The Shareholder Bill of Rights: Better Late than Never

I’ll start off here with a caveat…I know that Chuck Schumer is pushing this bill because of the populist impression it gives, keeping in mind that some of his biggest fundraisers over the years have been pro-corporate entrenchment and traditional Wall Street interests.  I also know that this is the type of after-the-fall legislation that always come after a crisis, not before where it could’ve been useful.

And you know what?  I don’t care about these minor quibbles.  I think the reforms proposed in the Shareholder Bill of Rights are long-overdue and will lead to much more accountability from corporations to their shareholders.

From BreakingViews (via CNNMoney):
The Shareholder Bill of Rights Act of 2009…would put an end to staggered board elections, making proxy fights easier. Elections would be decided by majority votes and companies would have to establish a risk committee. Firms would have to split the chairman and chief executive roles. Shareholders with stakes of more than 1% would be allowed to nominate directors to stand for election. And companies would hold advisory votes on executive pay. Taken together, these would increase the power of shareholders.

Why these reforms weren’t enacted after the Worldcom/ Enron twin disasters of the earlier part of this decade I don’t quite understand.

The most important aspect in the bill of rights, in my opinion, is Say on Pay.  Nowhere does shareholder abuse take place so frequently and blatantly than in the salary/bonus/perks arena.

Moreover, the Securities and Exchange Commission is currently considering a rule change to give shareholders the right to propose directors. And about 150 companies are expected to adopt advisory “say on pay” votes this proxy season, almost three times more than did so in 2007, according to RiskMetrics.

In some respect, compensation is not just one issue, it’s the only issue.  Much of the obscene risk that led to our recent financial crisis was egged on by a faulty comp system which emboldened employees and management to think only about this quarter’s profits without regard to what the longer-term result would be.  How else can you possibly explain the trillions in risk at AIG, Merrill, Citi, Bear and Lehman?  The historic losses at these firms defy the laws of physics, yet they were generated almost exclusively as a result of out-of-control short-term bonus incentives.  So with say-on-pay, we’re not just talking about about limiting the dollar figures of salaries, what we’re really trying to democratize is the methodology and calculation of incentives and bonuses.

If even some of these measures go through, Carl Icahn can cease his campaign to move every public company from incorporation in Delaware to incorporation in North Dakota!  More importantly, we the shareholders will have more powerful weapons to make sure that our best interests are being served.

I’ll be keeping this site updated on this proposed legislation.  Here is a copy of the Bill itself, posted on Davis Wright Tremaine’s Corporate Law Blog: Shareholder Bill of Rights Bill

Full Story: Shareholder Bill of Rights (CNN)