Tuesday, October 1, 2013

The Shutdown: What the House and Shareholder Activists Have In Common

So the government shutdown has me troubled.  I think it’s reasonable for the House not like Obamacare and to do everything they can to repeal the law.  However, it strikes me as different to force a government shutdown because that’s the only way they can get leverage to make a change the voters, at least at the last election, did not agree with.  

As Sen. John McCain explained last week:

Many of those who are in opposition right now were not here at the time and did not take part in that debate. The record is very clear of one of the most hard fought, fair, in my view, debates that has taken place on the floor of the Senate. That doesn't mean that we give up our efforts to try to replace and repair Obamacare, but it does mean that elections have consequences. Those elections were clear in a significant majority that a majority of the American people supported the president of the United States and renewed his stewardship of this country.

The actions of the House right now remind me a lot of the arguments put forth against shareholder activism.  That is, the complaints about rent-seeking actions put forth by an influential minority to pursue an agenda that is not consistent with the majority’s  wishes. I’m reminded of Steve Bainbridge’s Preserving Director Primacy by Managing Shareholder Interventions.  Below (with alterations mine), you can see the parallels (and to be clear, I am not suggesting the good professor agrees with my assessment – I’m the one making this assertion):

[N]ot all shareholder interventions [congressional deadlocks] are created equally. Some are legitimately designed to improve corporate [governmental] efficiency and performance, especially by holding poorly performing boards of directors and top management teams [government actors] to account. But others are motivated by an activist’s belief that he or she has better ideas about how to run the company [government] than the incumbents [those who passed the current laws of the land], which may be true sometimes but often seems dubious. Worse yet, some interventions [deadlocks] are intended to advance an activist’s agenda that is not shared by other investors [voters].

I concede there are many rather obvious differences, and maybe it’s a stretch, but I don’t think too much of one.  Ultimately, we have rules set up to hold our directors, and our elected leaders, accountable for their decisions.  Attempting to wield power using procedural methods or other tactical efforts that undermine the will of the majority and shift power to the minority are rarely productive or positive.  In my view, the same rules should apply in both instances: either convince a majority you are right and make the changes or move on.  


Corporate Governance, Current Affairs, Joshua P. Fershee | Permalink


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