Proxy Access

“This is our highest priority,” said John Castellani, president of the Business Roundtable, which represents 170 chief executives. “Literally all of our members have called about this.” Last week alone, Castellani said, 40 chief executives were in town visiting Capitol Hill about [the proposal]. Concern cuts across industry lines. Steve Odland of Office Depot, Ivan Seidenberg of Verizon and Jim McNerney of Boeing have all been in Washington arguing against the provision. So has Ursula Burns of Xerox, who is the vice chairman of President Obama’s Export Council and a longtime supporter of his. Obama supports [the proposal].

So what key policy has CEOs so fired up? Obamacare? Taxes? Immigration? Cap & Trade? Troops Abroad? No, proxy access:

Businesses far from Wall Street have intensified their efforts to kill a largely overshadowed provision of the Senate’s financial regulation bill giving shareholders more ammunition to shake up corporate boards. … With proxy access, shareholders would be able to send a strong message to management if they weren’t happy with a company’s strategy, for instance, in managing risk or charting growth. On the other side, public companies fear that proxy access will mainly invite activist investors and hedge funds to infiltrate boards and topple existing management — whether out of displeasure with how a company is run or to pave the way for a hostile takeover.

The end result, corporate executives warn, is that board directors will feel constant pressure to juice up their company’s stock price and put short-term considerations ahead of the firm’s long-term health. … Under current law, if shareholders want to nominate their own board directors, they must pay for publicizing candidates and mailing ballots, which can cost millions of dollars. Critics say this discourages shareholders from making the effort. Proxy access would force companies to foot the bill for outside nominees. …

“We talk about shareholder democracy, but what we really mean is activist hedge funds and state-pension-fund democracy,” she said. “There’s really no evidence this is going to benefit long-term diversified investors, which means the rest of us.”  Supporters of proxy access counter that institutional investors are just as interested in the long term as everyday, 401(k) investors. And any board nominee would still have to be approved by a majority of shareholders.

As I said in January:

Apparently we must protect over-paid CEOs because they are our heroic public-spirited defenders of the little guy against greedy shareholders. Where oh where would little folks be if not for protection from CEOs? Oh, please! CEOs?!

More evidence that we defer to almost-transparently self-serving authorities more often than we like to admit to ourselves.

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  • http://t-a-w.blogspot.com/ Tomasz Wegrzanowski

    I’m disappointed in you. Different countries have significantly different laws regarding corporate management – and you don’t seem to have bothered to look for evidence that some laws are more effective than others. This shouldn’t be terribly difficult. Instead, this is just theorizing in absence of evidence, which rarely leads to truth.

    (I have absolutely no idea if proxy access is a good or bad idea. Because of this I’d default to not changing status quo, whatever it is, as most random changes turn out to be bad. I’d expect most people to share such attitude, unless they have strong evidence one way or the other, or generalize from other domains like you here.)

    • David C

      Tomasz, if you follow the link labeled “in January” and then follow the link on that blog post, then you’ll end up here. The article has a long argument of why increasing shareholder power improves outcomes. The argument relies on both theoretical and empirical evidence.

    • Jess Riedel

      I think Robin Hanson is arguing here “that we defer to almost-transparently self-serving authorities more often than we like to admit to ourselves”, not that proxy access is good or bad.

      • anon

        Who is ‘we’ here? Regulatory agencies are not eager to admit that they’re vulnerable to capture by the regulated interests, but this doesn’t imply that the general public will fail to acknowledge this as a problem.

  • tom

    Before we can be mad about this elitist control over public companies, don’t we have to imagine the future of shareholder activists and state retirement funds, etc…, running things? I’m not worried about hedge funds that are looking for quick profits but I am worrid about a new set of rent seekers. I’m worried that these rent seekers would have a long ugly run before the contradictions became unsurvivable.)

    This is the same problem with people trying to kill the teachers’ unions. Who will step into the breach? We may be getting C-level management now, but why do you suspect we’ll end up will B-level rather than D?

  • anon

    If proxy access is so good for shareholders, why don’t companies commit to it when listing themselves on the stock exchange? After all, well-managed companies should have higher stock prices.

    The same issue applies to anti-takeover provisions; if these provisions turn out to be bad for stockholders, companies could easily refrain from adopting them.

  • Bill

    Just goes to show you how much a corporation is not its shareholders, but its management.

    Shareholders are WDS, Weak Dumb and Scattered.

    And, management likes it that way.

  • Grant

    Is there any economic justification for government involvement in corporate management to begin with? It seems to me that private experimentation in different management and ownership agreements would yield the best results here.

  • http://robertwiblin.wordpress.com Robert Wiblin

    ““We talk about shareholder democracy, but what we really mean is activist hedge funds and state-pension-fund democracy,” she said. “There’s really no evidence this is going to benefit long-term diversified investors, which means the rest of us.””

    Why on Earth would hedge funds have different interests to other shareholders? Don’t they all want to maximise the net present value of dividend payments?

  • Robert Bloomfield

    More evidence that we defer to almost-transparently self-serving authorities more often than we like to admit to ourselves.

    If by “we” you mean politicians who are lobbied intensively by powerful corporate executives who have more political clout than ever, then you are probably right. But I suspect you are making this a more universal argument about the way people are.

  • http://hanson.gmu.edu Robin Hanson

    anon, that is the big hard question.

    tom, we already know what a world without insider trading rules looks like; we didn’t have them until the SEC created them.

    Robert, if the public disliked current rules, politicians would campaign on platforms of changing them, and be elected.