As Opening Bell mentioned this morning, shareholder democracy took a turn for the weird recently when the Securities and Exchange Commission began telling major public corporations that they would have to subsidize shareholder proposals urging the company to take a lobbying position in favor of universal health care. Boeing, General Motors, United Technologies, Wendy's International and Xcel Energy have all received word from the SEC that they'll have to include these shareholder proposals in the official proxy materials, according to the New York Times.
After the jump, we explain why these proposals are useless, at best, unduly costly and possibly dangerous. Also: a law professor explains better ways to handle these things.
In one sense, the shareholder proposals urging universal health care seem less than useless. The companies cannot simply summon universal health care into existence, so it's a bit like adopting wishing for something as an official corporate policy.
What's more, asking shareholders to opine on health care policy threatens to unnecessarily complicate the process of corporate governance. It risks distracting shareholders from more fundamental management issues such as board membership. And it increases the cost of shareholding: now responsible corporate citizenship requires you bone up on health care policy too.
But, in another sense, these proposals might actually be dangerous. The capture of so many arms of our government--party machinery, congressional committees, regulatory agencies--by lobbyists for special interests is well-known, and is viewed by many as a serious threat to democratic legitimacy. Probably the best that can be said is that competition between special interests often acts as a kind of check-and-balance mechanism. These shareholder proposals about universal health are also likely to be captured by special interests, especially labor unions acting through labor dominated pension funds. Handing control of corporate lobbying efforts over to these interests could remove the check-and-balance aspect of corporate lobbying.
Law professor Larry Ribstein has a few suggestions on better ways to deal with this issue.
• Common Sense: Universal health care has no more of a place at shareholder meetings than the Iraq war. Leave this out of corporate governance and keep it where it belongs: in the political sphere.
• Technology: Individuals are already free to spend their own money to sponsor shareholder proposals. What's at issue here is whether the company should subsidize these efforts. "Perhaps an even better approach is to eliminate the issue of whether a corporation needs to subsidize shareholder proposals by making them dirt cheap," Ribstein writes. Shareholder chat rooms, anyone?
• Federalism: Why is the SEC making these decision at all. "The best approach of all, which I've advocated all along, is simply to get the SEC out of the business of reviewing shareholder proposals," Ribstein argues. "What gets discussed at a shareholder meeting should be a matter of state law and, if enabled by state law, the company's charter. The domain of the securities laws stops at accurately disclosing the company's rules."
Discussing universal health care at shareholder meetings [Ideoblog]
Posted by guest , May 27, 2008 11:22AM
Rep Dr Ron Paul fully concurs with Pr Ribstein: the SEC should be abolished to rectify this obviously ludicrous liberal regulatory over-reach.
Posted by guest , May 27, 2008 11:25AM
if any hot liberal chicks want to invest in the Towering Python Hedge Fund let me know. No documents, no sophisticated investors, but will pay you a fee if early withdrawal occurs.
Posted by guest , May 27, 2008 11:28AM
Off topic:
Did anyone hear Santelli's rant this morning claiming there's no way speculators can be driving up oil prices? Could somone who knows oil futures closing conventions explain? (I can guess on my own so let's hold off on that.)
Posted by guest , May 27, 2008 12:06PM
Good point Carney. Imagine labor unions influencing healthcare policy by forcing corporations to lobby their socialist agenda?? Ugh.
Unions are so outdated.
Posted by Suits , May 27, 2008 12:15PM
11:28
His point was that any speculator who is long on expiry will have to sell that day (or take delivery), and this should create downward pressure on prices. I don't know a lot about rolling contracts, but his point does seem to have some merit.
The others tried to say the specs are just crossing with other specs, but Santelli failed to point out if specs are long and short in roughly equal sizes, there's no reason to believe their actions will cause a bubble in prices.
Posted by guest , May 27, 2008 1:44PM
This statement is rubbish: "Universal health care has no more of a place at shareholder meetings than the Iraq war. Leave this out of corporate governance and keep it where it belongs: in the political sphere".
Corporate healthcare costs directly impact the shareholder. Universal health care is a possible solution. Why shouldn't shareholders demand that this be discussed at shareholder meetings??
