Do you think that the board of trustees for a university should be elected by those students and others living on university owned property? Many universities own far more than 1 square mile, they are essentially mini-cities with their own police, courts, etc. Is it a fundamental problem that universities are not run as democracies?
I'll leave this question unanswered as I don't have knowledge about the type of university you are talking about (mine had no own police). If you are truly curious about this topic, your question has probably been thorougly dealt with in literature in the last 100 or 200 years.
If you just put that there to weaken my argument, I'd say let's stay with the topic at hand. We were discussing a local government that's nominally run as a democracy but where corporations have the votes, potentially part of a trend to less democracy if we are not careful (see protesting in the USA, blogging in Russia etc.).
I have a sort of a long term career dream of starting a community/small city as a startup. Such a community would necessarily not be run as a democracy. I have found that there exist "true believers" in democracy, who view it is morally problematic for any community to not be a democracy. Yet such true believers tend to be quite inconsistent in their beliefs - they very rarely complain about college campuses, remote company towns, military bases, research facilities, etc, not being run as democracies. I am thus very interested in how people draw distinctions - what makes it ok for one community or mini-city to be a democracy but not another, where is line? And in designing my city some day - how can I avoid setting off people's triggers whereby they denounce a certain government structure for not being democratic?
> what makes it ok for one community or mini-city to be a democracy but not another, where is line?
There isn't one, really. Which is why the Soviet system instituted formally-democratic assemblies in any entity. In principle, it was a great idea; in practice, these bodies were soon hijacked by professional political operatives from The Party, who would steer them in the "right" direction and use them as another tool of control (speak up against the Party line in your factory soviet, and you'd soon be on a train to Novosibirsk). For other insights into that particular form of organization, I'd recommend Bulgakov's "Heart of a Dog".
Whether the limits of the Soviet system where environmental or historical in nature (they didn't have the internet, say), it's an open debate for another day, but I mention it to define one extreme of the theoretical scale: anyone can vote on anything. At the other extreme, you have absolute monarchy: nobody can vote on anything.
Anything in between these extremes is not "absolutely democratic" or "absolutely undemocratic", which is why debate is so fragmented and dependent on specific circumstances. You can have profoundly-undemocratic organizations being run in a substantially democratic way by this or that specific leader, or formally-democratic institutions being run with an iron fist by a single individual.
I think that, pragmatically speaking, the most basic element of democracy is just the acceptance of the existence of feedback. If one is ostracised, isolated or punished for the simple act of expressing a differing opinion, people will feel that democracy is non-existent, that the game is rigged. On the other hand, if differing opinions are given substantial space and even co-opted by rulers, especially in times of crisis, the absence of formal democratic structures will be considered a purely theoretical problem and likely ignored in practice.
Others famously define the basic unit of democracy the answer to the question "can we replace our rulers without violence?". However, this sort of argument can be subverted by putting in place mechanisms for such a replacement and then, by other means, ensuring that they will never be invoked.
