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]