Now, the basic corporate charter emphasizes that all common shareholders are treated equally. They don't have to pay out dividends to them, but if they do pay out dividends, it has to be every share gets the same. And that's where the word equity comes in, it's equality of shareholders. Does not have to pay dividends, it doesn't ever have to pay dividends. But you trust that the Board will pay dividends, because the other shareholders want the money, they can't get at it without paying you too. The firm can also repurchase shares instead of paying a dividend. No law saying that they have to, they can both issue new shares and they can repurchase shares, the Board decides. There's also other kinds of corporate liability, warrants which are a form of option, convertible debt. They can do whatever they want, but the fundamental thing that ties it down is that all shareholders have one vote, and they elect the Board. Now there are critics of shareholder democracy. Notice notably Berle and Means wrote a book in 1933, that was very influential. Arguing that while you've described a system of corporate governance that sounds plausible, and probably does work for little companies, but it might not work for big companies. Well I know when I set up my own little company, Case Shiller Weiss, there were three of us, and well we had one more major shareholder. We got together, and it was very clear that we voted and things happened because we were involved. So the democracy, it just seemed perfectly natural and functional. But Berle and Means thought that it doesn't work so well for big companies. The same reason may be why voting, when there are millions of people voting, doesn’t work so well. So I know what you think whether, do you vote? Okay, as you go to the voting booth in an election, does it ever occur to you that my vote doesn't matter unless the rest of the people are equally tied, right? If exactly half vote for one candidate and exactly half vote for the other candidate that it's tied and my vote would decide, otherwise my vote doesn't do anything. So what's the probability that my vote is the deciding vote? Well if there's millions of people, the probability must be miniscule, so if you were really rational, you wouldn't vote. But people still vote in elections, and this must be out of some sort of patriotic feeling or a sense of obligation. But when it comes to corporations, those senses aren't so, you don't feel patriotic for a corporation. So and a corporation has an election, why do I even bother. We're holding diversified portfolios, aren't we? So, I've got a hundred different stocks, I can't keep up with how they're all being managed. [INAUDIBLE] during election and vote my share. I'm only a tiny, tiny fraction, so why should I do that? So Berle and Means said that, while in practice we have shareholder democracy, in practice the democracy is imperfect. It's really self-perpetuating Boards of Directors. So their book was extremely important historically. And what it led to is new regulation that tried to allow for takeovers of companies. What Berle and Means said, is there's a lot of companies were ill managed and managed for the interest of the board of directors because they just owned, effectively owned, they can't pay themselves big amounts of money. They can pay fairly generous salaries, they can hire their friends and give them nice jobs as sort of ripping off the company. The shareholders, some of them might hear about this and get upset but it's hopeless. You can't influence the votes of so many people. So they made it easier, 1935 the Securities and Exchange Commission under authority of the act that had just created it in 1934, established rules for proxy contests. So that people who wanted to change the governance of the company could reach the shareholders and ask them to sign a contract to let you vote on my behalf. You would give them the right to be a proxy for you at the shareholder's meeting. And they made it, companies didn't want to help outsiders reach their shareholders, they wouldn't publish the list of shareholders. So there was no way that if proxy contest could have been done prior to 1935. But now they made it because they began to think, we have to make sure holding democracy works. This is the Roosevelt era, which was very left wing. But the really wonderful thing about the Roosevelt new deal was that it wasn't socialist. It was maybe motivated by social harmony and concern about poor people. But it left intact the corporation. So this doesn't sound like Franklin Delano Roosevelt at all. But it is, it's trying to make Democracy work and they wanted shareholder democracy to work. So there have to be election contests in corporations like we see in politics. In 1956, amendments made proxy contests difficult. But then people later as we move to a more free market governance, relaxed the 1956 amendment so that proxy contests came back. Now some companies have classes of shares, as permitted by state law. So you can have both voting and non-voting shares. Berkshire Hathaway, which is the company of Warren Buffett, who has both class A shares that have voting rights, and class B shares do not. I have to update this. What the Class A shares self or not, it was recently $200,000 a share. That doesn't mean, this is a big company. It only means they don't split. And it would be $30 a share if they split like other companies, and it wouldn't make the company any less valuable, maybe I'm over stressing that. The New York Times has both Class A shares and Class B. Class A has less voting rights than Class B. Which allows the descendent of the original Adolph Ochs family still to control the company. Why do they do that? Well, they think that the New York Times serves a higher purpose. That is, it's not out for profits, it has some profits but not entirely. So they gave the original New York Times family more voting rights than the other shareholders. This has been under criticism recently but still is maintained. Facebook, Mark Zuckerberg recently, I don't know what the percent is right now, but had 28% of its shares, but 57% of its voting shares, which basically Mark does whatever he wants. If he has the majority of votes in the, but that's because of the classes of shares.