Posted on 05/25/2007 10:22:30 PM PDT by bruinbirdman
The “say on pay” bill forces all corporations to allow shareholders a non-binding vote on CEO compensation.
The idea is to shame directors into lowering chief executives’ pay, which the bill’s supporters claim is out of control.
Although the bill is touted as a means of protecting the interests of shareholders, what it actually represents is a usurpation of corporate control. It therefore is a violation of shareholders’ rights.
Those clamoring for this bill insist that legislation is necessary to give shareholders a say on pay. But shareholders already have a say — i.e., a means of exercising control over corporate governance.
If a shareholder is upset about CEO pay or any other management issue, they have three legitimate free-market options. They can vote with their dollars by selling their shares, accumulate a controlling interest in the company (typically 51%) and impose a new board, or persuade a majority of shareholders to replace the board with people sympathetic to their concerns.
If enough shareholders really wanted a vote on CEO pay, they could demand a change to their company’s bylaws. But very few companies have adopted such changes — suggesting that most shareholders aren’t actually interested in such control.
After all, one of the great benefits of the corporate structure is a clear division of labor: Shareholders invest capital but leave the business management to an elected board and its chosen executives. Rational shareholders don’t want to micromanage public companies by participating in such decisions as setting CEO pay.
A loud minority
It is a minority of “activist” shareholders — together with anti-business politicians — who are shrieking about “outrageous” CEO pay packages. And it is highly revealing that instead of pursuing one of the above methods that respect everyone’s freedom, they are agitating for legislation — seeking to wield the power of government to force their views of corporate governance and CEO pay on the majority of shareholders.
What motivates these activists isn’t the well-being — i.e., the wealth — of fellow shareholders but an anti-profit, anti-capitalist social agenda. It is they who call for corporate “social responsibility” — the idea that executives and shareholders should sacrifice money making for the sake of sundry “stakeholders.”
This is incompatible with the purpose of business and with the responsibility of corporate leaders to maximize shareholder wealth.
Indeed, if these activists were truly concerned with the shareholders, and the quality of boards and chief executives that they hire, they would advocate for less government regulation, not more. Regulations today prevent market forces from fully operating in corporate America.
For instance, the Williams Act restricts stock accumulation, and other regulations place strict constraints on board membership and hostile takeovers, all of which make ousting incompetent management more difficult. Sarbanes-Oxley, that incredible perversion of justice, has cost innocent businesspeople billions of dollars in the name of fighting the misdeeds committed by others.
This has made running an honest business more precarious and less enjoyable.
Anyone truly concerned about shareholders — and about the health of corporate America — should be campaigning for the repeal of these regulations.
But far from fighting government controls, shareholder activists fight to hand control over American corporations to the government — or to organizations controlled indirectly by politicians, such as public pension plans. This prompts many businesses to flee to the relative safety of private ownership — i.e., being owned and run by professionals — so that they can continue to maximize their wealth.
Where will it stop?
With this ever-increasing web of regulations, does anyone really believe that the government will stop at non-binding shareholder votes, that the next step won’t be the imposition of binding votes and, longer term, government limits on CEO pay?
Rep. Barney Frank, D-Mass., doesn’t. The House Financial Services Committee chairman — who has supported outright caps on CEO pay — has threatened that if say on pay doesn’t sufficiently reduce CEO compensation relative to that of other employees, “then we will do something more.”
Don’t be fooled by those who say they just want to give shareholders a say. The real issue is: Who has the right to decide how a business is run — its owners, or activists who have seized the power of governmental coercion?
Yaron Brook is executive director of the Ayn Rand Institute in Irvine, Calif.
Makes sense to me.
After all, we are all calling the Capitol and White House to protest Amnesty, and we are being ignored...
Cheers!
Needs to have a rider allowing voters to have a say on congress expenses accounts including paid junkets.
“Rep. Barney Frank”
This guy is a US Representative? I thought he was the guy conservatives who are bad at debate invited on as a punching bag to make themselves look good. I never realized some people actually believe him.
Sarcasm aside, he really is an idiot. This is the guy who says the government should ban people from making too much money because it’s “just not fair! waaa”
Shareholders are the owners of any corporation
Shareholders can already submit proposals to be voted on at the annual meeting. Citigroup, Coca Cola, Merk, AT&T, Lockheed Martin, and others have (or will have) voted on proposals concerning executive pay this year.
If Congress want to do some good make the companies send the share holders information about compensation of the executives and the directors which approved it or disapproved it. The stockholders would then vote on approval of the package or reject it. They could also fire the board if they are displeased.
The information must be sent out in plain language and not “legalize” that is designed to hide the truth.
If shareholders want a say in how much the officers of THEIR COMPANIES (ie officers do not OWN the company, SHAREHOLDERS do) then if they want to be involved and adopt policies the majority of them want, they should be able to do so.
"Shareholders can already submit proposals to be voted on at the annual meeting. "
Shareholders own the company. The company usually retains considerable shares itself.
Shareholders can get together and try to elect directors (representatives who write the rules, including compensation) to vote their wishes.
Kinda like the American representative form of government.
yitbos
I agree with you, but I think the problem is partly greed and partly fashion. The board sees large compensation packages for the CEO as a justification for thier own excesses. They sell it as the proposition that they have to have this guy, because this guy is so good and without this guy we’re doomed, blah, blah, blah. Sorry folks - no one is irreplaceable. Some people are very good, but no one is so good they can’t be replaced.
It’ll swing back to normal eventually, it’s already starting. People are looking at executive compensation packages and asking if they are getting their money’s worth. In many instances, they’re not.
“If shareholders want a say in how much the officers of THEIR COMPANIES (ie officers do not OWN the company, SHAREHOLDERS do) then if they want to be involved and adopt policies the majority of them want, they should be able to do so.”
They do have a say and do vote, but this bill is to give the minority shareholders power over the majority shareholders.
This issue just points out how many stupid people are investing today. One of the things you look into when researching a company to invest in is who is the majority owners and how will does their representatives(Board of Directors) run the company. When you invest into a company, you are essentially investing your money with the belief that the majority shareholders are competent to run the company. If you don’t agree with them then either you buy enough stock to become the majority shareholder/controlling interest or you invest somewhere else.
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