industrials to nineth 83 place i n 1973. Growth in these cases has no relation to earn-ings, the traditional yardstick. I t i s a function of the power 84 of the technostructure of the firm. Galbraith does, when setting out the goals of the firm, concede that the level of earnings as well as the size of the firm ought to grow annually: "A rate of earnings that allows, over and above investment needs, for a progressive r i s e i n the dividend rate w i l l also 82 "Economics and the Public Purpose", op.cit., p. 103. 83 Fortune, op.cit., p. 232. 84 The glamour of conglomerate merger may be waning; the tech-nostructure w i l l develop other ways to express i t s e l f , however. - 98 -regularly be a goal of the technostructure. This return must not be achieved by prices which would prejudice growth." 8 5 But this concession to earnings as a goal only emphasizes i t s subordination to the primary one of growth. The concession to earnings by the technostructure introduces his concept of the 86 protective purposes engaged in as goals by that body. The tech-nostructure follows a corporate policy that ensures i t s existence (as discussed under "revised sequence part a.") and i t s freedom from outside interference. There are a number of sources of outside interference; from the point of view of this essay the stockholders are the most important. Given seme basic level of earnings stockholders are quiescent. Even i f a takeover bid i s made, an appeal to the stockholders can be made to re s i s t the bid on the basis of the past earnings record of the ccmpany. Although earnings are a primary protection purpose of the technostructure, this goal i s quite different from the p r o f i t maximization aim of the neo clas s i c a l firm. In the mature corp-oration earnings are planned for a certain level to effect a 85 "The New Industrial State", op.cit., p. 178. 86 The protective purposes of the corporation are set out i n "Economics and the Public Purpose", op.cit., ch. X. - 99 -certain goal; there i s no a l l out cotraitment to profits i n obedience to the dictates of the market. The important fact i n considering the new goals of the mature corporation i s that i n contrast to the neo classical firm where there was but one goal - profits - however modified by the r e a l i t i e s of the marketplace i t might be, i n the mature corpora-tion there are several goals. These goals are set by the bureau-cracy of the firm i t s e l f ; they do not derive from stimuli external to the firm. The nature of these goals simply reflects the facts of power; as the technostructure possesses the power i n the firm i t controls the direction of the firm's a c t i v i t i e s . These a c t i v i t i e s , there-fore, are concerned with the protection and continuance of the technostructure i n power - the maintenance of the status quo. i v . model Galbraith does not specifically focus on a model of general meetings of shareholders i n the modern industrial corporation 8 although he does at several points comment on their significance. Nevertheless there i s implicit i n his general model of corporate 87 These carments w i l l be noted i n Part V.. - 100 -behaviour a model of these meetings; this section brings to-gether i n a short summary those elements of his theory, already set out, which define the general meeting. The knowledge, power and control i n Galbraith 1s model rests only with the technostructure because of technological imperatives 88 and cannot because of these imperatives rest elsewhere. Because the technostructure possesses those attributes of knowledge, power and control i t determines goals for the corporation which are con-sistent with i t s own character. These goals do not refl e c t the dictates of conventional economic theory such as p r o f i t maximiza-tion and competition. The general meeting of the corporation i s placated by an annual return on i t s investment of a reasonable 89 amount, set by the technostructure, but below an amount that would result from pr o f i t maximization. Nevertheless even i f the meeting rejected i t s quiescent role and sought decisive p a r t i c i -pation, planning and the other effects of the technological 88 Galbraith i s blunt about the role of shareholder meetings: "The shareholders...have no function. They do not contribute to capital or to management." - "Economics and the Public Purpose", op.cit., p. 272. 89 Galbraith terms this process, "The euthanasia of stockholder power". See "Economics and the Public Purpose", op.cit., p. 272. - 101 -imperatives would preclude that role i f the corporation i s to remain a viable commercial entity i n the complex environment i n which i t functions. Under this model the general meeting i s a useless appendage of the corporate structure, tolerated but shorn of any power, placated by reasonable dividends and compelled by the nature of circumstances to remain that way. - 102 -rv i . introduction Part II of this essay has examined the devices and assump-tions of company law in order to construct a model of the annual general meeting according to its principles. Part III has ex-amined the thought of economist Galbraith in order to set out his model of the annual general meeting. These two models reflect the different interpretations taken by the intellectual disciplines of law and economics respecting phenomena observed by both - the behaviour of corporations. In this Part the two models of the respective disciplines will be examined together to discover i f the behaviour they assume is similar or identical. This examination will be carried out by comparative analysis The devices, assumptions and machinery of the legal model will be applied to the model as constructed according to economics to see i f they are at applicable to the functioning of the economic model or are viable within that model. The assumptions, too,.of company law will be compared to the character of the economic model. In this manner discrepancies between the two constructions will be apparent. i i . comparison Although the doctrine that the will of the shareholders is the will of the ccmpany has not reflected the positive law since the - 103 -CXiruiinghame decision, the concept i s part of the assumptions of company law and appears as the doctrine that the annual general meeting i s a primary organ of the company. Shareholders are recognized as the owners of the company i n law and this condition i s reinforced by the affected subservience of management by such typical remarks as: "Unfortunately i t i s the interest of the stockholder that we must consider." or "I must answer to the board of directors." The directors themselves when addressing the shareholders speak of "your company" i n deference to the pro-pr i e t o r i a l tradition and shareholder primacy. Implicit acceptance of the doctrine that the shareholders are the company i s given further reinforcement by the recent popularity of shareholder campaigns to alter the behaviour of large corpora-tions. If corporate behaviour i s sought to be altered by sharehold-er action, i t i s assumed that the w i l l which controls that behaviour l i e s with the shareholder. I t i s not simply that these campaigns use the annual general meeting for publicity, which they certainly 1 op.cit.. I modify this statement to the extent that, as discussed earlier, under the Business Corporations Act residual power probably rests with the shareholders. In this Part, to preserve simplicity, I w i l l not c i t e the authority for the attributes of the two models as these authorities have in the previous two Parts been cited. - 104 -do, but that they also are carmitted to the idea that the w i l