McCain's Malefactors

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What happens when a presidential candidate just doesn't recognize any limits on federal intervention? Ideas and sentiments like this:

In times of hardship and distress, we should be more vigilant than ever in holding corporate abuses to account, as in the case of the housing market. Americans are right to be offended when the extravagant salaries and severance deals of CEO's—in some cases, the very same CEO's who helped to bring on these market troubles—bear no relation to the success of the company or the wishes of shareholders. Something is seriously wrong when the American people are left to bear the consequences of reckless corporate conduct, while the offenders themselves are packed off with another forty—or fifty million for the road.

If I am elected president, I intend to see that wrongdoing of this kind is called to account by federal prosecutors. And under my reforms, all aspects of a CEO's pay, including any severance arrangements, must be approved by shareholders.

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  1. Color me naive, but what’s wrong-headed about making CEOs answerable to the shareholders?

  2. Answerable to the shareholders yes….not some minion in a McCain “Justice Department”!

  3. Something is seriously wrong when the American people are left to bear the consequences of reckless corporate conduct, while the offenders themselves are packed off with another forty – or fifty million for the road.

    Yes, it truly is a shame when executives entrusted with broad powers abuse them in a blatant grab for even greater control, fail spectacularly in the execution of their office, and get off scott-free while the American people pay the consequences.

    This infamy, exclusive to the private sector, must be stopped.

  4. As long as there’s free movement of capital, this is an unnecessary regulation. So you don’t like a corporation’s lack of transparency, or the way they handle executive pay? Don’t buy the stock. It’s as simple as that.

    As for the utilitarian argument, I’d guess that the red tape costs involved in getting shareholders to approve every single executive pay package decision would be prohibitive. This would likely wind up costing shareholders more than the “wrongdoing” that McCain seems to think is going on.

  5. Hugh Akston @ 12:18
    That is the winningest win that ever won.

  6. It’s going to be a rough few months for economic conservatives.

    So. What’s Phil Gramm up to these days?

  7. And under my reforms, all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders.

    Um, how? The scope of things that must be voted on by shareholders is a matter for state corporate codes. Even recognizing the expansion of federal intervention into corporate affairs of Sarbanes-Oxley, the main focus of federal regulation of corporations has almost exclusively fallen on public corporations and their disclosure requirements. I would be surprised to see Congress and the Supreme Court go along with an action that would pave the way for a federal corporate code that preempted the states’ codes (as opposed to creating a new class of federal corporations). It would be quite unprecedented.

  8. And under my reforms, all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders.

    It makes sense to me. WTF is the problem?

  9. And Obama has been calling for hearings for over a year now:

    http://blogs.wsj.com/washwire/2007/05/30/obama-asks-dodd-to-hold-hearing-on-ceo-pay/

    Presumably he’ll run to McCain’s left, perhaps by having them drawn and quartered.

  10. Ah. Sulla makes a good practical point. However, simply on the virtues of the idea (and not the necessarily messy details of its implementation), it does not seem objectionable.

  11. I wouldn’t necessarily have a problem with this, if a CEO pay ceiling were tied to federal bailouts. I believe George Will suggested this, although it was probably tongue-in-cheek.

  12. Americans are right to be offended when the extravagant salaries and severance deals of CEO’s

    I find this to be a significant abuse of the corporate model for which there is no easy solution.

    Mark Cuban had an excellent post on this topic. I agree with his opinion that making CEO compensation purely cash based could help mitigate some of the abuses we regularly see. But I don’t know how this will come about beyond shareholder revolt, which simply isn’t realistic, or government mandate, which is distasteful and fraught with its own problems.

    From Cuban’s post:

    As long as CEOs live in the equity/lottery ticket zone and employees in the cash zone, CEO pay is going to be outrageous relative to everyone else.

  13. This doesn’t strike me as terrible…I was all ready to be pissed by the idea that mccain was going to impose some federally mandated Pay cap or something.

    and sulla, there doesn’t need to be a new federal corporate code to get this done. They could probably get away with expressly defining payment of corporate officers w/o shareholder approval as fraud under the 33 or 34 act and be done with it.

  14. What’s Phil Gramm up to these days?

    Senior economic adviser to McCain.

