A Shareholder Revolution? Pt. 2

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by: Jonathan Salem Baskin

I wrote yesterday that the way holders of stock in companies are treated amounts to benign disregard, at best, and fascist manipulation, at worst. So we can complain that execs are either 1) getting to rich, and/or b) dumber than dumb, but we’ll grow old and bitter (and poorer) if we wait for corporate boards and government regulators to step up and change things.

The TARP and auto bailout news suggest that the corporate structure-thing isn’t going to get resolved anytime soon — the immediate opportunity to do just that with companies receiving TARP or other bailout monies notwithstanding, and having been ignored entirely — but we could make a few changes right away that would help owning stock more resemble electoral democracy. 

But first we need a shareholder revolution.

What could we owners demand as we stormed the exchanges? Whether we chose to challenge companies directly, or the mutual, college, pension funds (et al) that hold more than half of all the shares in known existence, here are a few starter ideas:

  • Demand better communications. The Federal government requires extensive reporting from companies, as do most stock exchanges. Unfortunately, most of these documents are written in Egyptian hieroglypics. Imagine if every publicly-traded company had to send a quarterly communication to all shareholders (or tweet every second, the mechanism doesn’t really matter), written in plain English, and covering the issues…perhaps some formalized SWOT analysis for normal people, that was consistent across industries? How about designating an independent, third-party that would be responsible for research and writing? Expecting financial firms to write the definitive work on corporate health is like expecting your drug dealer to rate 10-step recovery programs
  • Allocate funds to support the discussion of issues. Ever notice that box you can check on your IRS return and send a buck to fund the Presidential campaign? Why not allow shareholders and/or companies to designate funds for use in annual meeting issue communication? If you think about it, we have a far greater need to force better communication with corporate leaders on an ongoing basis than we need to help Presidential candidates blather on every 4 years (and it’s an optional fund, so President Obama opted out of using it anyway!). Let’s pay for real campaign communications from the companies we own. Perhaps the funds could be accessed by any proponent of any topic, assuming some basic (and fair) conditions were met? I say take the money blown on flying just one board member to the meeting, throw in the cash that would have been wasted on that fancy-shmancy dinner the night prior, and use it to allow novel, unexpected issues to get onto the agenda
  • Provide better valuation/use of shareholder opinions. The Animal Farm-inspired voting arrangement within most company stock plans is an insult to your intelligence, if you think about it too hard. Stocks are glorified CDs, only with a gambling variable attached; if stockholders are supposed to feel and act like actual owners, their ownership stakes have to matter. The nickel slot players are still risking real money that is real to them, right? So how about coming up with a mechanism for capturing those votes and putting them/keeping them on the corporate agenda? Build real obligations for subsequent analysis and action, so if some percentage of the unwashed-class owners think so-and-so issue matters, it has to be explored and reported back, etc. 

Issuing stock is truly one of those brilliant breakthroughs in thinking that changed the world. Giving companies a liquid marketplace in which they can raise money, and allowing the risk and reward of investing to be open to everybody and anybody to share is cool insight, brilliant economics, and quite democratic. 

But we now know that once those shares have been purchased, the mechanism for exerting that ownership is woefully flawed. The exciting dynamism of the free market disappears once the stock trades hands, only to be replaced by a statist, command-and-control relationship. Just think of the marketing potential of opening up this arrangement to the tools and techniques of communications. 

Talk about a loyalty marketing opportunity! 

Imagine if companies truly competed for investor dollars, and used transparency as a real measure of corporate responsibility and business sustainability. It might not help every company avoid every misstep, but at least we owners would know about it somewhat more in advance?

Let’s go beyond limiting exec pay, or trying to change corporate behavior from the top-down. Shareholders need to demand more of their 401(k) administrators and mutual fund managers, as well as of the boards that purport to help guide corporations.

I say let’s effect change from the bottom-up. 

Where are the financial world’s James Carvilles? The meetup.com get-togethers to connect shareholders of particular companies (or within industries)? 

Let the campaigning begin!

Original Post: http://dimbulb.typepad.com/my_weblog/2009/02/a-shareholder-revolution-pt-2.html