l of the company resides i n the annual general meeting. Whenever the oomponents are lacking i n the positive law to support this belief, they are supplied by a reliance, whether conscious or 2 not, on the general tenets of company law assumptxons. Galbraith's development of the concept of the technostruc-ture effectively destroys the assumption that the w i l l of the shareholders i s the w i l l of the company or that residual power rests with the shareholders either as a descriptive or prescrip-tive statement. Galbraith has demonstrated that i n a mature corporation power and control are attributes of the technostructure. The c c l l e g i a l decision-making by this group extends to a l l aspects of corporate behaviour; i t alone, i n fact, determines from within i t s hierarchy a l l corporate acts from routine decisions of a daily occurance, which i t delegates to i t s lower orders, to corporate acts of the most fundamental nature which are decided by committees of i t s senior members, i n this model the shareholders are not the w i l l of the company; there i s not even a fragment of that w i l l vested i n the c o l l e c t i v i t y of shareholders. Residual power i s not 2 See Part II, section i v . for these assumptions. - 105 -at a l l attributed to them. Nor can these propositions be sustained 3 as normative statements. The technostructure has not usurped power from an unwilling general meeting. Rather in Galbraith 1s model the general meeting has willingly allowed the technostructure to assume absolute power and control. This assumption of power i s necessary because of the nature of the mature corporation wherein complex decision-iriaking need be centralized i n a professional and educated body. Any attempt to vest, even i n part, decision-making outside this body, for example with the general meeting, w i l l result i n substandard performance by a firm. Therefore, i t i s not possible to return control of the modern corporation to the general meeting by forcing i t from the hands of the technostructure; the mature corporation by definition can only be organized around a techno-structure vested with absolute power. Whatever tenets of legal principle or policy that relate to the w i l l of shareholders or residual shareholders' power and their deri-vatives such as shareholder democracy or shareholder campaigns are therefore destroyed by an acceptance of Galbraith' concept of the technostructure. For the w i l l of the ccmpany cannot reside i n a body that possesses neither control nor power and even i f such control or 3 I use 'normative' i n the sense of what ought to be. - 106 -power were granted to i t by legislation, the annual general meeting would be unable to employ i t because of the nature of that body's relationship to the corporation. Legislation gives to the shareholder the right to vote at annual general meeting; this right can be exercised to elect direc-tors and approve certain acts of the company or i t s agents. Perhaps even the by-laws, articles or unanimous shareholder agreement of the corporation might alter this right of voting i n favour of the share-holder by devices such as cumulative voting, voting trusts or others. •If the concepts of the technostructure and the imperatives of technology as postulated by Galbraith are accepted, i t does not matter what voting structure i s used. The technostructure has power which i s derived from knowledge and active participation on a daily basis i n the corporate decision-making process. In the mature corporation no meeting of shareholders ccming together annually can possess even a fraction of the knowledge and experience of the technostructure. As well as lacking the required knowledge, the annual general meeting as a body of shareholders numbered in the tens of thousands or even i n a few cases i n the millions, composed of diverse interests and meeting infrequently i s unlikely to ever gain the cohesiveness necessary to pronounce clearly on an issue or to develop one voice in opposition to the technostructure. - 107 -However, even i f a general meeting did develop a single voice or cohesiveness, perhaps by cumulative voting, one share-holder owning a large block of shares or several institutional investors uniting on certain issues, the power inherent i n the knowledge that i s possessed solely by the technostructure pre-cludes that voice from speaking i n an informed manner. The gen-eral meeting may act decisively, but i t s action w i l l lack the power of knowledge. Therefore, the concepts of Galbraith negate any advantage sought from the hrplementation of special consti-4 tutional voting provisions altering the usual voting methods. The consequences of the tedrlmostructure1 s existence i n the mature corporation that negate the advantages sought from voting devices or other means, also profoundly effect the most funda-mental of shareholder acts - the election of directors - even i f no such devices were to exist. The election of directors i s the most important of the annual general meeting's a c t i v i t i e s ; i t i s the strongest claim the shareholders have to participating i n any way i n the corporation's a c t i v i t i e s . The proponents of share-4 It i s assumed here that the intent of the shareholder i s i n the v i a b i l i t y of the corporation. These devices certainly do give the shareholder power. My point i s that i f that power i s used regularly, because i t i s power without know-ledge, the corporation w i l l suffer. - 108 -holder democracy behave as, though the directors control the 5 company's ac t i v i t i e s during their tenure and seek to infuse i n -to the directors' elections at annual general meetings an element of drama and suspense by assuming that by means of the ballot, the general meeting as a c o l l e c t i v i t y i s choosing the directors and therefore controlling the ccmpany through the directors. Such behaviour i s completely i n accordance with the legal model of an annual general meeting whereby the various statutes make i t man-datory that there be elections for directors and that the share-holders exercise the franchise. What therefore are the conse-quences of the technostructure's existence on these elections? The directors are i n fact elected by the technostructure. The senior members of the technostructure decide who from their number w i l l become a member of the board and who from outside the corporation w i l l become a director to give the board an appearance of objectivity and dignity.^ This practice has developed, 5 Technostructure power challenges this assumption as well; however, this problem i s beyond the scope of this essay. 