  15. I see McQueeg is trying really hard to stand apart from the competition.

  16. Americans are right to be offended when the extravagant salaries and severance deals of CEO’s

    Should we also be offended by the extravagant salaries of NBA players, half of whom do not even play on winning teams?

  17. However, simply on the virtues of the idea (and not the necessarily messy details of its implementation), it does not seem objectionable.

    Someone could make a long list of terrible-upon-implementation ideas that seemed unobjectionable before you imagined (or witnessed) the federal government doing the implementing.

  18. So we have a candidate that wants sweeping regulatory power over corporate governance, and a Democrat.

    Glad I’m not trying to run a company right now.

  19. I wouldn’t necessarily have a problem with this, if a CEO pay ceiling were tied to federal bailouts. I believe George Will suggested this, although it was probably tongue-in-cheek.

    I’ve long suggested that Congressional pay and perks should be tied inversely to federal debt levels. Nothing’s gonna change until you hit ’em where it hurts.

  20. And under my reforms, all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders.

    They already are. That is what compensation committees do on the Board of Directors. Agency problems abound, but to have shareholders set policy by referendum is a bad idea.

  21. Someone could make a long list of terrible-upon-implementation ideas that seemed unobjectionable before you imagined (or witnessed) the federal government doing the implementing.

    Just ask Mark Steyn.

  22. TallDave,
    actually we are most offended by MLB salaries. These guys spend almost all of there time either standing around or sitting in the dugout and bullpen watching a friggin baseball game.

  23. Should we also be offended by the extravagant salaries of NBA players, half of whom do not even play on winning teams?

    Terrible analogy. Athletes’ salaries correlate soundly with demand, supply, and performance.

    Except, of course, for the Knicks.

  24. Miguel Cabrera’s contract with the Detroit Tigers is for $153 million. So far, he’s only hitting .270 with 8 HRs and 36 RBIs. What’s the government going to do about that outrage?

    TallDave put it well.

    Should we also be offended by the extravagant salaries of NBA players, half of whom do not even play on winning teams?

    Halle Barry did get payed for Catwoman, didn’t she?

  25. What business does the federal government have in the internal operations of a corporation? What constitutional authority is there for the proposition that the federal govt. has the power to force companies to submit all questions of executive compensation to the shareholders for their approval?

    This is stil, in theory, a free society. Therefore. when the corporation is formed, the stockholders have the right to insist upon shareholder approval of executive compensation. Of course, this does not address existing companies, but the short answer to that is don’t buy the stock.

    I know that many of you will raise the issue of federal handouts and with those handouts there should be some strings. The short answer to that is NO FEDERAL BAILOUTS OF ANY BUSINESS.

  26. It’s going to be a rough few months for economic conservatives.

    Replace “going to be” with “been”, and “few months” with “couple of decades”, and you might be on to something, joe.

  27. Gotta go with Pareto here.

    Shareholders ALREADY approve executive compensation. Executive compensation is awarded by Boards of Directors who can be voted on at every shareholders’ meeting.

    Saying shareholders have no way to control executive compensation is like saying that voters have no way to control the pay of Congress.

  28. Miguel Cabrera’s contract with the Detroit Tigers is for $153 million. So far, he’s only hitting .270 with 8 HRs and 36 RBIs. What’s the government going to do about that outrage?

    Not to mention, he’s taking an American job!

  29. and sulla, there doesn’t need to be a new federal corporate code to get this done. They could probably get away with expressly defining payment of corporate officers w/o shareholder approval as fraud under the 33 or 34 act and be done with it.

    I am not a securities lawyer (i did some blue sky filings as a junior associate, but my focus is M&A), but I’m not sure how that would work. Does the 33 or 34 act have any similar provisions that essentially require a procedure to be added to a corporation’s articles or bylaws before a stock issuance? It just seems that if it were that simple, Congress could just define the lack of any provisions it wanted in the corporate code as fraud.

    What’s more, if the requirements were really onerous enough to have an effect on CEO compensation, you’d probably see a significant number of companies go private or structure offerings to avoid registration with the SEC. Sure, Congress could change the law to expand the scope of the 33 and 34 Acts, but that would be a suprising expansion of federal power. I’m not saying that it’s impossible – we’ve seen federal expansion into many areas that would have once been considered unprecedented. My real point was that McCain was blithely tossing that point around like it was no big deal (I am fully aware that most (all?) politicians do it constantly, but that doesn’t mean we can’t call them on it).

