Tag Archives | United States Proxy Exchange

Retail Shareowners – Facilitating Votes and Activism: Part 2

Engaging Retail Inestors

Image from retailinvestorconferences.com

In part 2 of a post on facilitating votes and activism by retail shareowners I continue to speculate on what could be done to improve the situation by recalling some of the better features of major efforts to date and possible improvements that would help conscientious shareowners. As Mark Latham reminded me after yesterday’s part 1,

We retail shareowners own all of the shares traded in the United States — 1/3 directly through buying shares and 2/3 indirectly through our investments in institutions like mutual and pension funds. Those two modes of ownership result in very different patterns of voting on director elections and other shareowner decisions…

That’s why Proxy Democracy et al are so important: They help us vote our directly owned stock better (in our interests), and they help us push intermediaries to vote our indirectly owned stock better (in our interests)…
Somehow this reminds me of the saying “All politics is local.” In this case: “All stock ownership is retail.”

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Retail Shareowners – Facilitating Votes and Activism: Part 1

Engaging Retail Inestors

Image from retailinvestorconferences.com

Retail shareowners own about 1/3 of shares traded in the United States but vote only about 1/3 of the shares we own. As Nell Minow once quipped, “you can lead a shareholder to a lot of dense material, but you can’t make them read it.” (Video Friday: SEC Proxy Voting Roundtable) Our voting influence is much smaller than it could be. If more retail shareowners not only voted but participated in discussions on corporate governance and in filing shareholder proposals, that might lead to greater accountability of managers and boards. Continue Reading →

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Pershing Square's Battle Over CP Argues for Proxy Access & Alternative Proxy Advice

After his victory at Canadian Pacific Railway (CP), Ackman claimed “Directors are sitting up more straight and reading board materials more carefully and questioning the CEO more intently. That is a very, very good thing.” Who can argue with that? But will better posture, thorough reading of thousands of pages of board materials and asking more questions be enough? I argue it would pay boards to get more frequent advice from shareowners and better analysis by proxy advisors. Continue Reading →

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Dreamworks Animation (DWA): How I Voted – Proxy Score 64

Dreamworks Animation (DWA) ($DWA) is one of the stocks in my portfolio. Their annual meeting is coming up on 5/29/2012. Voting ends 5/28 on Moxy Vote’s proxy voting platform, which had 4 recommendations “from good causes,” including 2 consolidations, when I checked and voted on 5/22. ProxyDemocracy.org had 1 fund voting.  I voted with management 64% of the time. Continue Reading →

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Juniper Networks (JNPR): How I Voted – Proxy Score 62

Juniper Networks ($JNPR) is one of the stocks in my portfolio. Their annual meeting is coming up on 5/22/2012. Voting ends 5/21 on Moxy Vote’s proxy voting platform, which had five recommendations “from good causes,” including two consolidations, when I checked and voted on 5/19. ProxyDemocracy.org had four funds voting.  I voted with management 62% of the time. Continue Reading →

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Reflections On 2011

The United States Proxy Exchange (USPX) is a experiment premised on the notion that a grass roots movement—by individual shareowners, for individual shareowners and funded entirely by dues of individual shaeowners—can improve corporate governance and address financial abuse. It is too early to say for sure, but based on what we achieved in 2011, the experiment appears to be working. Accomplishments included: Continue Reading →

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USPX Website Launch: From Occupying to Transforming Wall Street

Members of the United States Proxy Exchange (USPX) are celebrating the launch of our new website today. The site is key to our plan to decentralize the organization, a strategy we formulated at a June 11 meeting of long-term members. The new site will provide members with a host of social networking tools aimed at the specific needs of shareowners, allowing us to network and self-organize around core issues. One of many new tools is the ability to create a blog or move a blog to the USPX server, as I have done with CorpGov.net. Hopefully, it will help us move from occupying Wall Street to transforming Wall Street.

The United States Proxy Exchange (USPX) is a non-profit organization, a sort of chamber of commerce for shareowners, dedicated to facilitating shareowner rights Continue Reading →

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Executive Compensation: Its Complicated

Andrew Liazos, writing for CFO magazine, argues that a law enacted years ago in response to Enron poses new tax risk for deferred compensation in that Section 409A could inhibit desirable restructuring of executive pay in response to possible “say on pay” no votes.

