Shareholders and Corporate Blah Blah Blah

In the headlong rush to establish shareholder primacy in public companies, hedge funds and activist investors have been given license to improve returns at a company, often by forcing a transaction; in other cases, they have managed to vivisect a company for flawed financial strategies. Now, we have another madcap rush to subject "corporate speech" to shareholder vote and approval by another privileged class of shareholder. A recent article by Jackson and Bebchuk lays out the issue and recent SEC decisions.

Lets see: shareholders elect a board of directors, which appoints a management to operate the company on a day-to-day basis, under their direction, for the benefit of stakeholders, especially the shareholders. Let's say we're talking about an oil company, and that company forms a PAC which, among other things, supports efforts to extend offshore drilling rights where the company has a lease on an extremely valuable property with extensive, low cost reserves. Gaining the drilling rights are part of a process that should add EVA to the company's shareholder returns. Now, if a small, but vocal group of shareholders decides that this is a bad thing because of potential environmental damage to the rufus-sided towhee, then this decision is subject to a proxy discussion, with all its dead weight expense loss and diversion of management time. This is a good thing?

If a management's efforts were to go overboard, away from the interests of the corporation to peripheral issues, the first check and balance would be board oversight. What conceivable value does this other channel add for ALL the shareholders, not just the special interests? The management's job is make hundreds of related and seemingly unrelated decisions that over time will serve to generate value for the suppliers of its assets. That's it...isn't it? Other than generating more fees for proxy advisers, law firms, and killing more trees, these measures are not worthy of good governance efforts.