  30. Well, this is some depressing shit.

  31. Let us not forget that John “the war hero” McNasty has been a pugnacious mediocrity his whole life. He has fed at the public trough just about his whole adult life. You want to take inspiration from this fraud?

  32. Miguel Cabrera’s contract with the Detroit Tigers is for $153 million. So far, he’s only hitting .270 with 8 HRs and 36 RBIs. What’s the government going to do about that outrage?

    I know you’re being facetious, but please don’t say things like that out loud in an election year!

  33. I seems to me that the “rights of shareholders” should include the right to delegate a few responsibilities to the board of directors. If the shareholders wish to retain the right to micromanage details like compensation rates, they can do so. McCain doesn’t seem to understand that his proposal would strip shareholders of the option to decide how much responsibility to retain and how much to transfer to the directors who, presumptively, have a greater familiarity with the quotidian affairs of the corporation and the market in which it works.

    Either that, or McCain understands this perfectly well and he’s simply pandering to voters who have no clue.

  34. And under my reforms, all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders.

    Utterly meaningless eyewash.

    CEO pay in publicly traded corporations is already disclosed to the public.

    “Shareholder approval” will be via the pro forma annual meeting of proxies.

    And, as Mr. Boston points out, this will immunize directors against any responsibility for CEO pay.

  35. Saying shareholders have no way to control executive compensation is like saying that voters have no way to control the pay of Congress.

    Deadpan humor of the day award to the fluffster @12:52pm!

  36. What exactly is the appeal of this fraud?

    1. “war hero” what didd he do? He got in a plane and from 40-50,0000 feet he dropped bombs on little vietnamese boys and girls. Then he gets shot down and provides the vietnamese with information concerning bombing missions, targets, floght patterns, etc and gets preferential treatment by the vietnamese.

    2. “character” He dumps his first wife and weds an heiress to a substantial fortune. This is the same first wife who waited 6 years for her husband and our “war hero.”

  37. This is stil, in theory, a free society. Therefore. when the corporation is formed, the stockholders have the right to insist upon shareholder approval of executive compensation.

    Corporations would not exist in an anarchy. The are a legal construct sanctioned by the state (i.e. the people). The people thus retain the right to regulate the corporate structure.

    That’s not justification for government micromanagement. But it’s not legitimate to through out this “free society” hogwash.

  38. I am not a securities lawyer (i did some blue sky filings as a junior associate, but my focus is M&A), but I’m not sure how that would work. Does the 33 or 34 act have any similar provisions that essentially require a procedure to be added to a corporation’s articles or bylaws before a stock issuance? It just seems that if it were that simple, Congress could just define the lack of any provisions it wanted in the corporate code as fraud.

    What’s more, if the requirements were really onerous enough to have an effect on CEO compensation, you’d probably see a significant number of companies go private or structure offerings to avoid registration with the SEC. Sure, Congress could change the law to expand the scope of the 33 and 34 Acts, but that would be a suprising expansion of federal power.

    I am a securities lawyer… and you pretty much have it right.

    People have the ability to check on CEO pay by voting on the members of the Board of Directors each year, particularly the members of the Compensation Committee of the Board. A specific vote on CEO pay really wouldn’t do a single thing to reign in CEO pay (if it needs to be reigned in)

  39. MP-

    Why is it not “legitimate to through out this free society hogwash?”

    Is it “hogwash” to assert that this, in theory, is supposed to be a free society?

    Hogwash is the notion that the government can solve problems or that a civil society needs a meddlesome, instrusive government.

  40. Corporations would not exist in an anarchy. The are a legal construct sanctioned by the state (i.e. the people). The people thus retain the right to regulate the corporate structure.

    That’s not justification for government micromanagement. But it’s not legitimate to through out this “free society” hogwash.

    I agree, but would expand this analysis. I’m always amused with people complain about “corporations.” A corporation is a time saving device. Any society which recognized contract rights would have some form of business entity similar to a corporation. Certainly the rights and priviledges would be different, and the outlines of the tort/obligation/contract law would have a large effect on issues like “personhood” and limited liability. Still, as long as two people want to cooperate in some way and there is a way to agree and have that agreement enforced, you will find the same issues that affect corporations.

    What most of these people are complaining about are large entities that have large amounts of power. That is a completely different issue.