A 2009 notice from the IRS granted special relief to TARP recipients, stating:

the application of 409A(a) in these circumstances would produce a disincentive for TARP recipients to comply with the Special Master’s advisory opinions and act in accordance with the public interest, severely diminishing the Special Master’s ability to fulfill his intended role and damaging the entire TARP program.

However, no such relief has been granted to other companies now that say on pay is Continue Reading →

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Will the SEC Enforce Rule 14a-8?

The SEC has a reputation of enforcing regulations against two-bit players in the financial arena while tiptoeing around the big boys. Back in December, Apache Corp. (APA) announced plans to flaunt US securities laws. The Commission’s response has been three months of unbroken silence.

Apache’s CEO, Stephen Farris, is somewhat of a crusader against Rule 14a-8. In a 2007 comment letter to the SEC, he argued that precatory proposals should be banned. Readers of this blog will remember how he had Apache Corp. sue shareowner John Chevedden last year to block one of his shareowner proposals (see Pyrrhic Victory? Apache Delays Shareowner Proposal, Loses Attempt to Require Broker Letters From DTC March 10, 2010).

That lawsuit allowed Apache to exclude Mr. Chevedden’s proposal from their proxy materials for 2010, but it gave the corporation no basis for excluding future proposals. It was a very narrow decision.

Not surprisingly, for 2011, Mr. Chevedden has submitted a new proposal to Apache, and he has strengthened his evidence of eligibility to address any concerns raised by the court in last year’s lawsuit.

This time around, Apache should include Mr. Chevedden’s proposal with their proxy materials. Instead, they are acting as if last year’s narrow decision was a license to exclude proposals from Mr. Chevedden on an ongoing basis. This year, they have skipped the no-action process. They have skipped the courts. In a December 29 letter to the SEC, Apache merely informed the Commission they would be excluding Mr. Chevedden’s proposal for 2011.

To understand the merits of Apache’s latest action—or the lack thereof—let me provide some background. I won’t go into the convoluted argument Apache’s lawyers made in last year’s Apache vs. Chevedden lawsuit. It was the same argument Hain Celestial had made in a no-action request to the SEC in 2008 concerning another of Mr. Chevedden’s proposals. SEC staff had denied that request. A Houston firm bringing a case before a Houston judge with representation from a prominent Houston law firm, Apache hoped to have more success with the argument than had Hain Celestial. Chevedden couldn’t afford a lawyer and defended himself remotely from California.

As it turned out, the judge rejected Apache’s convoluted argument, but she found a reason to allow them to block Chevedden’s proposal anyway. The reason was contrived, but it is important for understanding what is going on today. I will briefly explain:

Under Rule 14a-8,  shareowners must prove their ownership of shares in order to submit a proposal. They can do so with a letter from their bank or broker. But many financial institutions are conglomerates with multiple affiliated or subsidiary companies. Under Rule 14a-8, does a verification letter have to come from the specific firm that holds the proponent’s shares, or can it come from a parent, affiliate or subsidiary? Stated another way, does the letter have to be under the “right” letterhead? In the seventy year history of Rule 14a-8, I don’t think this novel issue has ever been raised. I believe such a requirement would needlessly complicate the process of submitting proposals. For example, if a proponent holds shares through Fidelity Brokerage Services, shouldn’t a letter on Fidelity Investments stationary suffice? The court disagreed, but its decision hinged on more than that:

Mr. Cheveddden held his shares through a bank called Ram Trust Services (RTS). Apache’s lawyers had visited the RTS website and noticed that RTS has a wholly owned broker subsidiary, Atlantic Financial Services (AFS). They then hypothesized that, perhaps, Mr. Chevedden actually held his shares through the broker subsidiary and not RTS. They then proposed—and the judge accepted that—the letter evidencing Mr. Chevedden’s share ownership should, perhaps, have come from AFS and not RTS. Here is what the judge said:

The record suggests that Atlantic Financial Services of Maine, Inc., a subsidiary of RTS … may be the relevant broker rather than RTS. Atlantic Financial Services did not submit a letter confirming Chevedden’s stock ownership. RTS did not even mention Atlantic Financial Services in any of its letters to Apache.