6 Consider the board of Massey-Ferguson Ltd.. It contains no less a personage than the Duke of Wellington. - 1974 Annual Report, Massey-Ferguson Ltd. Without the benefits of nobility, American boards seat retired generals and former politicians. - 109 -according to Galbraith, because as already demonstrated the technostructure possesses the power and knowledge i n the corpor-ation. Its members, therefore, must s i t on the board to ensure that the board's directives are i n accordance with the techno-structure's wishes. This process of self perpetuation i s poss-ible because the directors usually ncminate their successors to 7 the Board: the technostructure, therefore, ensures through i t s representatives on the board that the ncminees for election are g i t s ncminees. The shareholders acquiese i n this de facto 7 In law exclusive licence i s not given to the board. Share-holders may at a meeting ncminate directors. Under the Companies Act, s.133, at least 10 percent of the sharehold-ers may ncminate a director before the meeting and under the Business Corporations Act, at least 5 percent may do so. 8 T.K.Quinn, a vice president of General Electric said: "In General El e c t r i c , the election of directors was only formalized at stockholders meetings. The directors were in every case selected by the officers." This was early i n 1953. -"Giant Business", 1953, p. 106. In 1970 at the annual general meeting of G.M. the following exchange took place between proponents of Campaign G.M. and James Roche then chairman of G.M.. Barbara Williams, black law student: "Why has no black person been nominated to the board?" Roche: "No black has been ncminated and no black has been elected. Our directors are elected by our stock-holders ." Williams: "How are they ncminated?" Roche: "They are ncminated at the annual stockholders meet-ing just as they were today." - 110 -diserifranchisernent because they are interested primarily i n financial return and the technostructure has ensured that this desire i s satisfied. Even i f the shareholders were to rebel and attempt to elect their own ncminees as they may under the legal model do, 1 0 these, i f elected, would not have the re-quired expertise to manage the corporation successfully and would therefore cause the corporation to cease generating earnings; the shareholders would then return to electing mem-bers of the technostructure i n the hope of a return to profits. The election of the directors at the annual general meeting by the shareholders has become a "solemn farce"''""'' i n the mature corporation. I t , the most important of annual general meeting functions, i s a form without substance; i t i s a r i t e performed only to accord with the dictates of the legal model. Harry Huge: "You nordnate the board of directors..." Roche: "I can make my recxmmendations." Huge: "Have you ever had a reccmmendation that wasn't acted on favourably?" - quoted i n Mintz & Cohen, "America Inc.", op.cit., pp. 40-41. 9 ' See supra p,...98. 10 See Schwartz, op.cit., under the heading, "Focus on Institutions - A Time of Testing", wherein he asks the large shareholders to vote for Campaign G.M. rather than management - to no avail. About two percent of the total shares voted were cast for Campaign G.M.. 11 Gower, op.cit., p. 500. - I l l -The above comments on the election of directors has assumed the absence of the proxy system. This system, whereby a share-holder who i s unable to attend may appoint a proxy to act i n his stead at the meeting, i s intended to restore power to the share-holders at the annual general meeting. But i n fact i t accom-plishes the opposite. Even i f two-way proxies are mandatory by statute, the vast majority of shareholders w i l l complete their proxy i n management's favour for the same reasons that i f they were to attend i n person they would vote for management. The proxy system cannot infuse new l i f e into the annual general meet-ing simply because the majority desire to vote for management. The proxy system does not favour management because i t contains procedural or structural defects of a nature to impede expression of the shareholder's w i l l ; i t favours management because the w i l l of the shareholder i s expressed: an expression i n favour of manage-ment. I t does not matter, therefore, i f the proxy system i s modi-fied by statute to weigh i t more i n favour of the c o l l e c t i v i t y of shareholders as against management. One way to make the annual general meeting more substantial would be to abolish the proxy system outright. Shareholders would have to attend to vote. Because the share holdings of management are very small and dissident shareholders usually attend the meet-ing anyway, deliberations at the meeting would be c r i t i c a l . However, - 112 -this suggestion i s undemocratic i n i t s implications to a l l share-holders; most are unable to attend. Therefore consideration of the procedure and structure of proxy systems i n attempts to increase the expression of the share-holder 's w i l l i s , i f Galbraith's concepts are accepted, i l l con-ceived. The shareholder i s unwilling to disturb a profitable 12 relationship and i f he were so willing would be unable to successfully manage the corporation himself. If the election of directors at annual general meetings by shareholders i s a r i t e unrelated to rea l i t y , the approval by shareholders of the by-laws passed by the directors during the year i s even more so. By-laws are essentially internal regula-tions of a company; they stand i n a close relationship with the daily activity of the company. Rather than being matters of general policy or fimdamental i n nature, they are particular and specific rules. The vast majority of shareholders don't know of 13 their existence and certainly not of their import. Yet the 12 The "euthanasia of stockholder power", supra, p. 100. 13 I make this statement as opinion. I have not yet discover-ed an empirical analysis of shareholder knowledge and attributes - i t s results would be, I think, quite fascinat-ing. - 113 -annual general meeting i s required by statute to approve them and this right under the Business Corporations Act has been broadened to include rejection and amendments or proposals of new ones. If the technostructure concept i s accepted, a l l the argu-ments that have been made to establish that the election of directors i s a form only, apply with even more force to the approval, rejection, airiendment or proposal of by-laws by the general meeting. Such approval shorn of substance can be formal only. The shareholder proposal mechanism also f a l l s under the same limitations as the by-law requirements. But the proposal devices appear to defy, even more than those mechanisms res-pecting by-laws, the Galbraith model. As might be possible under 14 the Business Corporations Act, shareholders i n annual general meeting may decide, pursuant to a shareholder proposal to that effect, to instruct the company to carry out a specific business 15 action that contradicts the technostructure's decision on that 14 See supra, pp. 46-50. 15 I mean here what normally are considered business decisions. Consider shareholders instructing Canadian Pacific Ltd. to have CP A i r purchase Boeing 747 a i r c r a f t rather than - 114 -action. In this way the annual general meeting can overrule the technostructure at w i l l on a specific action Through the proposal mechanism the general meeting possibly possesses residual power in a company under federal legislation. But i t has earlier i n this Part been demonstrated that the exercise of a residual power by the general meeting i s a f u t i l e and meaningless gesture, assuming the company i s to remain economically viable. Even i f the Courts decide that shareholder proposals cannot relate to those powers vested i n the directors, deemed as "manage-ment", whatever powers remain within the competence of this mechanism s t i l l are at best an annoyance to the actual control group i n the corporation. In these terms the expanded shareholder proposal mechanism i s anomalous to the Galbraith model of the general meeting. It i s an interference to the planning that must proceed guided by Lockheed L-1011's because of i t s superior economy and a i r worthiness - what i s normally considered a business decision -but stockholders may instruct Cominco to preserve the envir-onment at i t s T r a i l smelter - a decision which has business effects but which i s more i n the nature of a value judgment. Clearly this definition i s subject to overlap as Campaign G.M. and the Medical Ccmmittee discovered but for purposes of analysis here they are assumed to be