Boardroom Barricades
The outcomes of corporate elections are a foregone conclusion. Balloting for boards of directors is perfectly scripted because management controls the printing press -- and sticks shareholders with the cost of soliciting votes. Dissenters either sell their shares or spend considerable time and money to push candidates, almost always in vain. Michael Eisner, recently removed as chairman of Walt Disney Co. after dissidents withheld 45% of their votes, is the glaring exception. The palace revolt succeeded only because the lead dissenter used his famous last name (Disney) to draw attention.
The obvious cure in this post-Enron age is allowing shareholders, at least those with large blocks of stock, to occasionally nominate candidates for corporate boards of directors. Last October, Securities and Exchange Commission Chairman William H. Donaldson enthusiastically said that his plan to do so would help to dethrone the “imperial CEO.” Yet the SEC’s modest proposal is dangerously close to being killed by the very royalty it would help to remove.
The proposal would work well in concert with the 2002 Sarbanes-Oxley law, which toughened up corporate accounting and reporting requirements, and ongoing federal and state fraud investigations. Tougher rules and strict enforcement send a message that wrongdoing won’t be tolerated. An independent set of eyeballs in the boardroom would serve to remind management-nominated directors that they’re beholden to shareholders. Yet, to hear business leaders tell it, giving limited voting rights to the folks who own the companies would all but cripple Corporate America. The Business Roundtable, an association of corporate CEOs, has warned that letting shareholders in on the nominating process would open the door to “special-interest organizations intent on hijacking the director election process.”
On that score, the Roundtable is right because these dissenters would reject the status quo. Labor organizations undoubtedly would use their retirement funds as battering rams. Large institutional investors frustrated by unresponsive management, poor earning performance or shortsighted corporate strategies also would be banging on the boardroom door. But these disparate groups first would have to muster enough votes, or their designated hijackers wouldn’t get past the lobby. And that wouldn’t always be easy given their conflicting views -- meaning boardrooms aren’t in danger of being overtaken by those with narrow interests.
The managerial class argues that what’s good for the boardroom is good for shareholders, and it’s counting on a cadre of Washington lobbyists and a friendly White House to maintain the status quo. The SEC proposal would help revive investor confidence in the public markets. But unless Donaldson, the swing vote on this issue, acts quickly, it will be business as usual at next year’s annual meetings. Good news for the ruling class, but not for the kingdom’s inhabitants.