On these peculiar grounds, the judge ruled that Apache could ignore Mr. Chevedden’s 2010 proposal. But she was explicit that the ruling was narrow, applying only to the facts in that particular case:

The ruling is narrow. This court does not rule on what Chevedden had to submit to comply with Rule 14a-8(b)(2). The only ruling is that what Chevedden did submit within the deadline set under that rule did not meet its requirements.

After the judge’s ruling, Mr. Chevedden followed-up with RTS. They confirmed that they did in fact directly hold Mr. Chevedden’s shares. Their 2010 letter made no mention of AFS because AFS played no role in the custody of Mr. Chevedden’s shares. For purposes of Rule 14a-8, RTS was the record holder of Mr. Chevedden’s securities. The judge ruled “narrowly” against him because she thought, perhaps, AFS might be the real record holder.

Apache’s “success” has prompted other companies to submit frivolous no-action requests targeting Mr. Chevedden’s proposals, claiming they may do so based on the Apache vs. Chevedden decision. In all cases where Commission staff have so far made decisions, they have rejected these requests (see Retail Proponents Survive Eligibility Challenges March 9, 2011). Now KBR has hired the same lawyer that represented Apache in Apache vs. Chevedden to file a similar lawsuit before the same judge. They are no doubt hoping for a similarly flawed ruling. This has become a farce.

Apache was able to ignore Mr. Chevedden’s 2010 proposal, but as I have mentioned, he has submitted another one for 2011. This time, he provided a verification letter from RTS that makes it absolutely clear that they are the owner of record for his shares. There should be no issue here. He has addressed the court’s contrived concern, so the proposal should be included in Apache’s 2011 proxy material. Instead, Apache is simply ignoring this latest proposal, and they have informed the SEC of their intention. They are flaunting Rule 14a-8.

What is the SEC going to do? It has been three months now, and all we have heard from them is silence. On March 2, Apache filed preliminary proxy materials with the SEC that did not include Mr. Cheveden’s latest proposal. In a week or two, they should file their final proxy materials.

Apache is forcing this issue, and they clearly expect the SEC to back down. If that happens, expect copycat firms to next year also bypass the courts and the no-action process and similarly ignore Mr. Chevedden’s proposals. Rule 14a-8 is being trampled, placing every shareowner’s ability to submit proposals at risk.

Yesterday, the United States Proxy Exchange wrote a letter to the SEC. It walks through Apache’s latest frivolous excuses for excluding Mr. Chevedden’s proposal this year, discrediting them one by one. On behalf of the shareowner community, it asks the SEC to enforce Rule 14a-8.

 

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Update on Virtual Shareowner Meetings

As they have done for the past few years, Intel Corp. hosted a hybrid shareowner meeting today, allowing shareowners to attend in person or via the Internet. This meeting was important because Intel had planned to make it a virtual meeting, hosted exclusively on the Internet. A strong reaction from shareowners prompted Intel to back down for this year, but this may be just a one-year reprieve. As the same technology used for today’s hybrid meeting would be used for an exclusively virtual meeting, we had today a glimpse of what a virtual Intel meeting might be like. (see Intel Virtual Mtg Out for 2010 But Exploring Future with USPX)

Broadridge provided the technology, and the meeting was hosted on a Broadridge website. Shareowners accessed the meeting using the same 12-digit control numbers they use to vote shares on-line through Broadridge’s proxyvote.com website. Since it is unclear how a competing technology provider might authenticate sharewoners, Broadridge is poised to monopolize the market for virtual—and even hybrid—shareowner meetings.

In the days leading up to the Intel meeting, shareowners were welcome to post questions to an “Investor Network” website that is in beta testing by Broadridge. Many questions were posted and Intel staff answered a number of them on that same website prior to the meeting. Intel represents that questions posed over the Internet during the meeting, if not answered during the meeting, will be answered on that website. The process appears manual. I tested the system by posting a question during the meeting. It was not answered during the meeting, and an hour after the meeting, it had not appeared on the Investor Network website.

The meeting itself was a typical shareowners meeting. It lasted just 40 minutes, with the chair and CEO fielding questions while the polls were open. It was professionally run and actually one of the better shareowner meetings I have recently participated in. Despite the availability of access via the Internet, about twenty-five shareowners attended in person. Many corporations that don’t offer Internet access fail to get that number.

