How Not to Protect Shareholder Interests
By Jacob Feldman • Wednesday, July 29, 2009 1:17 pm
At yesterday’s hearing on improving corporate governance at the United States Committee on Banking, Housing, & Urban Affairs, six witnesses discussed different aspects of Senator Schumer’s “Shareholder Bill of Rights.” Topics included Congressional mandate for:
- Shareholder proxy access
- Majority voting rather than plurality to confirm
- Not allowing CEO to serve as Director of Board
- Creating an independent committee to analyze risks of investment
Ann Yerger, Executive Director at the Council of Institutional Investors, argued that such regulations should be adopted because such mandates were a “one-size-fits-all” solution.
John Castellani, President of the Business Roundtable, humbly disagreed. He insisted that one-size-fits-all legislation may only exasperate risk management difficulties. Castellani pointed out that most S&P companies have already adopted Congressman Schumer’s proposed mandates. He defended the freedom of companies to choose which reforms to adopt or reject stating that such reforms were “not always right, but always right for the company that make the right decision.”
George Mason Associate Professor of Law J.W. Verrett pointed out that the regulations’ compliance costs would be exceptionally high for some companies. Additionally, Professor Verrett pointed out that mandating shareholder involvement could politicize the board of directors. Castellani agreed, stating that board members would turn into “corporate politicians.”
From the legislative side, Senator Johanns expressed his concern over additional federal involvement within the financial sector. Drawing upon his prior experience as Nebraskan Governor, the Senator declared that federal legislators have “a very profound impact on corporate governance in this nation.” He discouraged running rough-shod over numerous state laws dealing with local business concerns.
As Castellani made clear, there certainly isn’t a one-size-fits-all solution to keeping corporate governance accountable. Each company’s shareholders desire different levels of involvement with the board of directors and state laws ought to be taken into consideration. Reforms that protect the shareholders’ interest allow shareholders to choose how involved they want to be.
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You want to reduce the cost of health care, or effect the redistribution of wealth in a natural, free market, capatilistic manner? Than strengthen the rights and protections afforded shareholders in publicly traded corporations. Afterall,shareholders are owners and executive officers are employees hired by the Board of Directors. How is it that we can find people that will lay down their lives, or run entire countries for a fraction of the compensation that some Boards pay executives? By now it should be self evident that it is not because these executives are heads and shoulders more talented than others who could do the job. Rather, it is because Directors are remiss in fulfiling their duty to their shareholders probably because they have more in common with the person they are hiring than with the person that hired them.
>> David Toarmina August 17, 2009 12:40 pm
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