Comment on – Shareholder Rights And Wrongs; Corporate Governance In America

A wise observer said: “The heart of the American Capitalistic System is the publicly-owned corporation…what investors invest their money in, what markets have as inventory, what we all can participate in as capitalists. At the heart of efficient operations of that corporation…is good corporate governance.” We’ve seen the results of “poor” corporate governance at work over the past decade, haven’t we! Billions’ of dollars lost in shareowner value, layoffs, loss of corporate independence, loss of investor interest, bankruptcies, etc.


Shareowners buy “the business” through purchase of shares. Now, more often on behalf of beneficiaries (pension funds etc.). And owners then elect directors to represent them…and the directors job is to select, oversee (hire and fire) the executives. That’s the way it is supposed to work, anyway.


Yes, there are adversaries in the system — think of the complaints about self-serving hedge fund managers, short-sellers, phantom stock voters, etc.


But maybe what the “American bosses are so afraid of” — some of them, anyway — as the Economist editors ask, is the owners of the enterprise exercising their rights and their votes to effect change…especially in woefully underperforming companies. And most often it is within these poor performers that proxy resolutions are assembled by owners, and that directors standing for election are targeted for “no” and “withold” votes.


We’re still in the first decades of this “agent” system (moving away from founder-owner management and majority owners appointing boards since the 1920s, 1930s, even 1940s). The Ford Motor Company only went public in the 1950s, for example, and the family still controls 40% of key voting. In recent years the rise of the Imperial CEO in many companies distorted these elements of our capitalistic system. In their isolation the bosses forgot who they worked for, that they were agents of the owners, that the board was the shareowners’ representatives, and not the CEO’s buddies.


Research shows that well-governed companies enjoy a price premium in the markets, as it should be.


The journey to corporate democracy in the USofA has not been easy for all the market players, and won’t be as long as regulators such as SEC put roadblocks in front of shareowners. What’s wrong with a system of ensuring that those with a long-term, real economic interest in a company having a say in the election of their representatives? All the while the “competing proposals” offered up by the SEC in fall were being publicly debated, there were few peeps from the corporate world. Perhap opponents of more proxy access were counting on the Republican members of the Commission putting their thumbs on the scale in favor of Corporate America. And their thumbs in the eyes of the shareowners of Corporate America!


We’re told that the question of access to the proxy process will be revisited when there are two Democrats on the board and the 2-2 balance is restored (with the chair having the fifth or tiebreaker vote). Let’s hope that happens.


The 2008 proxy season will proceed under existing rules; the 2009 contests could be conducted under new rules (more access? even less? we’ll see). As the SEC announcement made the rounds this week, shareowner activists were gearing up for response and promising “wait ’till the ’09 season!” Shareowners will not be deterred by this — they’re figuring out how to build coordinated campaigns to vote for change.


This was not a shareowner-friendly move by SEC’s commissioners. Many owners are not going to take this lightly. Stay Tuned to this issue — both sides have a lot at stake (pro-access, closing access). And so does the American Capitalistic system…make no mistake. Our system is so strong because 100+ million Americans are invested in the markets…and trusting market players “will do the right thing…” Including regulators.


Hank Boerner




Accountability Central