More mush for the wimps. The star blogger for a global news service has discovered the terrible vacuum in American capitalism� investors (read owners) are only interested in higher prices for the shares� and the sooner the better, please. What an amazing and shocking discovery. If only American investors would look to the long term, there would be growth and income and jobs, and a culture of business that saves America. These panels discussing high flown ideas with deep thinkers are such glorious opportunities to stroke your own ego and lead to television appearances.
Sorry to be writing this on Christmas Eve, but this ideal of shareholder responsibility and assuming power over selfish managers just has no teeth to it. We�re talking pie in the sky.
For one thing, shareholders have very little real power. They can vote on the members of the board of directors, theoretically supposed to be working for the shareholders. But, wake up; these votes are simply advisory� and need not be followed in any instance� should management and its handpicked board choose to ignore it. That�s shareholder democracy for you. Institutional investors need to meet their return target for their rank and file.
They can even vote against the extremes of CEO compensation� but again the vote is not binding on anyone and has no teeth in it. Some democracy, huh!
Then, there�s another serious institutional drawback. Today, there is more money in passive index funds and ETFs, which are also structured as passive indexes. Meaning that the large institutional holders actually have no leverage over management since they must hold these shares as part of an index. Management and boards need not fear that index funds in tandem could dump their stock and drive down the price of the shares. It�s doubtful there will be any radical change in the way business is done. The era when mutual funds had the choice of selling their stock is without any influence. The largest corporations in the land don�t give a damn. They�d just as soon get rid of the would-be reformers that pester the CEO at annual meetings.
I am dismayed that the cottage industry in corporate governance has forced so few changes in American capitalism. CEO compensation is still out of hand. Investors are more worried about their nest-eggs than in grabbing real power as owners. The movement requires a fire-brand leader who can organize the large institutional shareholders who have been mainly followers of compromising consensus views. Even Warren Buffett, the unequaled investor of our age, confesses how difficult it is to break the hold of corporate conformity and vote against senior management.
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