definable. The next paragraph relates to the second category. - 115 -the technostructure i n accordance with the imperatives of tech-nology. From the preceding analysis of the application of Galbraith 1s concepts to the established legal model i t i s apparent that any attempts by the shareholders to affect the decision-making pro-cesses of the corporation w i l l be thwarted by their status as non active participants i n the corporate entity. Therefore the further rights given by the legal model to the general meeting, such as the right to approve constitutional alterations, mergers, amalgamations, liquidations and dissolutions, w i l l be negated by the same argu-ments that are used to negate the right to elect directors: the technostructure alone i s sk i l l e d to make these decisions. With respect to the category of rights affecting charter alterations, etc. the principle of technostructure power i s very strong; these rights involve fundamental business decisions. As with the powers of by-law enactment they are not merely a question of regulating the gen-eral policy of the corporation; they relate to specific decisions that can only be made in a sk i l l e d manner when data possessed by the corporate adrrinistration i s employed. The decision of merger or amalgamation i s a business decision. The question whether the corporation can improve i t s financial position may only be answered by those whose daily activity gives them access and familarily with the requisite information. - 116 -C4albraith's concept of the imperatives of technology, while interrelated with that of the technostructure, can i n application to the shareholders 1 rights respecting mergers, etc. be usefully separated from that other concept. Technological imperatives colour many of these decisions with a high degree of technical consideration. Decisions become not only business decisions but also decisions which require the assistance of technical experts to explain i n many cases even the outline of the decision. Effects beyond the grasp of even the sk i l l e d businessman are inherent i n such decisions; therefore, the committee system has evolved to cope with these situations. Only the particular committee involv-ed can offer any semblance of an informed comment on many of the decisions respecting mergers, etc. which involve technical consid-erations. These technical considerations are not only of the sc i e n t i f i c or technological type but also of the type that requires degrees of financial, legal and other business s k i l l s . Therefore, the concept of the imperatives of technology alone precludes an informed decision by the annual general meeting on matters of mergers, amalgamation, charter amendments, liquidations and dissolutions. The revised sequence, whereby the mature corporation i s not subject to the laws of supply and demand and does not seek maximi-zation of profits but i s rather the creator of market conditions - 117 -and consumer demands, attacks seme of the furjdamental assump-| tions of policy concerning the existence of the annual general meeting. The implementation of new corporate goals consistent with the revised sequence further reinforces this attack. The shareholders as owners of the corporation i n the sense of ownership as qualified by the legal model convene i n annual general meeting by statutory right i n their capacity as owners and because they are owners. Shareholders are distinguished i n law as having rights i n the ccmpany as well as against the ccmpany; debtors have only a contractual right against the company. Debtors do not convene i n annual general meeting. Shareholders also have the right by statute to receive financial information on the activ-i t i e s of the corporation and to appoint the person who w i l l obtain for them that information: the company auditor. The legal model considers that the shareholder as owner, although he may not possess a l l the attributes of ownership, and as the supplier of the ri s k capital, has special rights i n relation to the corporation to know in detail i t s financial position and to meet to discuss this position and give direction to the corporation on the basis of that financial 16 information. Although nowhere stated i n the law, the assumption i s 16 The r i s e of the position of the ccmpany auditor i n ccmpany law reflects this. - 118 -that the shareholder i s an owner-capitalist who seeks the 17 maximum return on his investment. He has taken a chance on a venture i n the nature of trade; this venture i s , for him, exclusively a corimercial undertaking whose goal i s pr o f i t . The law accordingly has granted him the right, through financial disclosure and mandatory assembly, to enforce this goal. The employees of the corporation may bargain at w i l l under the law of supply and demand for the highest salary they can cornmand, but the employees are to the owner merely another cost on the balance sheet; the profits of the venture are to accrue to the owner. Galbraith contends that the technostructure, a class of corporate employees i n the legal model, determine the goals of the corporation. Profits, except i n a limited sense, are not part of these goals. Because control has shifted from the owner-shareholder to the technostructure i t i s within the power of this body to determine the corporate goals. The affirmative and pro-tective purposes i t sets for the corporation relate to i t s own existence. The interests of the shareholders are not considered nor are the shareholders consulted as to the determination of these 17 The proprietorial character of the general meeting i s discussed i n Part II, section i i i . . - 119 -goals except i n a r i t u a l i s t i c fashion after the fact. If the goals are determined from outside the shareholder group and without i t s approval and prior consultation, and profits are no longer the primary goal or even a major goal of the corpor-ation, then the entire structure assumed to j u s t i f y the existence of the annual general meeting f a l l s . The shareholder, i f he cannot determine the goals of the corporation, can i n no sense at a l l , not even in the qualified sense of the legal model, be considered an owner. If profits are no longer the aim of the corporation i n which he has ventured his capital for the sole aim of pr o f i t from trade, he no longer i s i n any sense a c a p i t a l i s t or risk-taker seeking maximum pro f i t as the reward against complete loss of his capital. Under the legal model the shareholder s t i l l loses a l l his capital upon the failure of the venture. The traditional counterweight to this p o s s i b i l i t y was participation i n a l l the gains. But that has been removed by the intercession of the technostructure. The role and definition of the owner-capitalist shareholder i n law i s no longer v a l i d under the corporate model of Galbraith. Shareholders no longer have a reason to convene i n annual general meeting i f the goals of the corporation are already set; they no longer need receive financial information to use as the basis of informed decisionmaking i n the corporate process i f i - 120 -those decisions have already been made. M l the machinery of the annual general meeting to reinforce the shareholder's a b i l i t y to express and impose his decisions on the corporation i s useless i f the decisions have already been made. Even i f these decisions had not been made and were expressly granted by statute to the shareholder to be made at the annual general meeting, that statutory machinery would be useless because only the techno-structure enfranchised by the imperatives of technology can make an