

Brought to You by the Letter S  - wglb
http://www.aaronsw.com/weblog/proxyreform

======
phsr
This is an incredibly sneaky move by an administration that railed CEOs for
receiving large bonuses and salaries when they are running companies that are
failing and need to be bailed out. Seems very two faced to me.

~~~
yummyfajitas
Obama is probably doing it because it could open the door for shareholders to
engage in asset stripping (selling off corporate assets and shut dow the
company). Asset stripping, while good for shareholders and the economy at
large, tends to be bad for unions.

(A hypothetical example: consider a company with 1 billion in salable assets,
but no hope for future profits based on existing business due to union costs.
The best way to create shareholder value is to shut down the company and sell
the corporate assets. The current CEO probably likes his job and doesn't want
to be "the guy who killed BigCo". )

------
sriram_sun
I am thinking of workarounds. What if shareholders get together and form a
"holding company" with > 5% shares? The company would become the shareholder
wouldn't it?

~~~
three14
What are the tax consequences?

------
wmeredith
You may not agree with it, but you've got to admit that's a nice lightweight
hack.

------
foonly
Perhaps someone more knowledgeable can enlighten me... if the provision has
already been approved, how can the White House change the wording? I thought
the President wasn't able to make modifications to legislation.

~~~
phsr
Line-item veto: <http://en.wikipedia.org/wiki/Line-item_veto>

>The line-item vetoes are usually subject to the possibility of legislative
override as are traditional vetoes

~~~
eli
That's just plain wrong. There is no federal line item veto and even if there
were you couldn't use it to veto one letter.

~~~
phsr
I realized that after the fact. I guess when I heard about it in history
class, it existed, then I inquired further.

------
bh42
Could this lead to a move by big investor to gain 5% of stock just so they can
nominate alternative board members? Is this realistic?

I understand almost no one owns those kind of proportions today, but what
would be the incentive today if everyone seeks diversification. This would
create an incentive, would it not?

------
ihodes
I don't understand why this is anyone's concern aside from the company's.

If they squander money on the CEO's salary and fail because of it, that is
their onus. If they succeed, then why should we intervene?

~~~
bh42
We all (OK, maybe just me) agree that the free market is the way to go,
competition, prosperity, etc.

But the free market is an ideal which is easy to game. CEOs hand picking the
board, and the board then turning around and deciding on the CEOs compensation
is an example of the free market being gamed.

It's a bit more complicated then that, it requires the government enforced and
defined legal entity that is a corporation, but it's still market
inefficiency, mostly agency risk.

So in a way, it is the public's concern to remove market inefficiencies.

~~~
anamax
> But the free market is an ideal which is easy to game. CEOs hand picking the
> board, and the board then turning around and deciding on the CEOs
> compensation is an example of the free market being gamed.

I want to own stock in such corporations. (Seriously. None of the "good
governance" stuff has ever correlated with the thing that I want out of a
stock, namely, return on my investment. I've no objection to you investing in
companies to feel good about yourself, but I'm in it for the money.)

If you think that a given company's CEO compensation is wrong, don't own the
stock.

~~~
bh42
_If you think that a given company's CEO compensation is wrong, don't own the
stock._

This assumes good competition among CEO compensations. But when I say "game",
I mean that there's essentially a cartel of CEO compensation among all
publicly traded companies, so that you can not just invest in a company which
does not overpay the CEO.

~~~
anamax
> I mean that there's essentially a cartel of CEO compensation among all
> publicly traded companies, so that you can not just invest in a company
> which does not overpay the CEO.

Oh really? Google and Apple's CEOs make $1.

Forbes regularly profiles companies whose CEOs make significantly less (and
more) than what you claim is the only game in town.

And if you think that other countries do it better, you can buy stock in many
of their companies via ADRs. (IIRC, Japan's CEO pay works somewhat like you'd
like.)

I note that you didn't acknowledge that CEO pay practices don't have investor
benefits, so why do you care? More to the point, since you can easily choose
companies that work the way that you'd like, why should my choices be limited?

~~~
isleyaardvark
Compensation is more a side effect of the issue discussed in the link.
Shareholders are unable to even make a nomination for the board of directors,
so the very people who own the company are unable to make decisions regarding
how the company is run.

There's more info in this Motley Fool article:
[http://www.fool.com/investing/general/2010/06/18/dont-let-
wa...](http://www.fool.com/investing/general/2010/06/18/dont-let-washington-
kill-shareholder-rights.aspx)

 _Even huge pension funds typically hold no more than 0.3% to 0.5% of large
and medium-sized companies, so it's impossible to picture that happening very
often._

------
chmike
Isn't there a risk to expose a company to a "white revolution" by shareholders
?

~~~
yummyfajitas
What's a "white revolution"? Wikipedia only tells me about a group of idiots,
and a program to give india a milk distribution platform.

~~~
chmike
A revolution without spilling blood. A revolution is where the table of
control gets turned.

~~~
yummyfajitas
That's the whole point of proxy access - to make shareholder revolutions
easier.