Questions from the audience were mostly interesting. Two individuals praised the hybrid format while arguing that an all-virtual meeting would not be good for shareowners. In response, chair Jane Shaw said no plans have been finalized as to whether Intel will go all-virtual in 2011 “or beyond.” She declined to endorse criticisms of an all-virtual format, which suggests there is still interest in going all-virtual.

As feared, Broadridge’s technology largely reduces shareowners to a spectator role. I routinely speak out at shareowner meetings, sometimes to ask questions, but also to address procedural errors by the chair, which are common. No such opportunity existed with Intel’s meeting today. You can shout at your computer screen, but it won’t do any good. The user interface is dominated by a small video of the meeting. There are links to the proxy materials, meeting rules and a few other documentations. You can click on a button to fill in your ballot at any time during the meeting up until the polls close. There is also a small window for typing in a question. The brevity of the meeting and the fact that the chair appeared to read Internet questions from a sheet of paper suggest that Internet questions were pre-selected from questions submitted in advance of the meeting. In summary, there appears to have been no means for shareowners participating via the web to participate during the meeting. Other than filling out the ballot, our role was entirely passive. Neither before, during nor after the meeting was there any mechanism for shareowner-to-shareowner communication.

Needless to say, there will need to be improvement before shareowners can support corporations in hosting all-virtual meetings. The United States Proxy Exchange (USPX) is spearheading shareowners’ response to the opportunities and risks virtual or hybrid meetings pose. We will be hosting a deliberative conference this November in Boston at which shareowners will set guidelines for the conduct of virtual meetings. Intel has already committed to participate in that conference, and I invite all institutional and retail shareowners to join us as well. Details about the conference will be announced in a few weeks. To receive that announcement, please e-mail me at mailto:[email protected].

(Publisher’s note: Thanks to Glyn Holton for this guest commentary and for his good work at the USPX. Guest posts on substantive corporate governance issues are always welcome. Contact James McRitchie.)

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Intel Virtual Mtg Out for 2010 But Exploring Future with USPX

Bowing to shareowner concerns, Intel Corp. scrapped plans to hold an exclusively on-line virtual annual meeting in 2010 and is likely to participate in a Fall conference to establish safeguards for the conduct of virtual meetings in the future, the United States Proxy Exchange (USPX) announced today.

Background

Last Fall, Intel Corp. announced plans to scrap its annual shareowner meeting for 2010 and host an on-line forum in its place. In 2000, Delaware enacted legislation allowing corporations to do exactly this. Sadly, that state’s legislators granted shareowners no say in the matter, leaving the decision solely to the discretion of corporate boards.

Broadridge Financial Services has developed software for the conduct of virtual meetings. A handful of smaller corporations have already adopted that software and switched to entirely virtual meetings. For a number of years, Intel has held hybrid shareholder meetings, allowing people to attend both in person or via the Internet. Their plan had been to go to an all virtual meeting in 2010.

There is every reason to believe that, with strong safeguards, virtual shareowner meetings could enhance shareholder participation in meetings while protecting—even restoring— shareowner rights that have atrophied over the decades. However, no such safeguards are in place. Here are just a few scenarios illustrating how virtual meetings will deprive shareowners:

  1. A well known shareowner activist plans to ask some pointed questions at the shareholder meeting, but his connection to the meeting somehow fails. He is left wondering if he was targeted or if there truly was an honest technical problem.
  2. A shareowner wants to challenge the chair’s conduct of the meeting with a point of order. She is within her rights to do so and may interrupt the chair for this purpose, but she finds that the electronic forum software won’t allow her to do so ….. one more shareholder right lost.
  3. A shareowner wants to make a floor amendment, but the software doesn’t allow that either.
  4. The meeting software provides no means of group communication, such as applause of booing, so shareowners come away from meetings with no sense of how other shareholders felt.
  5. Corporate executives decide to pre-record their comments for a virtual shareowner meeting, including answers to pre-selected “shareowner questions.” The executives then don’t bother logging in during the actual “meeting.”