informed and therefore useful decision. > - 121 -V i . introduction In Part IV of this essay, by a process of comparative analysis, discrepancies between the legal model of the annual J general meeting and the economic model, were indicated. The legal model was shown not to reflect the corporate conditions as they are approximated by the economic model. The legal machinery surrounding the annual meeting was demonstrated, i f the economic theory were accepted, to have no function i n the modern corporation. This machinery includes substantive devices such as elections, approvals and disclosure as well as the pro-cedural trappings of the meetings such as the proxy and share-holder proposal systems. These devices are not invalidated by the comparative analysis that has been made i n that the law setting them up i s validly enacted and therefore they exist both i n legal theory and i n fact. The conclusion to be drawn i s rather that although they do exist i n legal theory and therefore i n fact, they lack a basis i n substance. The actuality of corporate l i f e (as interpreted by the economic theory assumed by this essay) does not correspond to the description inherent i n the legal devices respecting meetings. These devices have begun to possess an existence of their own independent of corporate behaviour. They have become formal and ceremonial, devoid of substance and meaning. - 122 -It i s the intention of this Part of the essay to cxmrient on the anomalous situation revealed i n Part IV. This ccmmentary w i l l involve a consideration of the benefits and costs to the company law system and to the parties directly involved i n that system as well as possible new legal devices. i i . benefits - individuals To the parties involved i n the system, shareholders and management, the fact-legal theory discrepancy does not seem to cause too much concern."'" Management might even find i t useful to maintain aspects of this discrepancy. By the f i c t i o n of share-holder control management can continue relatively unmolested to 2 direct the corporation i t s e l f . If legal theory clearly allocat-ed a l l powers to management, they could not assume the cloak, as they presently do, of merely serving the "owners" and would be held accountable for a l l the vicissitudes of corporate existence and would be clearly identified as being charge with that 1 See Hetherington, op.cit., p. 253; Rostow, "To Whom and for What ends i s Corporate Management Responsible", i n Mason, ed., op.cit.; Manning, 67 Yale Law Journ. 1476 (1958) at 1486-1487. 2 See supra, Part IV, footnote 4 for an example of this technique. - 123 -accountability. Shareholders also feel no need to revise legal theory to align i t with corporate l i f e . For the smaller shareholder a degree of participation i n accordance with a l i t e r a l application of the ownership f i c t i o n would place on them a much greater work burden. The return on shareholder investment i n corporations since the end of World War II has been good both from distribu-tions as dividends and as capital appreciation. If disenchanted with management or with the performance of the corporation i n which he has invested, the shareholder need only s e l l his shares on the stockmarket. The stock brokerage industry has made his 4 relationship with the corporation easily alienable. Even the large institutional investors, who possibly have the financial and other resources to exercise the powers inherent i n their role under legal theory, do not behave in a manner much different from 5 the small shareholder - they continue to vote for management. 3 I am not suggesting that at present anyone would fault the shareholder i f for example a company failed; I do suggest that management attempts to cloak i t s own acts with the master-servant f i c t i o n . 4 "Of a l l those standing i n relation to the large corporation the shareholder i s least subject to i t s power...the market affords Iriim a way of breaking this relationship that i s simple and effective." - Chayes, "The Modern Corporation and the Rule of Law", i n Mason, ed., op.cit., p. 40. 5 For a criticism of this behaviour see Schwartz, op . c i t . , - 124 -A convincing i l l u s t r a t i o n of the ccmplacency and content-ment of the shareholder both individual and institutional i n the modern large corporation i s the result of the efforts of Campaign G.M.. Directed by ski l l e d and committed persons and related to generally accepted social goals, the shareholder proposals put forth by this group at the annual general meetings of General Motors i n 1970 and 1971 managed to secure less than 3 percent of the vote at each meeting. i i i . benefits - law The foregoing description summarizes the contented nature of management and shareholders i n large corporations. But can i t therefore be inferred that the paradoxes and anomalies of corporate behaviour and legal theory are best l e f t undisturbed? Can i t be said that because the system seems to work to the satisfaction of the interested parties i t i s a viable system or at worst a harmless anomaly? Might i t not be noted that anomalies are part of any legal arrangements; that the law has never been known to be purely rational p. 66 et seq.. 6 Schwartz, op.cit., p. 59, note 11. Galbraith notes this result as to be expected. He comments on Schwartz c i t i n g 3% as a victory for Campaign G.M.: "He i s too easily pleased." - "Econcmics and the Public Purpose", op.cit., p. 218. - 125 -and cannot be expected, given i t s prescriptive nature, to be based on actual conditions too closely? The answer i s no. The deeriptive aspect of law, which i s the subject of a critique by this essay, must refle c t the nature of the phenomena that i s sought to be prescribed. The dynamics of the relation between the shareholders and management at the interface of the general v meeting and the actual dynamics of corporate behaviour must be understood before i t i s possible to construct a legal model that 7 8 w i l l effectively prescribe those phenomena. Despite the lack of shareholder and management concern and despite the apparent absence of d i f f i c u l t y i n the case law, this discrepancy has been costly for the development of company law i n many other ways. The idea that the locus of corporate power ought, either i n whole or i n part, rest with the annual general meeting has been a persistent theme i n corporate literature for over 9 thirty years and has led to a great deal of time and effort. It has produced a preoccupation, as reflected by recent statutes as 7 I use 'prescribe' i n reference to the prescriptive aspect of law. 8 See Hetherington, op.cit.,. p. 272 for a similar conclusion. 9 The debate began, probably, with the publication of "The Modern Corporation and Private Property", op.cit., or at least the book i s a convenient marker. - 126 -well as writings, with the reuniting of ownership and control and obscured the factual nature of the relationship between the shareholders, the corporation and rranagerrient. Earlier i n this Part the apathy of shareholders to Campaign G.M. was noted as i l l u s t r a t i v e of their contentment and their acceptance of the fact-legal theory discrepancy. As also noted the leaders of Campaign G.M. and other shareholder movements have lamented this apathy and claimed i t as a cause of the lack of effectiveness of shareholder movements. This lin e of reasoning i s i l l u s t r a t i v e of the dangers inherent i n the failure to appre-ciate the nature of the fact-legal theory discrepancy. Even i f shareholders had r a l l i e d behind the various shareholder causes and compelled, by means available to them i n annual general meeting, the corporation to behave i n the manner desired, the result would not simply have been a triumph for shareholder democracy and corp-orate responsibility but as well possible bankruptcy or at least a non-competitive market position. This result i s dictated not by the mere fact of managerial ascendancy but by that ascendancy being grounded i n a real base of knowledge and s k i l l , as Galbraith points o u t . 