  41. Nothing good will come of the Executive branch getting involved in CEO compensation.

  42. Sulla-

    People will form business associations irrespective of the exixtence of some political sub-division. To suggest that business associations somehow need a nation state in order to operate is absurd.

  43. Americans are right to be offended when the extravagant salaries and severance deals of CEO’s

    Does this imply that we’re wrong not to be offended by it? Because people making a lot of money doesn’t bother me a bit, even if it means that have more than I do.

  44. Andrew-

    Rule 10 (b)(5)- What a bunch of bolshevik baloney. Just ask Mr. Chiarella.

  45. Glad you’re back on this point, Matt.

    Hey — how’s Obama on gun control?

    Just asking.

  46. Since I bash McCain a lot, I have to stop and point out that Obama favors a windfall profits tax for energy.

    So the elderly guy with the premature death rictus smile is not the man with the dumbest economic idea in the race.

  47. serious question: Is liberty mike a subtle troll or not?

    To me he seems erratic (sometimes making sense, sometimes not), and I know this site has a lot of recognized trolls, so I was just wondering.

  48. Fuck free society! All injustices need to be corrected by a CARING government that looks after the well-being of ALL it’s citizens. Freedom = slavery.

  49. Re: liberty mike | June 10, 2008, 1:09pm

    I don’t appreciated slander against McCain any more than I appreciate it against Obama. Or even Hillary for that matterm and I despise her. You’re full of shit, liberty mike. FOAD, thank you.

    Those with the Obama slander, I’ve got more where that came from. This ain’t Worker’s World or RedState.com. Act like adults.

  50. all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders.

    It already *is* approved by shareholders. The shareholders are free to sell their shares in a company whose CEO is “overpaid,” or walk away for any reason they don’t like the business they’re invested in.
    You don’t need the fucking federal government to govern that.

  51. Passing for a moment about the federal mandate aspect of this, I think it is a good idea to make executive compensation up for direct shareholder vote. To argue that the shareholders already get a say by picking board members is pure spin – realistically, most shareholders don’t really have much of a choice there and the way the rules are often set up it can be really hard to even get one board member ousted.

    I think putting up compensation for a straight up or down vote to shareholders is a good idea – and make voting easy – heck, it should really be online, with a bulletin board in the same place for shareholders worldwide to log on and discuss the vote (and view the full pay package). It is too easy for executives to have boards in their back pocket. Making them directly accountable to the shareholders avoids that problem. Hell, shareholders are the freaking OWNERS – they are the CEOs BOSSES – they should have a direct say. (Not in the day-to day operations, but in big decisions, like compensation contracts, where there is a huge amount of corruption and collusion).

    I think a lot of corporate excesses (which are really wastes of shareholders money in that they loot the company for the benefit of the executives at the top) could be stopped if certain things were put to a shareholder vote and required at the very least a majority (and perhaps some things should require a supermajority). CEOs have no cause to complain if the owners tell them “no.”

  52. Is it “hogwash” to assert that this, in theory, is supposed to be a free society?

    It’s hogwash because you’re using empty “free society” rhetoric to legitimize your position that there is zero justification for state regulation of corporations.

    People will form business associations irrespective of the exixtence of some political sub-division.

    They will not form Corporations. They couldn’t. In an anarchy, you can’t create a contract that forces other entities in the society to treat your business as an entity independent of the ownership. In an anarchy, the only legitimate contractual forms of business are partnerships and sole proprietorships. It is because of the inability to easily scale these type of businesses that corporate law exists. But simply because society has determined that corporations should exist in order to enable an efficient deployment of capital does not mean that society is obligated to be completely hands-off once it authorizes corporate law.

  53. Jamie Kelly – the shareholders are the OWNERS – the option should not be either 1) shut up and accept the ridiculous pay or 2) sell your ownership interest. If you owned a business and the manager (who works for YOU) got ridiculous compensation, would you be thrilled if you were not given the option to approve that pay (as the owner) and could only sell the business and walk away if you did not like it? These are the frickin’ OWNERS we are talking about. While much is governed by boards, I’d like to think that the owners should get at least SOME direct say, particularly in areas that have been ripe for abuse, such as golden parachutes and looting-the-corporate-treasury-level compensation for executives (set by boards that are themselves CEOs for the other companies that, by strange coincidence, is where this CEO sits as a board member).

