Gretchen Morgenson: Libertarian?

Gretchen Morgenson has come up with a new package for an old rant: Gretchen the Libertarian. Yes she is still Gretchen of Arc, storming the corporate barricades on behalf of the common shareholder.  But this week she's defending the free market as well. Really.

Morgenson argues, yet again, that shareholders should have direct power in board elections. This week's sermon is about shareholders' rights to nominate directors, and specifically the recent Second Circuit decision in AFCSME v. AIG to require a corporation to put a shareholder nomination proposal on the corporation's proxy ballot.

The questions of how much power the shareholders should have over the corporate ballot, and the appropriate scope of federal power to determine this issue, are thorny ones, as I discuss.  You'd never know this from Morgenson's one-sided rant.  Nor would you appreciate the legal complexity after she confidently but mistakenly concludes that "Delaware law, which governs A.I.G., permits shareholders to change company bylaws by majority vote." That issue has not been determined, as I discuss here.

Especially notable today is Morgenson's decision to show up at the party dressed as a libertarian, more than four weeks before Halloween. Morgenson, of course, wants the SEC to affirm the AFSCME decision with a rule allowing shareholder access. Remarkably, she seeks to characterize such a rule inserting the federal government in corporate elections as furthering state law and the market!

On the state law issue, Morgenson has one of her usual cast of corporate governance industry foils saying “Rules that interfere with Delaware’s carefully defined processes threaten to disrupt the whole foundation of orderly corporate governance.” This is gibberish. The issue concerns the federal proxy rules, not Delaware law. Even if Delaware were to allow the shareholders to directly amend the bylaws, it does not provide a mechanism for doing this through the corporation's proxy. That is strictly a matter of mandatory federal law.

Then Morgenson quotes another of her corporate governance mavins, Greg Taxin of Glass Lewis & Company: "A good libertarian would seek an easier way for the market’s participants to order their affairs and provide an oversight mechanism for owners that would help eliminate the call for greater regulation and criminal prosecution.” The sheer chutzpah of this "libertarian" claim is breathtaking. A federal court has ordered a corporation to allow a procedure that the firm has not adopted. This is not exactly a "liberatarian" move to enforce the contract. Whatever the SEC does will be a matter of federal mandatory law, not state law or the "market."

The market approach would be to let state law and corporate charters control this issue and take the SEC out of it. This is not a solution that a Gretchen Morgenson would ever tolerate. The shareholders could use the market to sell shares of companies whose governance they don't like.  To be sure, this would not necessarily be a complete solution because the sale price would reflect any defects in the firm's governance. A law empowering the shareholders might therefore make corporate shares more valuable.  Or might not -- as noted above, this is a thorny issue.  But it hardly furthers the debate to disguise this as a "libertarian" move. 

Morgenson concludes with her typical "leveraging" move. In order to sell her governance lesson of the day, she is determined to link it to the leading story of the day, whatever that happens to be. Today the story is HP, so Morgenson tells us that having shareholders control board nominations is the solution to that mess.

There is heavy irony here. What happened at HP is a byproduct of the the good governance movement Morgenson so vocally sponsors week after week. As Patricia Dunn said in her prepared statement for last week's Congressional hearing, " I saw my role as Non-Executive Chairman as helping the Board transition from its roots as a "founder's board" to a modern, fully professional board that was driven by appropriate process as opposed to by personalities." Whether or not one sympathizes with Dunn, it is abundantly clear that the problems at HP cannot be laid at the feet of management stooges. Whether HP needs more "good governance" is not exactly clear at this point.

It is increasingly obvious that Gretchen Morgenson is part of the problem of corporate America, not part of the solution. Instead of helping her millions of readers understand the complex issues facing corporations today, week after week she presents one-sided screeds that seek to distort the issues whenever convenient to make her points.  But today's effort to present herself as a libertarian surely represents some sort of a low point.

Comments

[Michael Webster]

As an academic are you really promoting debate if you have to engage in sarcastic put downs?

This is not a flame war, and I am not sure that you are doing a better job of presenting boths sides of a complex story.