1 0 Shareholder movements opt for the legal model of the 10 See Part III of this essay. Gower also supports non-interference by shareholders. Gower, op.cit., p. 499. - 127 -corporation and either ignore or are ignorant of the actual corporate structure. Their behaviour i n this sense i s a speci-f i c example of the danger of the existing legal model. The didactic influence of law and legal theory cannot be ignored. i v . alternatives By several examples given i n the previous sections, i t was indicated that both management and shareholders for the most part are satisfied with the existing structure although anomalies exist between fact and theory. It also has been indicated that a policy of laissez-faire with respect to these anomalies, notwith-standing the acquiescence of the main parties involved, i s undesirable. These statements suggest a conclusion proposing a remedial course of action. Any course of action involving an alteration of the law relating to general meetings would have grave consequences for company law i n general. It would involve consid-erations not only of ccmpany law principle but also of i t s policy;''" such an undertaking ventures into waters almost uncharted by pre-sent ccmpany law scholarship. 11 See Wedderburn, op.cit., at p. 3, for a criticism of the failure of attempts at law reform to do so; he specifically singles out the Cohen and Jenkins Reports. - 128 -Before such radical surgery, radical to lawyers that i s , i s considered there remains the poss i b i l i t y that i f ccmpany law i s not to be remolded to f i t facts, the facts may be remolded to f i t the theory. This i s not as far fetched as i t might sound. The new industrial state so lovingly described by some, i s by others regarded as an aberration and a perversion. Most dis-cussions of the modern corporation assume that bigness with i t s concarmitant characteristics of managerialism and sophistication i s a permanent feature of modern industrial and financial systems. It i s true that the trends, i n the ecororry now are to larger and more complex industrial and financial units. On the industrial side the merger movement and the emergence of the conglomerate during the last fifteen years and on/the financial side the hold-ing ccmpany movement demonstrate the capacity and propensity of 12 big business for diversification and expansion. Galbraith i s a leading exponent of the view that business must be big and the concentration of economic power must be accept-ed. He not only provides i n his books a description of the modern industrial system but an apology for i t as well. In fact he i s probably the leading exponent of the "bigness" imperative. As such 12 To what extent conglomerates retain their glamour i s debatable. - 129 -he has been the target of considerable criticism by those who seek to establish that business need not be big to be successful and that the scale of the modern corporation i s too large. These parties not only include the traditional antitrust advocates but also include such diverse elements as the "New Left" and conserv-ative factions who wish to return to a capitalism of smaller independent business units. Ironically, for Galbraith, many of the newest technological developments have permitted smaller com-panies to compete successfully against the established giants. This i s true not only i n the electronics industry but also i n the larger business arena where time sharing for computers has permitt-ed advanced research to be carried out by the smallest firm as 13 well as simplifying their adrrunistrative procedure. Whether i t i s possible or desirable, from the point of view of considerations other than that of the annual meeting, for business to fragment even i n part i s a question beyond the scope of this essay. I t i s sufficient to state here that before any reform of this area of company law i s considered, account must be 13 See Mintz and Cohen, "America Inc.", op.cit., pp. 55-57 for a summary of arguments against the idea that bigness i s best. Also for a biased but hard hitting account of the costs of bigness see Green, Moore and Wasserstein (Nader Task Force), "The Closed Entreprise System", 1972. - 130 -taken of the poss i b i l i t y that others may succeed i n their desire to reform the structure of the economy by fragmenting the pre-sent large business units into smaller ones which from the company law point of view probably w i l l eliminate the discrepancies be-tween annual general meeting theory and fact. It i s i n this sense that fact might be remolded to f i t theory. There i s another poss i b i l i t y whereby under the existing legal model the annual general meeting would assume i t s role i n fact. Institutional investors such as mutual funds and other investment companies, non-insured private pension funds, insurance companies, bank trust departments, and the endowment funds of non p r o f i t institutions are important shareholders i n major corporations. They have been growing faster than the economy as a whole and they have been investing an increasing proportion of their assests i n stock.^ It might be argued that these entities, reversing the trend to fragmentation of shareownership, possess the time and financial resources to oversee management, make decisions at annual general meetings and act generally as shareholders under the legal model. 14 See "Symposium-Mutual Funds as Investors" 115 Pa.Law Rev. 669. - 131 -So far they have not, for the most part, done so. They have aligned themselves with management much in the way as the small-er shareholder has done. Whether they can possess the requisite technical knowledge to make decisions involving the general management of corporations remains as yet undecided. The possi-b i l i t y nonetheless remains that given their size and growth they may develop the expertise and control of shares necessary to act as a shareholder i n the legal model and negate the Galbraith imperative for shareholder behaviour. Assuming that the landscape of modern business i s not going to be rearranged to comprise smaller units or that powerful c o l l e c t i v i t i e s of shareholders are not going to emerge and assum-ing, as has been discussed earlier i n this Part, that i t i s undesirable to have ccmpany law at variance with corporate behaviour i t follows that some reform or alteration of ccmpany law ought be attempted to remedy this anomalous situation. The situation has not gone completely unnoticed by Ccmpany Law 15 commentators hence there exist seme suggestions as to what ought to be done. Some of these suggestions include making the 16 meeting a preliminary to voting which takes place afterwards. 15 See Introduction p. 3. 