  54. “They already are. That is what compensation committees do on the Board of Directors. Agency problems abound, but to have shareholders set policy by referendum is a bad idea.”

    No, I agree with the commenter who noted that “Agency problems abound.” They do. The system is broken. Look at who sits on the Boards of Directors, it is generally other CEO’s, or former CEO’s… what you see is a country club, not a free market. A well functioning free market would reward performance, not abject failure, as we have seen recently, in the wake of the subprime mess.

    Are you telling me that Citigroup could not have found someone else to run Citigroup into the red, other than Charles Prince, for the kingly sum of 26 million, or 17.5 million?

    Not to mention the fact that there are perks and intangibles. Who does NOT want to be a CEO, and be the most powerful man at a company?

    One commenter noted that people have the ability to control salaries just as they do Congressional salaries–while technically valid, when was the last time that you saw a contested Board of Directors race? Do you think that the Board of Yahoo has performed well as of late? The link between voter-participants in the corporate system has been made even more remote than it is in our democracy, and you all now how well that works.

    The bottom line is, while free enterprise and competition work, these things simply are not at work in the boardrooms of many of America’s top companies.

  55. The bottom line is, while free enterprise and competition work, these things simply are not at work in the boardrooms of many of America’s top companies.

    QFT

  56. They will not form Corporations. They couldn’t. In an anarchy, you can’t create a contract that forces other entities in the society to treat your business as an entity independent of the ownership. In an anarchy, the only legitimate contractual forms of business are partnerships and sole proprietorships.

    Well that’s purely speculation. If you agree that commerce can happen in an anarchy, then you probably agree that some mechanisms will come about to enforce contracts, and if that’s the case, then there’s no reason to assume that there couldn’t be contracts that recognize one or more of the business entities have the poperties of a corporation.

    I’m not saying that WOULD happen, only that’s it’s presumptuous to say it couldn’t.

  57. The bottom line is, while free enterprise and competition work, these things simply are not at work in the boardrooms of many of America’s top companies.

    I agree. In many cases board members are high level executives at other businesses as well, giving them a personal stake in high pay regardless of performance – not that this has a good solution I know of. I would love to see bidding for CEOs. I imagine you could get a pretty good CEO for a lot less if they had to bid on the job. But it would be against most of the interests on many boards to do so.

  58. And under my reforms, all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders.
    They already are. That is what compensation committees do on the Board of Directors.

    Define “shareholders.”

    Most here are using it as synonymous with stockholders. Is it under McCain’s plan? Or is he defining it as “stakeholders,” including customers, employees, neighbors, and other interested parties?

  59. Not to mention the fact that there are perks and intangibles. Who does NOT want to be a CEO, and be the most powerful man at a company?

    I’ll assume this is as rhetorical as it sounds, but I should point out that power and wealth are not universal motivators.

  60. The bottom line is, while free enterprise and competition work, these things simply are not at work in the boardrooms of many of America’s top companies.

    There is one more elephant in the room. Most individual shareholders of a coportation, (i.e. the ones writing the absurd Shareholder Proposals each year on the Proxy statement)own such a negligible percentage of the outstanding shares that their vote would make no difference on a general referendum. The institutional owners, mutual funds and retirement funds, for example, are the ones who exercise all the leverage. Most of them are just fine with the status quo.

    Most here are using it as synonymous with stockholders. Is it under McCain’s plan? Or is he defining it as “stakeholders,” including customers, employees, neighbors, and other interested parties?

    Customers, neighbors, employees who do not own stock and other “interested parties” are free to vote with their checkbooks. Otherwise it is none of their business.

  61. Jamie Kelly – the shareholders are the OWNERS – the option should not be either 1) shut up and accept the ridiculous pay or 2) sell your ownership interest. If you owned a business and the manager (who works for YOU) got ridiculous compensation, would you be thrilled if you were not given the option to approve that pay (as the owner) and could only sell the business and walk away if you did not like it? These are the frickin’ OWNERS we are talking about. While much is governed by boards, I’d like to think that the owners should get at least SOME direct say, particularly in areas that have been ripe for abuse, such as golden parachutes and looting-the-corporate-treasury-level compensation for executives (set by boards that are themselves CEOs for the other companies that, by strange coincidence, is where this CEO sits as a board member).

