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AS EVERYBODY KNOWS, THE BOARDS of directors of major corporations tend to be self-perpetuating groups. This observation applies not only in the case of listed companies, but also in the case of major non-profit bodies without shareholders -- for example, mutual life insurance companies and motoring organisations.
Retiring directors are usually re-elected at the end of their term without opposition. Even when they are faced with competing candidates, in a contested election the retiring candidates are usually returned with large majorities. In the same way, any additional nominees recommended by the incumbent board are usually elected without difficulty.
The board itself fills any casual vacancies which arise in the course of a year. The appointees then face formal election by shareholders at the next annual general meeting. Their status as sitting directors virtually guarantees their appointment.
These things happen because the chairman of the annual general meeting and his colleagues generally control the bulk of the proxies. Proxies are provided, quite democratically, by all shareholders who see fit to mark their proxy forms in favour of the chairman and his colleagues and send them in. Most small shareholders are apathetic and either return their forms as requested or just ignore them, thus effectively voting with the majority.
In the world of politics, a parliamentarian without a safe seat has a great incentive to stay in touch with his electorate. In contrast, in the world of business, no company director holds the equivalent of a marginal seat or is exposed to the whim of swinging voters.
Of course, the ultimate power still rests with the shareholders and, if they are sufficiently dissatisfied or if special circumstances arise, they may decide not to re-elect the existing board members.
Because this happens so rarely, most holders of, say, 100 shares feel that their voting power is useless in practice and not worth having. Actually, these shareholders don't mind this greatly because they regard investment as an exercise in making money, not in running companies or managing enterprises. As long as the returns are satisfactory, they don't really care whether the law regards them as owners or creditors or something else. They don't think of themselves as members of the corporation.
This in turn causes many company directors to...