16 Gower, op.cit., p. 500. - 132 -If this were done shareholders could consider the issues on both sides and then cast their ballot at some later time after con-sideration. Voting, being the control issue of the meeting, has came under f i r e . Same would abolish completely the shareholder's 17 right to vote or abridge that right. Others suggest that as the shareholder i s i n effect an investor greater disclosure i s the end that ought be pursued, thus by implication emphasizing his role as an investor and not as an owner. Recent developments in Company Law statutes have begun to redefine the nature of the annual general meeting by introducing seme changes i n i t s nature and i n doing so raise the question of i t s outright abolition. The Business Corporations Act permits a meeting to be eliminated by a resolution i n writing signed by a l l the shareholders entitled to vote at that meeting and dealing with 19 a l l the matters that would came before that meeting. The 17 Manning, op.cit., pp. 1486-1490. Chayes, op.cit., pp. 40-41. Berle, "Power without Property", 1959, pp. 48-110. 18 Wedderburn, op.cit., p. 13. Slutsky, "The Division of Power between the Board of Directors and the General Meeting", op.cit., pp. 190-192. 19 Business Corporations Act, s.136(1). Companies Act, s.163, grants a similar right but limits i t to companies that are not reporting companies. - 133 -Proposals Commentary states that this provision i s intended for use i n a one man company or a small company where meetings i n practice are not held but the commentary adds: "The principle of the section applies of course to corporations with more than one 20 shareholder." Clearly such a provision could not be used i n 21 a large corporation with many thousands of shareholders and i t i s not intended for use i n such a corporation, nevertheless this provision i n the Business Corporations Act represents an admiss-ion that the annual general meeting i s not suited for a l l cases. Once that admission i s made the case for eliirrlnation or modifi-cation of shareholder meetings i n large corporations can be made. American statutes, i n a number of states, also now contain provisions whereby the annual general meeting may be waived. These statutes permit shareholders to act informally and without 23 a meeting by signing a written consent. Under most statutes 20 Proposals Commentary, para. 287. 21 General Motors had i n 1971 approximately 1,350,000 share-holders. - Schwartz, op.cit., p. 67. 22 I do not believe this implied admission i s intentional. The thrust of the new federal legislation, as has been demonstrat-ed i n Part II, i s to a greater importance of the annual general meeting. 23 Minn. Stat. Ann. 301.26 Ore. Rev. Stat. 57.791 - 134 -authorizing informal action unanimity i s necessary: a l l the shareholders must sign the written consent for i t to be effec-tive. This i s also the Federal and B r i t i s h Columbia position. In same states, however, statutes permit shareholders to act without a meeting by the written consent of less than a l l the shareholders entitled to vote i f the corporation's charter pro-vides for action i n this way and the shareholders who consent have the number of votes that would be required for action at a meeting at which a l l shareholders entitled to vote were present. These provisions do not permit the absolute elimination of the annual general meeting even for a single holding. What they allow i s a written consent, either by some or a l l of the share-holders who may vote at a meeting, to business that would have been transacted at that meeting. The principle of shareholder approval for matters within their competence i s retained by Wis. Stat. 180.91 N.C. Gen Stats. 55-63 Model Business Corporation Act 144, 145 (Rev. ed. 1969). 24 Del. Code Ann. T i t . 8-228 N.J. Rev. Stat. 14A, 5-6 (except merger, consolidation, acquisition of a l l capital shares of a corporation and sale of assets). - 135 -requiring their consent although i t i s consent without assembly. These provisions do not go as far as to permit shareholders to delegate to management a l l their general meeting powers allow-ing management to exercise these powers for the period of dele-gation without the consent of shareholders. Nor do these pro-visions permit the further step of an absolute elimination of the annual general meeting by charter provisions. It seems safe to assume that a movement to eliminate the annual general meet-ing altogether might emerge although i t i s not being argued here that this would be successful. These provisions are intended for use primarily i n a close corporation where meetings usually are informal. Nevertheless their application to large corporations has not gone unnoticed and i n at least one instance they have 25 been implemented. v. conclusions Most modifications discussed above, however, have a patch-work and makeshift quality. The ownership f i c t i o n with i t s associated doctrines of management accountability to shareholders 25 Greyhound Corp.. See "The Corporate Corrmunications Reporter" No. 5 at 2 (Dec. 1970). - 136 -and shareholder control of the corporation have served both legal and economic theory well up to the present. But i f the rnodern corporation by i t s nature precludes such accountability or shareholder control, as maintained by Galbraith, any amend-ments or modifications to the rules governing the annual general meeting such as those sketched i n the previous section w i l l have only a cosmetic effect. Because shareholders can no longer act, even partially, as owners there-exists a lacuna i n the theory of the corporate power structure i n law. I t i s not enough to attempt simply to patch the theory by seme readjustment. The nature of the shareholder's role i n the corporate legal model must be rethought. The relationship between the shareholder, his share, and the ccmpany must £je redefined to •it take into account the nature of modern corporate life-. Because the basis for shareholder control of the ccmpany, even' in part, through the formal structure of the annual general meeting did at one time exist when the company corresponded to a form which reflected that control, a theory was evolved not only for law but a general social theory that explained and sanctioned that control and bound i t with the concept of ownership. There i s • no reason now to retain this theory and i t s corollaries respect-ing the status of shareholders for those who invest capital i n a ccmpany when the basis for their status has disappeared. - 137 -By basis i s meant the grounding i n the facts of modern corporate l i f e as approximated by the economic theory accepted by this essay. Certainly these social theories which t i e together ownership and control as attributes of property remain. I t i s the existence of these theories and the effect of their persuasion on those who consider the functions of shareholders and the annual general meet-ing that make reconsideration of these functions d i f f i c u l t . 26 Professor Wedderburn has c r i t i c i z e d both the Cohen and 27 Jenkins Reports for the failure to reject the traditional social theory respecting property and their failure to reshape the con-28 cept of member i n the Companies Act, of Great Britain. "Society 29 no longer accepts this Locke-like notion", he states. Whether society does or does not i s an empirical question. But i t i s submitted that society cannot accept this "Locke-like" theory because i t does not work; i t no longer corresponds to behaviour i n modern large corporations. New theories must be accepted or i f they do not exist they must be created upon which a legal concept 26 op.cit. 27 op.cit. 28 11 & 12 Geo. 6, c.38. 29 op.cit., p. 13. - 138 -of the role of the shareholder can be based i f indeed he i s to perform any role i n corporate l i f e . A failure to consider the acceptance of a new theory of property relationships for the 30 31 modern corporation either by the Cohen or Jenkins Reports 33 in Great Britain or more recently the Dickerson Report i n Canada w i l l sentence these studies to make reaarirendations for change to institutions which do not exist except i n a formal sense. The annual general meeting exists for these Reports and w i l l continue to exist for the positive law u n t i l the "Locke-like notion" supporting i t i s rejected notwithstanding efforts to demonstrate that i t no longer i s a viable concept. The l i f e after death quality of the annual general meeting i n large corp-orations i s possible because company law s t i l l awaits a complete reconsideration of i t s principles as well as i t s policy i n the light of the new economics. 