    The problem with this analogy is that you own 10% of the business, and all the other stockholders own 90% and they’re fine with how much the manager is paid and how the compensation decisions are made.

  62. Saying shareholders have no way to control executive compensation is like saying that voters have no way to control the pay of Congress.

    Well, otoh, the most recent constitutional ammedment is to ostensibly address the fact that this control is somewhat tenous and subject to plenty of countervailing forces.

  63. Honestly, I don’t think that the fact that I own 1/1000000 part of a few companies gives me much say in how they are run. Sure, I am technically an owner, but so what. My proxy votes are very irrelevant. Owners who are big companies holding stock or big time private investors do have a say in how the company is run. It’s not as if the boards of directors come from nowhere, they are selected by the owners who own significant numbers of shares. Even if everything were voted on, it is not as if all of the people who have 100 shares in their IRA are going to be calling the shots.

  64. Either that, or McCain understands this perfectly well and he’s simply pandering to voters who have no clue.

    Exactamundo

  65. I haven’t read the whole thread, but CEOs are just the scapegoat du jour. How and how much the CEO is paid is up to the stockholders, not McCain’s (or any other third party’s) sense of fairness. If you don’t like how a corp is run, you can (1) not invest in it in the first place, (2) sell your stock, or (3) work with other stockholders to change it. If the capital market isn’t putting pressure on corporations to change their governance in a particular way, then that means the changes have been deemed to be economically inefficient by the folks who actually have skin in the game. Government need not butt in.

  66. Corporations are a state-determined organism, since you’re giving legal personhood to a non-person. In short, they get a subsidy by default from the state compared to a private business in the court system. No government intervention would be preferable, but I can’t really complain about the state dictating the structure of corporations since their mere existence is protected by the state anyway. Let me be more specific: the legal structure of a public corporation, that is, requiring executive pay to be tied to a vote. Capping executive pay goes beyond setting up a legal framework and shouldn’t be allowed. On the other hand, the government has no right top interfere in the business structure of a private company.

  67. Those 1/1000000th shares add up – it has been in the news recently about shareholders who got so fed up with some of the antics (and looting) done by boards that they’d vote non-binding resolutions against them (and try to enforce them unsuccessfully in court). Even when they get over 50% the boards still ignore them. So this isn’t a case of 10% of the shareholders wanting something.

    But really, if it was just 10%, if it would be so easy to get over 50%, why balk at allowing it then? Why not put it up for that shareholder vote if you are so confident it will be supported? Hey, if 90% of the shareholders vote to support looting the company for bs golden parachutes for failure, then that’s their business – and at that point, the 10% can sell their shares and say to hell with it. I think many people are worried they’d have trouble justifying the pay packages in such a vote – and with good reason – they are utterly ridiculous and just indicators of people playing with other people’s money – I really think management at large corporations are no better than the government when it comes to wasting other people’s money as if it were their own private stash.

  68. Egosumabbas — Sounds like you’re tangled up in your knickers. Anyone (you, me, the widow next door) can form a corporation for less than $100. That corporation has no more and no less government “protection” than a huge multinational. They both benefit from / are bound by the same set of laws.

  69. JP, I think you’re confusing the word company with corporation–a public corporation with shareholders. This is different than an LLC (which has SOME corporate personshood but not as much as a full-blown corporation) and a partnership. The things you get for 100 bucks are not full-blown corporations; there is great risk for personal liability.

  70. Ego — I’m a corporate lawyer and form corporations and LLCs all the time. Trust me, the things you get for $100 have just as much corporate personhood as any other corporation. That’s the case in Delaware, anyway. Maybe you live somewhere with atypical laws.

  71. Those 1/1000000th shares add up – it has been in the news recently about shareholders who got so fed up with some of the antics (and looting) done by boards that they’d vote non-binding resolutions against them (and try to enforce them unsuccessfully in court). Even when they get over 50% the boards still ignore them. So this isn’t a case of 10% of the shareholders wanting something.

    Do you have any examples where shareholders owning more than 50% of the voting power of a corporation were unable to run the corporation? At that point A) you have the votes to appoint a new board of directors or B) you bought shares in a company that required more than a 50% vote for board members (or some other board protection device like staggered terms) and you get what you paid for.

