CorpGov WayBack Machine: Political Power, Dilution, 1st Virtual Fight, Fiduciary Capitalism

Five years ago we discussed Political Power and Corporate Control: The New Global Politics of Corporate Governance by Gourevitch and Shinn. Here are just a few of their observations:

• Blockholding and minority shareholder protections are negatively correlated.
• Minority shareholder protections and share price are positively correlated.
• Blockholding dips after increased minority shareholder protections are likely the result of sales by “new money” entrepreneurs, rather than old money blockholders (who may fear the tax collector).
• Blockholding may be preferred when uncertainty is high.
• State-owned enterprises are the most aggressive users of ADRs.
• Money flows toward firms and countries that provide shareholder protections. “No other group can have quite this direct an effect on the economy…the economic vote of investors counts greatly against the mass of votes in elections.”
• Where job security is strong, diffusion is weak, and minority shareholder protections are weak.
• Weak intermediate institutions of finance, investment, pensions and stockmarkets are correlated with little voice for shareholder rights.
• “The U.S. Securities regulation system assumes that institutional investors and reputational intermediaries are the agents of investors.” “Yet it has become increasingly clear to many observers that these private actors have multiple, complex incentives…”
• “As much as 10 percent of the total ownership of U.S. public firms was transferred from the existing stockholders to senior managers through stock option grants between 1990 and 2000.”

Ten years ago, we reported that S&P 500 shareholder earnings-per-share experienced dropped 6% due to dilution from options, according to a Bear Stearns report sited by Investor Relations Business (10/23/2000), up from 4% in 1998 and 3% in 1997. Investors in the semiconductor industry were hurt the hardest, with a 43% aggregate decline due to stock options.

In another item, Les Greenberg, an arbitrator for the National Association of Securities Dealers, filed documents with the SEC to formalize a proxy fight to get himself and four others elected to Luby’s 12-member board in January. A 10/24 Wall Street Journal article, “Online Grousing Over Luby’s Escalates to Proxy Solicitation,” indicates no previous proxy solicitation organized over the Internet has ever reached the SEC stage before. The dissident slate and supporters met on a Yahoo Internet board and includes two former Luby’s vice-presidents, a daughter of one of the companies cofounders and an investment manager.

Hawley, James P. and Andrew T. Williams, The Rise of Fiduciary Capitalism: How Institutional Investors Can Make Corporate America More Democratic, University of Pennsylvania Press, 2000. Some of the ideas discussed include the following:

• Institutions could slim down their portfolios. Holding larger proportions in each firm would encourage further monitoring and a sharing of such responsibilities.
• Shareholders could encourage corporations to purchase the services of monitoring firms to provide an independent analysis of proxy issues (see the Corporate Monitoring Project).
• Split chair and CEO positions.
• Include suppliers, employees and other key stakeholders more directly as shareholder and on boards.
• Revise SEC rules to loosen barriers to collective action.
• SEC, banking and state insurance regulators should impose a “statement of obligations” with respect to proxy voting similar to the Department of Labor’s Avon letter and subsequent guidance.
• Ban broker voting. Non-votes would not be counted.
• Guarantee full proxy-voting rights to employees in ESOPs by amending ERISA.