Most annual meetings are heavily scripted. The chance for real interaction often comes in informal encounters before and after the formal meeting. Those opportunities would also be gone with virtual meetings.

Formation of the Coalition to Preserve Shareowner Meetings

Following the announcement by Intel, shareowners discussed what might be an appropriate response to virtual shareholder meetings. Intel was the first major corporation to announce plans to switch to a virtual meeting, and more corporations were likely to follow suit. Without safeguards in place to protect shareholder rights, the situation was critical. There were few attractive options.

The SEC would be unlikely to intervene to preempt a Delaware law. We could launch a withhold vote campaign against the directors of Intel and other corporations that host electronic-only meetings, but that would entail participating in—and thereby accepting as legitimate—the virtual meetings.

In November, the USPX announced it was exploring a two-pronged strategy to address the issue of virtual shareowner meetings:

  1. Host a conference in the Fall of 2010 to develop safeguards that would allow virtual meetings to be held in a manner that protects shareowner rights, and
  2. Organize a withhold proxy campaign against corporations holding virtual meetings without safeguards.

Since that announcement, USPX has made considerable progress on both aspects of the initiative. A formal announcement of the formation of a Coalition to Preserve Shareholder Meetings is expected shortly. That announcement will include details on the Fall conference.

Conclusion

“The United States Proxy Exchange applauds Intel’s decision to postpone implementing of virtual shareholder meetings until after the Fall conference. We welcome all parties— investors, shareowner advocates and service providers—to join the Coalition to Preserve Shareholder Meetings and participate in the Fall conference, said Glyn Holton.

Interested parties should contact USPX Executive Director Glyn A. Holton at 617.945.2484 or [email protected]. See also, Intel Yields on Virtual Meeting, 1/20/10. I hope to be at this conference myself and urge others to join us.

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Proxy Access: The Letters Are In

The deadline was August 17th, so the comment letters on proxy access have all been filed and posted. Many are well worth reading. If you don’t see yours posted, you might want to resubmit it.

TIAA-CREF, one of the more conservative shareowner activists, calls on the Commission to raise the threshold to 5% for shareowners at all companies, regardless of size. Additionally, they want to require a two year holding period and recommend instead of the “first in” approach, nominations should go to the largest owner or and (here they get creative) to the shareowner or group that has held their shares the longest. They voiced opposition to reimbursement: “Reimbursement of expenses could be used to facilitate the election of special interest directors. Reimbursement also encourages fighting and proxy contests to achieve representation at the distraction of directors rather than dialogue and productive change.” Instead, they favored “incentives for a meeting between shareholders and the board in order to identify director candidates who are acceptable to both parties… Ultimately, the best possible outcome is to avoid a proxy contest altogether… We believe that the nominee should receive at least 20% of the vote in order to be re-nominated in subsequent years.”

Cornish Hitchcock, writing on behalf of the LongView Funds warns against a state-law carve-out, praising the merits of a uniform system. Like TIAA-CREF, the LongView Funds would like to see the required holding period extended to two years and nominations going to the largest nominator.

J. Robert Brown, of theRacetotheBottom.org, offers a spirited rebuttal to comments by the Delaware Bar Association regarding their argument in favor of private ordering. “The evidence in fact suggests that in the absence of a federal requirement, companies will opt for a categorical rule denying access.” “Evidence suggests that management’s control over the drafting process and its ability to rely on the corporate treasury eliminate any real prospect of private ordering. Instead, when matters are made discretionary, they result in a categorical rule that favors management.” “The only way to ensure meaningful access to the proxy statement is to adopt a federal rule that institutes the requirement.”

Lucian Bebchuk’s letter, signed by 80 professors, favors the rulemaking and notes, “no matter how moderate eligibility or procedural requirements may be, shareholder nominees must still meet the demanding test of getting elected before they can join the board. A shareholder nominee will join the board only if the nominee obtains more votes than the incumbents’ candidate in an election in which incumbents, but not the shareholder nominee or the nominator, may spend significant amounts of the company’s resources on campaign expenses.”