Posted by guest , May 27, 2008 2:01PM
What's with these shareholders acting like they own the company?
Posted by onetwo , May 27, 2008 2:06PM
@1:44 - so, really, all political agendas should be discussed at shareholder meetings? Let's open the proxies to trade deals, subsidies, and transfer payments.
Heck, while we're at it, we should probably have shareholders asking management to force china to unpeg the yuan, whether venezuela should be labeled a terrorist state, and who we should push to head Cuba v 2.0.
That should lead to some productive shareholder meetings! Case in point, look at XOM with the Rockies all up in their grillz. Do you think the Rockers are creating value for other shareholders or detracting from management's concentration.
Shareholders can "demand" anything be discussed at the meetings, but that doesn't mean management should have to pay for it.
Posted by guest , May 27, 2008 4:41PM
"Shareholders can "demand" anything be discussed at the meetings, but that doesn't mean management should have to pay for it."
Isn't it the shareholders who pay for it? Management are the shareholders' employees, last I checked...
Posted by guest , May 27, 2008 10:35PM
"Corporate healthcare costs directly impact the shareholder. Universal health care is a possible solution. Why shouldn't shareholders demand that this be discussed at shareholder meetings??"
Health care benefits are a form of compensation. Compensation is a function of labor supply and labor demand. Consider an employee who receives health care benefits amounting to 20% of his total compensation. If the government adopts universal health care, that employee effectively receives a 20% cut in pay. What would you do if your employer cut your compensation by 20%? I know what I'd do. I'd go get another job that pays me market-clearing compensation, which--all else remaining equal--we can safely assume will be roughly equal to what it is now (actually it would have to be a little bit higher if paid in the form of wages, since the quirks of the tax code lead most employees to prefer to receive at least some compensation in the form of health care benefits instead of cash).
This is why it's silly for people to say that wages have stagnated for the past 15 years. Yes, wages have stagnated, but what matters is total compensation and total compensation has been increasing in real terms as health care benefits have grown to make up a bigger portion of the average compensation package. In other words, employers have been holding wage growth down to reflect higher non-wage compensation costs. Take away these higher non-wage compensation costs and wages will rise to fill the gap. Labor is worth what labor is worth (putting aside any distortions caused by the tax increases necessary to finance universal health care).
Posted by guest , May 28, 2008 4:56AM
"This is why it's silly for people to say that wages have stagnated for the past 15 years. Yes, wages have stagnated, but what matters is total compensation and total compensation has been increasing in real terms as health care benefits have grown to make up a bigger portion of the average compensation package. In other words, employers have been holding wage growth down to reflect higher non-wage compensation costs. Take away these higher non-wage compensation costs and wages will rise to fill the gap. Labor is worth what labor is worth (putting aside any distortions caused by the tax increases necessary to finance universal health care)."
Methinks you're overlooking the whole co-pay situation which I'm pretty damned sure my father's generation didn't have to cover. Sizable premiums (at least at my firm), copays, less than 100% coverage on many procedures/medicines, and so on.
Posted by guest , May 28, 2008 7:26AM
"Methinks you're overlooking the whole co-pay situation which I'm pretty damned sure my father's generation didn't have to cover. Sizable premiums (at least at my firm), copays, less than 100% coverage on many procedures/medicines, and so on."
The increases in premiums and co-pays is a result of real health care costs increasing at a faster rate than real compensation otherwise would (real compensation just doesn't grow at double digit rates in developed countries). In such cases, it's not enough to just hold down wage growth to keep compensation at market-clearing levels; employers also have to shift some of the excess health care costs to employees.
The implication of this is that employees may benefit if universal health care provides the same quantity and quality of health care at lower prices than is currently delivered through employer-provided health care.
But this is definitely not the same thing as saying compensation costs of employers will decline if we adopt universal health care--which was what the original post to which I responded implied. Again, labor is worth what labor is worth.
Let me put it this way: Suppose everybody paid for health care out of their own pocket using wages earned through their labor (what a crazy concept). If we adopted universal health care and instead required people to pay for health care through taxes on their wage income, would you expect employer's compensation costs to fall? How is the situation changed by the fact that many people pay for health care with benefits earned through their labor?