30 31 32 op.cit. op.cit. "Proposals for a New Business Corporations Law", op.cit.. - 139 -BIBLIOGRAPHY BOOKS Berle, A.A., "Power without Property", New York, Harcourt Brace and World, 1959. Berle A.A., "The Twentieth Century Capitalist Revolution", New York, Harcourt Brace and World, 1954. Berle, A.A. and Means, G.C., "The Modern Corporation and Private Property", New York, Harcourt Brace and World, 2nd ed., 1968. Bronowski, J., "The Ascent of Man", Boston, L i t t l e , Brown & Co., 1973. Buckley, H.B., "The law and practice under the Companies Acts 1862-1893", London, Stevens and Haynes, 7th ed., 1897. Canada Corporations Manual, Vol. 2, Toronto, De Boo, 1949-. Developments i n Company Law, Special Lectures of the Law Society of Upper Canada, Toronto, 1968. Dickerson, Howard and Getz, "Proposals for a New Business Corpora-tions Law for Canada", Vol. I, Commentary, Vol. II, Draft Canada Business Corporations Act, Ottawa, Queen's Printer, 1971. Dcminion Companies Law Reporter, Vol. I, Toronto, CCH, 1958-. Eells, Richard S.F., "The Government of Corporations", New York, Free Press, 1962. Eells, Richard S.F., "The Meaning of Modern Business", New York, Columbia University Press, 1960. Fraser, William K., and Stewart, J.L., "Company Law of Canada", Toronto, Carswell, 1962. Friedman, Milton, "Capitalism and Freedom", Chicago, University of Chicago Press, 1962. - 140 -Galbraith, John Kenneth, "The Affluent Society", New York, The New American Library Inc., 1958. Galbraith, John Kenneth, "Economics and the Public Purpose", Boston, Houghton M i f f l i n Co., 1973. Galbraith, John Kenneth, "The New Industrial State", New York, The New American Library Inc., 2nd ed. revised, 1972. Gilbert, Lewis D., "Dividends and Democracy", Larchmont, New York; American Research Council, 1956. Gower, L.C.B., "The Principles of Modern Company Law", London, Stevens and Sons, 3rd ed., 1969. Grant, "A Practical Treatise on the Law of Corporations", London, 1850. Green, M.J., Moore Jr., B.C. and Wasserstein, B., "The Closed Enterprise System, Ralph Nader's study group report on Antitrust Enforcement", New York, Bantam Books Inc., 1972. Hacker, Andrew, (ed.), "The Corporation Takeover", New York, Doubleday & Co. Inc., 1964. Hamilton, W.F., "A Mannual of Corpany Law", London, 1891. Harrington, Michael, "The Other America, Poverty i n the U.S.", New York, Macmillan, 1963. Hession, C.H., "John Kenneth Galbraith and his C r i t i c s " , New York, The New American Library-Inc., 1972. Lindley, N., "A Treatise on the Law of Ccmpanies, considered as a branch of the law of partnership", London, Sweet & Maxwell, 5th ed., 1889. Lindon, J.B., "Buckley on the Ccmpanies Acts", London, Butterworths, 13th ed., 1975. Livingston, J.A., "The American Stockholder", New York, Crowell-Col l i e r Publishing Co., 2nd ed., 1963. Mason, E.S., (ed.), "The Corporation i n Modern Society", New York, Atheneum, 1966. - 141 -Mintz, Morton and Cohen, Jerry S., "America Inc.", New York, Dell Publishing Co. Inc., 1971. Palmer, Francis B., "Company Law", London, Stevens, 21st ed., 1968. Palmer, Francis B., "Company Precedents", London, Stevens, 17th ed., MacKinnon and Buchanan (eds.), 1956. Pennington, Robert R., "Company Law", London, Butterworths, 2nd ed., 1967. Pennington, Robert R., "The Investor and the Law", London, Butter-worths, 1968. Robinson, J.W., (ed.), "Structuring the Annual Meeting", New York, Practicing Law Institute, 1972. Rubner, Alex, "The Ensnared Shareholder", London, Penguin Books, 1966. Samuelson, Paul, "Economics", New York, McGraw H i l l Co., 7th ed., 1967. Samuelson, Paul, "Fx3Dnoru.es", Toronto, McGraw H i l l Co. of Canada, 3rd ed., 1971. Sampson, A. "The Sovereign State of ITT", New York, Stein & Day, 1973. Smith, Adam, "The Wealth of Nations", New York, Random House Inc., Carman, Edwin (ed.), 1965. Talbot, "Ocsmpany Meetings", London, 1951. Veblen, Thorstein, "The Engineers and the Price System", New York, Kelley, 1965. Wainberg, J.M., "Company Meetings", Toronto, Canada Law Book Ltd., 2nd ed., 1969. Ziegel, Jacob S., (ed.), "Studies i n Canadian Company Law", Toronto, Butterworths, 1973, Vol. ,11,..1967, .Vol. I. - 142 -ARTICLES Bluirtberg, 27 Business Lawyer 1275 (1972). Bibliography. Blumberg, "Corporate Responsibility and the Social C r i s i s " , 50 Boston University Law Review 157 (1970). Eisenberg, "The Legal Roles of Shareholders and Management", _ 60 Gerc»getown Law Journal 57 (1971). Eisenberg, "Modern Corporate Decision-Making", 57 California Law Review 1 at p. 4. Friedman, M., "The Social Responsibility of Business i s to Increase Profits", New York Times Magazine, September 13, 1970, at p. 32. Garrett, "Attitudes on Corporate Democracy - A C r i t i c a l Analysis", 51 Northwestern University Law Review 310 (1956). Getz, "Court Ordered Ccmpany Meetings", 33 Conveyancer 399 (1969). Harbrecht, "The Modern Corporation Revisited", 64 Columbia Law Review 1410 (1964). Harbrecht, "The New Economy", 38 University of Detroit Law Journal 615 (1961). Hetherington, J.A.C., "Fact and Legal Theory: Shareholders, Managers and Corporate Social Responsibility", Stanford Law Review Vol. 21 at p. 248 (January 1969). Iacobucci, F., "Shareholders Under the Draft Canada BCA", McGill Law Journal, Vol. 19, No. 2 (1973). Livingston, J.A., "The American Shareholder", Yale Law Review, Vol. 67, at p. 1477 (1958). Manne, H.G., "The 'Higher Criticism' of the Modern Corporation", Columbia Law Review, Vol. 62, No. 3, at p. 399, (March 1962). Manne, H.G., "The Myth of Corporate Responsibility - or W i l l the real Ralph Nader please stand up?", Business Lawyer 533 (November 1970). - 143 -Marine, H.G., "Our Two Corporation Systems", Virginia Law Review, Vol. 53, at p. 259, (1967). Manne, H.G., "Shareholder Proposals", 24 Stanford Law Review (February 1972). Manning, Book Review, 67 Yale Law Journal 1476 (1958). Manning, "Corporate Power and Individual Freedom", 55 Northwestern University Law Review 38 (1960). Mooallem, Jack, "Conducting a Fair and Informative Stockholders Meeting", Business Quarterly, p. 47, (Winter 1971). New York Times Book Review, "Economics and the Public Purpose", p. 1, September 16, 1973. New York Times Book Review, "The New Industrial State", p. 2, June 25, 1967. Pickering, "Shareholders' Voting Rights and Company Control", Law Quarterly Review 248 (April 1965). Ratner, "Corporate Democracy", Cornell Law Review, Vol. 56:1, (1970). Schwartz, D.E., "Corporate Responsibility i n the Age of Aquarius", Business Lawyer, p. 513, (November 1970). Schwartz., D.E., "The Corporate Future", Georgetown Law Journal Vol. 60:57, (1971). Schwartz, D.E., "The Public Interest Proxy Contest: Reflections on Campaign G.M." 69 Michigan Law Review 419 (1971). Slutsky, B.V., "The Relationship between the Board of Directors and the Shareholders i n General Meeting" 3 University of B r i t i s h Columbia Law Review 81 (1968). Symposium - Mutual Funds as Investors, 115 Pennsylvania Law Review 669. Wedderburn, K.W., "Company Law Reform" Fabian Tract 363 (1965).
UBC Theses and Dissertations
The law of annual general meetings examined from a perspective of certain economic theories Curwood, James Arthur 1975
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