June 8, 2005
Constituency Statutes and GM Layoff Announcement
General Motors' announcement that it would lay off over 25,000 employees caused its stock price to jump. It is an example of when the employees' and the investors' interests do not match -- it was in the investors' interest to cut back GM's workforce but not, obviously, in the interest of GM employees. Those would support state "constituency statutes", statutes that permit managers to take into account the interest of employees as well as investors are pressed by the example. Should GM, in the interest of employees, have not restructured? Hardly. If employees' interests dominate, GM would soldier along losing money until it could no longer function outside of bankruptcy reorganization. Constituency statutes are seductive but ought not replace the hard reality that investors interests ultimately should dictate the decisions of the board.
June 8, 2005 | Permalink
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