Posted by Carl Icahn October 27, 2008 : 3:58 PM
The number of people who own stock in this country, through individual accounts, mutual funds and others, is higher than it ever has been, an estimated 100 million people.
So it logically follows that what is good for stockholders is good for at least a third of the nation, which is a huge constituency. But it is more - when people buy stock, it benefits companies that sell the stock, which helps them create jobs and drive more commerce in goods and services.
Stronger companies in turn generate more tax revenue for government services from which we all benefit, including the military, schools, roads, healthcare, etc. In short, strong companies benefit the nation.
It is therefore in our collective self-interest that we promote strong and well-managed companies.
The problem we face today, however, is that too many of our companies are clearly mismanaged by entrenched and self-serving boards and managers. And there are many laws that have allowed these directors to perpetuate this tyranny, often against the wishes of shareholders, the owners of companies.
The most obvious recent result of this is the wholesale meltdown in the financial sector, a result of executives' lemming-like drive into risky and little understood investments like mortgage-backed securities, many of which blew up, causing a global stock and credit market meltdown.
Now we all are paying the price with the multiple failures of long-established Wall Street firms. Tens of thousands of people lost jobs and life savings, the government has been forced to borrow and pay out hundreds of billions of dollars and commercial banking services have ground to a halt in many cases. The entire economy is suffering from the acts of a very few.
This colossal meltdown is a travesty of mismanagement and greed. We could be paying the price for years to come. And to add insult to injury, while billions of dollars were lost and thousands have lost jobs to recover nothing, the top managements have mostly gotten off scot-free, just like the owner of the Titanic. We as an economic nation will get through this, eventually. But our job is to learn from this experience. The question is, how can we make our companies better managed to prevent future systemic meltdowns?
CHANGE THE LAWS
United Shareholders of America, an advocacy initiative I am spearheading, believes the solution is simple: we need to change laws so that it is easier for shareholders to organize and remove errant and entrenched managements and boards. It was, after all, the managements that got us into this mess overseen by boards that apparently did little.
Unfortunately, there are many state and federal laws that impede stockholders from having greater power over managements. We intend to work to change many of them and propose new rules that are more shareholder-friendly. But it is only when great numbers of people get behind such a move will it happen. Here are a few for starters:
1. The "poison pill." This device, which is permitted in many states, allows a company to issue a plethora of new stock when a potentially hostile investor acquires a large stake, such as 15 percent. The provision has the effect of blocking any offer for a company, no matter how beneficial it may be for shareholders. According to the Corporate Library, nearly one-third of U.S. public companies have a poison pill in place, but others can simply institute them if they face a threat.
2. The staggered, or "classified" board. This device, also permitted in many states, allows a company to hold elections for only a minority of board members each year, effectively blocking stockholders from removing an entire board and instituting change.
3. "Advance notice" provisions. These corporate bylaws allow companies to demand an array of often arbitrary and irrelevant data from any investor wishing to propose a resolution for vote at a company’s annual meeting, including board candidates or resolutions on director pay, etc. These demands can be significant hurdles for any shareholder wishing to propose resolutions and often are simply pretexts for company to deny a vote on a proposal.
4. The "right of domicile" provision. We are proposing a new rule that would allow a majority of shareholders to have the ability to approve moving a company’s legal domicile to another jurisdiction, such as a different state. In many states, it is the sole right of management to determine where a company is incorporated, meaning they often domicile in management-friendly jurisdictions.
5. Division of CEO and chairman role. The CEO is the chief manager of a company, while the chairman is the main representative of stockholders. Unfortunately on many boards, this role is occupied by the same person, which often poses a conflict of interest.
6. Supermajority vote provisions for major transactions. These rules generally require that well over a majority of shareholders must approve major transactions like mergers or charter amendments, which is often an onerous impediment to change. A simple majority is sufficient for all such changes.
Altering these and other laws would be a huge step in giving shareholders more power to influence their companies. And most importantly, it will make "do nothing" boards more accountable in the companies they oversee.
Too many board members believe their main responsibility is to take the corporate jet to the Super Bowl or the World Series and soak up lavish pay and perks. This is wasteful and irresponsible and contributed to the economic crisis we face today.
Many studies over the years have found a direct correlation to good governance rules and corporate success. And over the coming months, I will be working tirelessly to change and improve corporate governance laws in this country.
But it is only when great numbers of people rise up to demand these changes can we be effective. That is why I am asking that thousands of people join this cause. You have nothing to lose and everything to gain.
Sign up for United Shareholders of America on my blog, The Icahn Report. www.IcahnReport.com