Shareholders’ rights

The front of today’s WSJ notes a recent SEC action that is intended to give more power to shareholders. While I love voting on the shares of stock I own, put me down as skeptical that this change will be a good thing.

The thing I am going to focus on in the article is this:

For now, shareholders will have greater sway over who is eligible for election to a corporate board. Those powers mean that investors, including hedge funds, pension funds and unions, could eventually have greater influence over the strategic and financial choices of U.S. companies.

Now don’t get me wrong. I like voting against idiots who somehow make it on to boards of corporations I own stock in. When I get my ballot in the mail, I carefully vet each director, and often vote against half the board. You should try this some time, there really are some yahoos and total token placements on boards. But, I digress.

Many of you have maybe seen the epic letter from T.J. Rodgers — if you haven’t, go and read it and come back. It’s worth the time.

This change is, basically what I would call “T.J. Rodger’s nightmare.” In Mr. Rodgers awesome missive, he highlights a bunch of pet issues that so-called activist investors have with companies. They are, according to him, whether a company:

  • is “green,” or environmentally conscious.
  • does or does not do business with certain countries or groups of people.
  • supplies the U.S. Armed Forces.
  • is “involved in the community” in appropriate ways.
  • pays its CEO too much compared with its lowest-paid employee.
  • pays its CEO too much as declared by self-appointed “industry watchdogs.”
  • gives to certain charities.
  • is willing to consider layoffs when the company is losing money.
  • is willing to consider layoffs to streamline its organization (so-called downsizing).
  • has a retirement plan.
  • pays for all or part of a health-care plan.
  • budgets a certain minimum percentage of payroll costs for employee training.
  • places employees on its Board of Directors (you forgot this one).
  • shares its profits with employees.

Now, imagine that multiple groups with these interests — nuns, labor unions, environmentalists, what have you, can nominate up to 1/4 of a company’s board?

My prediction is that, if these changes stands, American companies are going to be less like Cyprus, and more like GM, which conceded many of these demands long ago, and they are doing absolutely great. Right?

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