Study On The Problem Of Shareholder Vote Buying

Vote buying, simply put, is a voting agreement supported by consideration personal to the stockholder, whereby the stockholder divorces his discretionary voting power and votes as directed by the offeror. In general, this act is prohibited throughout the whole world. According to the discussion of the scholars, grounds for such objection mainly includes: Firstly, by analogy with the political operation, vote buying undermines corporate democracy. Secondly, votes should be properly attached to shares or companied by economic interests. Thirdly, the voting right is a kind of common benefit right, and shareholders owe each other fiduciary duty required each to utilize his independent judgment in determining how to vote his shares. Fourthly, were vote buying permitted, transaction price might be rather low due to the’prisoner dilemma’ among shareholders and the risk of corporate looting would be exacerbated. What’s more, the new vote buying might bring about other more serious threat.However, with the increasing development of corporate law practices, the accuracy of the reasons given above has suffered challenges from two sides. In the aspect of theory, first, the sale of votes may have positive impacts, such as promoting information sharing and rational allocation of voting rights, and under certain circumstances alleviating the collective action problems. On the other hand, the adverse consequences of vote buying can be avoided. Second, corporate governance varies greatly from the democratic process in the political context, and in this regard, it is not appropriate to make a casual analogy between the two. Third, the fundamental assumption of the corporate contract theory, which draws the inference that voting rights and residual claim should not be separated, is found to be unrealistic. Meanwhile, the separation of the aforementioned two rights has already become common phenomenon nowadays. Fourth, the notion of the reciprocal obligation among shareholders is proved to be obsolete. In the aspect of practice, Delaware Chancery Court of the United States has in the case Schreiber v. Carney and a series of subsequent judgments abandoned those traditional opinions like the simple analogy to politics, the inseparability of voting rights from equity and the fiduciary duty between stockholders, and no longer treated vote buying as a per se illegal behavior. Also, it has established a three-step analysis method to solve vote buying problems, namely that confirm at first whether the transaction in question constitutes vote buying in light of its definition, then decide if the object or purpose of the transaction is to defraud or in some way disenfranchise the other stockholders and finally take vote buying as a voidable action subject to a test for intrinsic fairness. Hence, with regard to vote buying, no conclusion can be made either from theory or from practice that it ought to be completely forbidden. It is just a means to transfer votes, which is in itself no benign and evil, no good and bad. The evaluation of this action should depend on the purpose or the intent of its users and the effect it causes.At present, our legislation does not expressly provide for vote buying. But according to some scattered legal provisions and the views of a majority of scholars, the attitude towards this act tends to be passive. The reason behind this is that the traditional concepts of corporate law still have tremendous impacts and the lingering fear of the abuse of vote buying during Stock Right Splitting Reform persists to date. In this respect, I suggest that, with the basic completion of the Reform and the introduction of new ideas under the background of financial innovation, our country can moderately keep open for voting buying. Learning from the experience of the Delaware Court, such transactions should be required to be consistent with the principle of good faith, respect other shareholders’ voting rights and agree with the principle of fairness. Or instead, we can inhibit vote buying in legislation but set up exception clause. If the transaction has no signs of fraudulence or disfranchisement and survive a fairness test, it should thus be upheld.