STAFF NEWS & ANALYSIS
Corporate Democracy Doesn't Work, Either
By Philippe Gastonne - September 22, 2015

It's Corporate Governance 101: Company directors are supposed to respect the wishes of the shareholders they are duty bound to serve. And if the directors defy them, those shareholders are supposed to hold the directors accountable.

That principle of board accountability will face an unusually stark test on Sept. 22, when Bank of America shareholders gather at company headquarters in Charlotte, N.C., for a special meeting — and a significant vote.

The question before the shareholders seems innocuous: It asks them to allow the directors a free hand in setting board structure. But some investors see the question as a slap in the face. Here's why: At the bank's 2009 annual meeting, shareholders passed a bylaw requiring that the board be overseen by an independent "chairman." The bylaw passed by a whisker, but it was nonetheless binding.

Last fall, however, the board abruptly overturned the bylaw when it elected Brian T. Moynihan, the bank's chief executive, its chairman as well. A vote for the motion on Sept. 22 would essentially enshrine that decision.

Therefore, the vote on Tuesday is only a little bit about the value of separating the chairman and chief executive roles at Bank of America. It is a lot more about reminding the bank's directors not to treat shareholders with contempt. – New York Times, Sept. 18, 2015

We all know that the various forms of democratic governance don't work nearly as well as advertised. Representatives usually turn corrupt in short order, no matter how the people select them. They devolve into oligarchy under a democratic façade.

The same is true when corporations pretend to operate under democratic principles. The charters give shareholders a patina of respect, and then management assembles an underworked, overpaid board that will rubber-stamp anything to keep its comfortable role secure.

Occasionally management miscalculates, waking up shareholders to emit sheep-like bleats of protest. One such protest is happening today at Bank of America. Dissident shareholders want the board led by an independent chairperson, instead of having CEO Brian Moynihan wear both hats.

The vote will likely fail because money managers control votes for a huge bloc of shares, even though the shares nominally belong to their underlying investors. The money managers are as "independent" of management as the bank's toadlike board members are.

In theory, the money managers are fiduciaries who should place their clients' interests ahead of their own. In practice, they do no such thing. Fidelity, Blackrock, Vanguard and other large mutual fund sponsors all have other business relationships with Bank of America. They will not place those revenues at risk as long as they can plausibly claim their intentions are pure.

This means the Moynihan regime will retain control, and can continue plundering and looting Bank of America for its own enrichment. As far as they are concerned, any offended shareholders should just sell their shares and leave.

Congress has a similar method. It groups us together in gerrymandered districts such that any resistance is futile, and then plunders our wallets to fill its own. If we don't like it, we can just vote for somebody else… who will do the same again.

Posted in STAFF NEWS & ANALYSIS
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