Martin Lipton, with Jay Lorsch and Theodore Mirvis, opine in the WSJ about the havoc that could be wrought by Schumer’s proposed Shareholder Bill of Rights Act of 2009. That Act would require shareholder say on executive pay, direct shareholder nomination of directors, majority vote for directors, and no staggered boards.
Schumer's proposal provides an opportunity for everybody to work out their favorite theories. Lipton, et al, true to their usual managerial perspective, are concerned about the potential for governance that is overly focused on the “short-term.” They would go in the opposite direction, with directors’ elected to 5 year terms.
Steve Bainbridge doubts there’s a problem with executive compensation and, true to his director primacy approach, questions the proposed solution.
I'm no fan of say on pay. But if we really want to get serious about shareholder power, why cram a federal law down their throats. Indeed, why not go the other direction, to say on SOX?
Or, how about even more shareholder say, by letting the shareholders choose their corporation's state legal regime? As Professor B discusses, leaving corporate governance issues to state law allows for some experimentation, and attaches market prices to the various alternatives. See my and Erin O’Hara’s Corporations and the Market for Law and The Law Market, ch. 6.
Finally, why corporate law? Why not choice of form as well as choice of law? Even if shareholder democracy is not the answer, that doesn’t mean we should lock control in directors make managers or directors trustworthy stewards. Of course what I’m thinking about is the uncorporation. My theory is that managers can be disciplined by giving them stronger incentives and lightening their grip on the firm's cash.
The answer, at any rate, is choice. I'm not ready to let Sen. Schumer and his friends decide how all firms should be governed.
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