Professor Bainbridge...on law, politics, religion, culture & food

Manne on Shareholder Democracy

Henry Manne weighs in on shareholder activism with a powerful Wall Street Journal op-ed (available for the next 7 days to nonsubscribers here). Money quotes:

1. "They're back! Every 20 or 30 years shareholder democracy ideas come back in vogue, and their time seems to have arrived again -- with a vengeance."
2. "The SEC is huddling on whether to facilitate direct shareholder nomination of directors through a new interpretation of its shareholder proposal rule. A prominent professor at Harvard Law School, Lucian Bebchuk, proposes, among other democratizing moves, amending state corporation laws to encourage contested elections for board members. ... There is absolutely nothing new in any of this discussion. The real world has not changed in any significant way, and our knowledge of corporate governance has not been revolutionized by some intellectual breakthrough. Furthermore, the provenance of the "corporate democracy" oxymoron has long been understood. The idea results from the inappropriate conflation of political ideals with market institutions. Its persistence can only be attributed to the intelligentsia's far greater comfort and familiarity with political models and events than with knowledge and appreciation of how markets function."
3. "Corporate voting is not about reallocating resources, as is inevitably involved in political elections, nor is it about making actual managerial decisions, as in New England town meetings. There is no room in this scenario for contested elections or nominations to be made willy-nilly by the shareholders. Both of these ideas are part and parcel of the political version of elections. It is hard not to agree with Professor Stephen Bainbridge of UCLA Law School that, if either of these ideas had any real merit, we would have seen them tried and adopted in the real corporate world. We do not." (I think Henry's probably refering to my article, The Case for Limited Shareholder Voting Rights.)
4. "It ill behooves corporate democrats like Professor Bebchuk to deride this system as not satisfactorily monitoring managers when he knows full well that regulatory interferences are mainly responsible for poor performance in the market for corporate control and, for that matter, for much of the steep escalation in executive compensation in recent years. That they would then propose intricate regulatory provisions for more shareholder democracy is evidence of the mindset that causes the problems."
5. "Perhaps many of the advocates of shareholder democracy actually have a hidden agenda, most usually either a greater degree of government control over private enterprises, or more power to unions via their control of pension funds. Neither has proved beneficial to the investing public or is consistent with a vigorous and innovative public economy."
6. "We need corporate activists today more than ever, but we need them to lobby and argue for repeal of our many costly and ill-serving bits of corporate regulation."

All in all, it's a brilliant spanking of the shareholder activists, which I highly commend to your attention. If nothing else, it proves that Henry is still one of the legal academy's greatest controversialists and analysts.