    Yes, there are collective action and agency problems, but they will not be solved by giving shareholders a vote on executive compensation.

  72. “That’s the case in Delaware, anyway.”

    Well that explains everything, JP. Ever notice how everybody is incorporated in either Delaware or Nevada?

  73. Ever notice how everybody is incorporated in either Delaware or Nevada?

    Yes, Delaware has the best corporate law and business courts in the country. (Can’t speak for Nevada.)

  74. Anyway, even if every kid on the corner can open a corporation in Delaware for a Benjamin, it still doesn’t make it right that they have limited liability. One psychological explanation for why CEO pay is so sky-high yet divorced from performance is due to all the legal protections. Imagine if a CEO was personally responsible for the actions of a corporation? Or if all the board members were personally responsible?

  75. Egosumabbas — Sounds like you’re tangled up in your knickers. Anyone (you, me, the widow next door) can form a corporation for less than $100. That corporation has no more and no less government “protection” than a huge multinational. They both benefit from / are bound by the same set of laws.

    I don’t follow your point. I don’t see Egosumabbas arguing that there is a difference between Jimbo’s Trash, Inc. and Citigroup from a basic corporate law perspective. The point is that the state has a legitimate authority in regulating the construct of a Corporation since it created this construct in the first place.

  76. Limited liability has nothing to do with protecting CEOs or directors. If a CEO or director does something actionable, he can be sued and, if it’s a crime, punished. That’s what happened to Kenneth Lay, Andrew Fastow, et al. The fact that they were working for a corporation at the time had no impact on their liability (other than to create additional causes of action).

    What limited liability does is protect shareholders from having their assets taken by creditors of the company, and protect the company from having its assets taken by creditors of the shareholders. This is what enables corporations to raise so much money and thereby undertake large-scale projects that have increased our standard of living by many multiples of what it was in 1800, say. Without limited liability, you wouldn’t be able to attract millions of investors to an enterprise. You’d have what was the case in the 18th century and earlier — lots of small shops operating at low levels of productivity.

  77. Without the legal fiction of a corporation, you’d still have wealthy people engaging in large-scale projects. Your argument is analogous to the idea that only governments can engage in large scale projects (voters are to shareholders as an executive is to the CEO).

  78. Also, you know how corporations have multiple departments with relative autonomy? Society could work just as efficiently (I’d argue even more so) if these departments were private organizations.

  79. Without the legal fiction of a corporation, you’d still have wealthy people engaging in large-scale projects.

    No. You would not have as much wealth and wealthy people to begin with, and you would not have anywhere near the amount of investment and productive activity that the corporate form has made possible.

    There is a key difference between corporations and governments: Corporations do not have a monopoly on force. They can’t make people buy their products and services. If they perform poorly, their owners suffer accordingly. Governments are subject to no such discipline.

    I need to get back to work now.

  80. “There is a key difference between corporations and governments: Corporations do not have a monopoly on force. They can’t make people buy their products and services. If they perform poorly, their owners suffer accordingly. Governments are subject to no such discipline.”

    Well there’s something we can agree on.

  81. LarryA –

    Shareholder and stockholder are typically synonymous. Corporate law is set at the state level. Some states call the owners stockholders. Others call them shareholders.

    Stakeholders, on the other hand, generally means stockholders/shareholders, officers, boards, employees, contractors, the community, and the kitchen sink.

  82. I have a theory that McCain really does not want to be president. He’s doing a damn good job of pissing off every single part of his potential coalition.

    Is there a non-Godwin way to describe someone who leans left on economic issues and right on social issues? ‘Cause that appears to be what the GOP has done to itself.

  83. Is there a non-Godwin way to describe someone who leans left on economic issues and right on social issues?

    I think the term is “Huckabee.”

  84. I think putting up compensation for a straight up or down vote to shareholders is a good idea

    I think its utterly pointless.

    make voting easy

    It could hardly be easier now. They mail you a form that you can mark your votes on and mail back for the annual meeting. If that’s too much trouble, then you shouldn’t be voting at all.

    with a bulletin board in the same place for shareholders worldwide to log on and discuss the vote (and view the full pay package).

    The pay package is already public information in SEC filings. Every publicly traded company has multiple bulletin boards devoted to it.

    Everything people say would make such a difference in CEO pay already exists. Corporations are large economic organizations with lots of resources. The people in charge will be compensated accordingly. Short of truly idiotic government intervention, there is nothing that can be done to change this.

