Thursday, September 2, 2010

Threat to Capitalism Warning Notice: Expansion of Shareholder Rights

If you weren't scared by my earlier post, you w'll be by this one!

They say that courage is like a potato chip.  Try one and you're likely to be back for more.

After reading my earlier warning on the appearance of yet another manifest danger to the free market system, one of our readers has called my attention to an even greater danger.  And one frankly I had been avoiding mentioning.  But fortified with yesterday's "first chip" of courage, here I am today confronting another manifest imagined danger.

How much fear can one human bear?  I suppose with courage more than one initially thought.  If you're feeling brave, read on.

I know that many of you out there will be saying what could be a greater danger than more disclosure of CEO pay packages?  Socialists on motorcycles?  Disclosure of senior officers' expense reports?  You had how many "massages" in a single night at the Pen in Manila?  Just how many scotches do you have to drink to run up a $750 bar tab in five hours?  By the way what were you doing in a bar for five hours on a business trip?

No this time the danger is an expansion of shareholder rights.  And again we have the FT to thank for making us all aware of the stealth assaults on our way of life, though I would note  more in sadness  than malice that they did also give a forum to those who support the measure.   Fringe individuals and groups like two former SEC Chairmen, Calpers, self-appointed corporate governance experts.  So we may have to mark the FT down as a waverer in the fight to preserve our way of life. 
The proposed SEC rule on "proxy access" would allow shareholders to nominate up to a quarter of a company's board members. It would allow shareholders to nominate directors if they own 1 per cent to 5 per cent of stock, depending on the company's size, and amend a federal measure that allows management to exclude shareholder proposals that nominate directors.
Sounds simple.  And even good.  Who could argue with an expansion of democracy?  Of shareholders' rights?   
The rule under discussion is "probably the most flawed and unworkable proposal" the SEC has issued on proxy access, the US Chamber of Commerce, the business lobby group, wrote in its letter. Tom Quaadman, its executive director for capital markets, said yesterday that the group was keeping all of its options open, including a lawsuit against the SEC.

Wachtell, Lipton, a big Wall Street law firm, said the proposal would have "negative consequences" for US companies and competitiveness.
When a distinguished firm like Wachtell Lipton or the US Chamber of Commerce weigh in, you know you should listen seriously.  No doubt they're remembering just how well the boards of Citigroup, Lehman, Bear Stearns, Enron, and others - selected, I would remind you, without shareholder interference -  enhanced "competitiveness" to know that the system works just fine as it is.

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