As expected, the Shareholder Communications Coalition, comprised of the Business Roundtable, the National Association of Corporate Directors, the National Investor Relations Institute, the Securities Transfer Association, and the Society of Corporate Secretaries & Governance Professionals sent a letter opposing the rulemaking “until the Commission: (1) completes its intended examination of the proxy system; and (2) promulgates new regulations to modernize and reform this cumbersome and expensive system.” “A shareholder nomination process that operates in a proxy voting system that cannot produce an accurate and verifiable vote count will do little to improve the overall
corporate governance system.” I just can’t help making a snarky comment. So we should just go with the current system that elects incumbents based on inaccurate and unverifiable voting results until we can ensure the system works properly

Broadridge submitted a letter discussing various technical issues. Great for those who want to get into the weeds.

Writing on behalf of Sodali, a global corporate governance consultancy, John Wilcox asks: “Is Rule 14a-11 is sufficiently deferential to the traditional role of the states in regulating corporate governance?; and (2) Does the proposal achieve the Commission’s goal of removing burdens that the federal proxy process currently places on the ability of shareholders to exercise their basic rights to nominate and elect directors?” His analysis answers with a resounding yes.

Eleanor Bloxham, of the Value Alliance and Corporate Governance Alliance notes that “having an orderly, ongoing process for shareholder to nominate directors may produce improvements in shareholder returns. Certainty, competition in the process for board seats could, I believe, produce better candidates.” She addresses the issue of affiliation and loyalty, Bloxham recommends each candidate be required to prepare a statement as part of the proxy process that would stipulate that the candidate understands that as a director, if chosen, their  obligations are to act in the best interests of all shareholders, including minority shareholders, and to act without preferential treatment related to who may have nominated them.”

As I have previously mentioned, I signed on to a letter from the United States Proxy Exchange (USPX), endorsed by members of the Investor Suffrage Movement, Robert Monks, John Harrington and John Chevedden. Glyn Holton did a great job of putting together sixty-nine pages of comments. I urge everyone to read our common sense approach outlining the democratic option, the need for deliberation and the reasons for our recommendations, which include:

  • Mandating a federal standard that take precedence over state laws.
  • Placing all bona fide candidates on a single management distributed proxy card.
  • Not encouraging a system where corporations are willing to
    reimburse expenses shareowners incur in conducting a proxy contest, since this will only escalate costs paid by shareowners.
  • Don’t place an overt limit the number of candidates shareowners are able to nominate. If limits are need to keep the pool manageable:
    • limit individuals to five for-profit corporate boards
    • charge a modest fee
    • require a system of endorsements
    • require all candidates to file pre and post election estimates and accounting of all campaign expenditures
  • Reduce the focus on control by establishing a system that will encourage diversity. “Corporate democracy will allow shareowners to take ‘control’ away from an entrenched board and not give it to any one faction.”
  • Eliminate the arbitrary and elitist proposed thresholds, opting instead for the time-tested $2,000 of stock held for a year. “The challenge should reside in winning the election, not in making the nomination.”
  • Increase candidate statements to 750 words and specified space for graphics that can address any issue related to the election, including short-comings of the current board.
  • Measures to ensure board members nominated by shareowners are not marginalized.
  • Implementation of a broad safe harbor for individual director
    communications with shareowners.

After we had already sent the USPX comment letter, I recalled a few additional issues and sent in my own letter as an addendum, recommending the following:

  • Amendments to Rule 14a-8 also clarify that shareowner resolutions can seek to collectively hire a proxy advisor, paid by for with company funds, that isn’t precluded from offering advice on board elections.
  • Require that companies must allow shareowner resolutions to be presented during the business portion of the annual meeting.
  • An override mechanism on Rule 14a-8(i)(5) (Relevance) and (i)(7) (Management Functions).

Dozens of studies in communications and organizational behavior find current corporate structures to be inefficient. Most decision-making structures, including those now governing corporations, are designed around status needs related to dominance and control over others. They are not designed to maximize the creation of wealth for shareowners or for society at large. In order to gain higher status, individuals seek to dominate more and more people. This dynamic moves the locus of control inappropriately upward. In order to generate more wealth, we need to take advantage of all the brains in our companies, as well those of concerned shareowners. We can do so by making corporations more democratic, top to bottom.

Now, we eagerly await the Commission’s action. If they are slow in finalizing the proposed rules, I hope it is because they carefully read our letters and are rewording them to require more, not less, democracy.


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