After New Deal reforms and wartime emergencies, shareholders and regulators seemed to welcome a post-war laissez faire attitude. The imprimatur of the “arsenal of democracy” improved corporate reputations, and renewed prosperity proved a balm for shareholder grievances. With the exception of brief forays into proxy regulation, the SEC remained quiescent during the post-war years.
With minimal state involvement and negligible federal efforts in corporate governance reform, it was left to the individual players in corporations and other institutions to negotiate the rules and norms of corporate governance in a process known as “private ordering.” One of the most effective of such efforts to promote corporate governance without state involvement was made by the exchanges working through listing standards. As Emil Schram, President of the New York Stock Exchange, proclaimed, “I wish to make this point, with full emphasis, that if anybody is the friend of the security-holder, it is the New York Stock Exchange. He is the customer of our membership.”7
The post-war boom years fueled fierce competition among exchanges for new listings and new investors, capped by the New York Stock Exchange’s 1954 “Own Your Share of American Business” campaign. The promise of corporate democracy became part of the pitch, with exchanges urging corporations to provide more disclosure, more standardized accounting, and more generous provisions for proxy voting.
Some of the work had been done before. In 1926, the New York Stock Exchange had restricted listings only to issues bearing voting rights, leading Berle and Means to note that, with the exception of railroad securities, “Disclosure of the quality necessary to permit a market to appraise a security is required only by the New York Stock Exchange.”8 In the 1940s and 1950s, the NYSE hardened its attitude toward non-voting stock, refusing even to list companies that denied voting rights to holders of unlisted securities. It increased the number of issues mandating a shareholder vote and made active solicitation of proxies compulsory.9 It also introduced what would become a latter-day corporate governance staple when it required at least two outside directors for each listed company. By 1962, 97% of listed corporations were in compliance.
Other exchanges followed the NYSE’s lead. The American Stock Exchange introduced its first voting standards in the mid-1940s. As part of comprehensive reforms in the early 1960s, the AMEX included new requirements on voting rights, shareholder approval for expansions of stock, and proxy solicitation.10
By the middle of the 1960s, the American economy had enjoyed nearly two decades of untrammeled growth. During two centuries of American history, corporations had gone from rare, and suspect, economic entities to popular providers of plenitude. Interest in their governance, never high, had ebbed and flowed. But the honeymoon years were ending. More than a decade of social and economic upheaval would severely test the goodwill accumulated by U.S. corporations.