Tuesday, June 22, 2010

Board of Director Reform Being Undermined by ... White House?

Geez, what have things come to where I side with Congress?  The dysfunctional and crony dominated board of directors system in Cramerica is one of the worst aspects of our version of business.  A "you scratch my back, I'll scratch yours" hierarchy, populated by current and former C-level executives in fortress like nature, puts an end to any form of shareholder (i.e. OWNERS) representation.  I could go on for a few hours but I'll spare you - let it be known that when men devoted full time to trying to reform boards & companies (Carl Icahn) have such extreme difficulty we have an issue.

As an aside, how do CEOs who are SO important to their own company and claim their jobs are all consuming - as displayed by the enormous pay packages -  have the extra free time to fly across the country sit on 3-4 other company's boards?  Heck these guys - such as BP or the financial firms - claim to never have knowledge of any of the events that caused their falls from grace (but are of course so integral that losing them requires ever larger pay packages)..... yet seem to have plenty of time to help run other businesses on the side.  But I digress.


In this Bloomberg article I discovered that some form of general board of director reform was being bandied about in the financial regulation bill.  I am not sure why it is part of this bill, but it's there and apparently there was some progress being made.  But alas... the Business Roundtable has found the right people to intervene.  And who says Dems are not business friendly!?  (as long as the business is corporate cronyism)

  • Backroom trading in Congress has put meaningful financial overhaul in jeopardy at the 11th hour.  In two key aspects of the legislation, the Senate has refused to go along with the House version, undermining leverage limits on big, risky financial firms in the first instance and driving a knife through shareholder democracy in the second.
  • ... would close a 75-year-old loophole in American corporate governance, forcing boardrooms to, finally, become accountable to shareholders.    Now, both are at risk.
  • This issue predates the financial crisis; in fact it harkens to the scandals of the 1920s. The problem is that shareholders have no effective way to hold directors accountable. Proxy contests are all but rigged, because incumbent directors use corporate funds to solicit votes; dissidents must spend their own dough.
  • Typically, incumbents capture 99 percent of the votes. Not even Hugo Chavez polls that high (I believe Saddam Hussein did though), and it is no wonder that boards are so apt to ignore shareholder concerns
  • Since the 1990s, reformers have realized that the key to genuine democracy is to grant legitimate non-management candidates access to the company ballot (the proxy card that the board distributes and that all shareholders pay for). (but that would remove monarch like control over the board - unacceptable in Cramerica)   The question is how to define “legitimate.” The Securities and Exchange Commission has proposed a rule that would allow nominations from minority shareholders that owned a reasonable minimum of shares. Of course, nominees would still have to win elections to join the board.
  • Even that dollop of democracy is too much for the Business Roundtable, the lobbying group for chief executives. The Roundtable has been lobbying against proxy access since the idea surfaced. Also, foes of shareholder access have threatened to take the SEC to court if the agency dared to let the owners of a business actually nominate directors.  (the horror of shareholder representation!)
  • In the pending financial reform, both chambers of Congress clarified that the SEC is entitled to write such rules. (in and of itself a shocking development)  However, Senator Christopher Dodd (Newman!), with the apparent backing of the White House, pulled the rug out, rewriting the provision so that only a single shareholder with 5 percent of the stock could gain proxy access.
  • Why is the White House siding with the big boys and against open, democratic corporate elections? Shareholder access is a crucial reform. The real impact wouldn’t be the handful of dissident candidates who actually won. It would be the realization by every director, that, potentially, he or she could be replaced by majority vote. Sounds pretty American to me.  Proxy access is the best weapon to curtail excessive executive pay. Compensation committee chairs who ladled out huge contracts would be especially vulnerable. Perhaps that’s why the Roundtable is so afraid of a fair election.

I assume by "White House" we can infer the firm of Summers, Geithner, and Vampire Squid.  Surely we understand the reasons for this rug pulling - for the job prospects of Mr. Dodd and Mr. Geithner post office and potential windfall in political donations for any others who 'help the cause' betterment of the country.  We should find out where Mr. Dodd lands post government employment by 2011 - the only question is lobbying group or financial firm?  I wait with bated breath.

It is so nice to know a few good men can dictate the terms of legislation and the entire daisy chain of corporate governance.  Now *that's* representation.  [Oct 15, 2009: All of Tim Geithner's (Wall Street) Men

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