Alan Murray on "shareholder democracy"

Alan Murray writes today in the WSJ about the fight for shareholder democracy.

In the annals of democracy, the current battle at the Securities and Exchange Commission doesn't rank with Bunker Hill, the storming of the Bastille or the collapse of the Berlin Wall. But it may deserve a page in the history books, nonetheless.

He's referring to the fight to let shareholders nominate directors, and the larger battle for "shareholder democracy" this is a part of. Spurred by the Second Circuit's AFSCME v. AIG decision allowing a shareholder nomination proposal to be placed on a proxy ballot, the SEC is now reopening its suspended deliberations on this issue. The debate promises to reach a head at an SEC public meeting now scheduled for December 13 (though Murray suggests that meeting might be delayed until January).

Murray's column is reasonably balanced, with the big exception that he buys into the whole characterization of this issue as tied to political principles of "democracy." For a decidedly different view, see my manifesto, The "shareholder democracy" scam. Here's a taste of a fairly long post:

peek behind the "shareholder democracy" rhetoric and we see what Levitt and the rest of his "reformer" mob have on their minds: federal control of corporate law, turning corporate governance into a political battle between unions and managers, and a rich market for consultants on "good governance."

Murray suggests Cox, the tiebreaker on the politically divided SEC, is leaning toward some kind of pro-"democracy" approach on shareholder nomination, possibly something like the limited British rule.

Indeed, a compromise seems likely because of the election and the AIG decision. Given the election, Barney Frank is the incoming chair of the House Financial Services Committee, and he's quoted as saying that "corporate America would save itself a lot of trouble if it would embrace more shareholder democracy."

The AIG case means we now have chaos in the courts, with the governance rule depending on which circuit hears the case. The SEC could end the chaos by clarifying the rule to eliminate AIG-type proposals. But that would likely provoke a direct confrontation with Congress, which is now inclined to listen to the unions.

Although the SEC is not likely to come up with anything radical, we're talking about degrees of bad: more federal interference in corporate governance, and more of the camel's nose of shareholder activism under the tent.

The sad part about the forthcoming "fix" is that nothing is broken. State corporate law works just fine despite all the moaning. If there's really a problem with shareholder voting, corporations themselves can adopt new rules. And as I've repeatedly said, much maligned private equity is the shareholders' real friend.

Let's try to remember that what the backers of "shareholder democracy" really want is for certain shareholders to be heard among all the rest. It's Animal Farm democracy, where some shareholders are more equal than others.

I'll be debating all this at the Institutional Investor Educational Foundation's Fifth Annual Global Shareholder Activism conference at the Barclay in NYC, 12/1 at 10:15, with Moderator Jay Eisenhofer of Grant & Eisenhofer and panelists Lucian Bebchuk (Harvard), Margaret Blair (Vanderbilt), and Richard Ferlauto (AFSCME).  Should be interesting.

Comments

[save_the_rustbelt]

Shareholders are never going to have much influence over corporate bosses so why get all excited.

Shareholders must diversify to the greatest extent logical and understand that Wall Street is an inherently dishonest institution, so shareholders will get hosed on some stocks.

And the rich get richer.....

[KipEsquire]

Whatever happened to the principle of "democratically" selling your shares if you don't like the way the corporation is run?

[Patrick]

Indeed, a compromise seems likely because of the election and the AIG decision. Given the election, Barney Frank is the incoming chair of the House Financial Services Committee, and he's quoted as saying that "corporate America would save itself a lot of trouble if it would embrace more shareholder democracy."

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That kind of threat is scary. It sounds a bit like Putin telling a dissident journalist to "be careful what you eat."