  85. I think the term is “Huckabee.”

    True, but I’m trying to think of a term that can be used in polite company.

  86. Anyway, even if every kid on the corner can open a corporation in Delaware for a Benjamin, it still doesn’t make it right that they have limited liability. One psychological explanation for why CEO pay is so sky-high yet divorced from performance is due to all the legal protections. Imagine if a CEO was personally responsible for the actions of a corporation? Or if all the board members were personally responsible?

    Exactly.

    If a I, as a private citizen, took a cup of water from a disgusting stagnant pond, make it look fresh, and then gave it to someone to drink, leading to their illness, I would be at least liable for civil damages if not criminally liable for some form of “assault”. A corporation can do this and …. nothing. Maybe a lawsuit but often not even that.

    “There is a key difference between corporations and governments: Corporations do not have a monopoly on force. They can’t make people buy their products and services. If they perform poorly, their owners suffer accordingly. Governments are subject to no such discipline.”

    BULLSHIT!! When corporations get government patronage, as they often do, they stop being purely private entities and often stop paying for their performance.

    There is a market for beef 100% tested for MadCow, so why can’t I buy it? Because the Bush administration won’t let me.

    The Department of Agriculture refused yesterday to allow a Kansas beef producer to test all of its cattle for mad cow disease, saying such sweeping tests were not scientifically warranted….Gary Weber of the cattlemen’s association called 100 percent testing misleading to consumers because it would create a false impression that untested beef was not safe.

    Its not just bailouts. This kind of shit happens everyday.

  87. J- 1:33PM

    The answer is no. I am a liberty lovin’ libertarian. If you think that I am “a subtle troll”-why?

    You make the claimn that sometimes I make sense and that sometimes I don’t-yet you fail to support your statement.

    I do not support communists and both Obama and McCain are communists. Why do I assert that they are both communists? Both support the income tax. The income tax is one of the planks of the communist manifesto. Both support massive redistribution of wealth. Both support the notion that sacrifice to the state is the highest of virtues.

  88. J sub D- 1:34 P.M.

    What’s the problem? It can’t be that you think that I am some kind of troll for the communist freshman senator from Illinois.

    What about my post touched your irrational angry rant? Do you like to defend enemies of liberty like the fraud McCain? Ever hear of the Keating 5? Campaign Finance Reform? He did divorce his first wife to marry an heiress whose father was very tight with MR. Keating. McCain and his wife took numerous trips aboard Mr. Keating’s private jet, including vacations to exotic locales. All facts.

  89. You make the claimn that sometimes I make sense and that sometimes I don’t-yet you fail to support your statement.

    J doesn’t need to support an observation.

    And yes, “subtle troll” is a valid observation, given your tendency to keep the rhetoric at a high volume.

  90. MP-

    Assuming that I have a tendency to keep the rhetoric at a high volume, how does that make me a subtle troll?

    If you think that, then, for whom or for what cause? Do you have a notion that I am really a supporter of big government? Of state intervention in the boardroom? The bedroom?

  91. The SEC is given virtually limitless discretion in determining what constitutes fraud with regards to publicly traded companies.

    I have no doubt they could issue a regulation stating that excessive severance packages given to CEOs constitutes a fraud on the shareholders, and have the courts uphold it.

    Even if the courts said this was outside the SEC’s discretion (which I don’t believe it to be), all it would take is a nudge and a wink between the SEC and the Self-regulating organizations (such as the NYSE) to get this regulation in through the back door

  92. Assuming that I have a tendency to keep the rhetoric at a high volume, how does that make me a subtle troll?

    It doesn’t make you one. But I can easily imagine why someone might perceive you as one.

  93. war hero” what didd[sic] he do? He got in a plane and from 40-50,0000 feet he dropped bombs on little vietnamese boys and girls

    both Obama and McCain are communists

    libertymike, these sort of things are why some people think you’re a “subtle troll”. Not that your opinions are invalid, but, yes your “rhetoric” is very high-amplitude. Hope this helps.

  94. So the elderly guy with the premature death rictus smile is not the man with the dumbest economic idea in the race.

    Like pulling teeth.

    Jesus.

  95. I think its utterly pointless.

    Unlike RC dean i know it is utterly pointless.

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