If U.S. government owns 80% of AIG and still can't force the company to quit overpaying their executives, something is very wrong. Read on, I have a solution because shareholders (also know as "owners") must have more of a say. Multi-national companies enjoy unprecedented power in every facet of public life and as American automakers travel to Washington with hat in hand, it's important to recall the power that they wielded just a few years ago. Do you remember just a few short years ago when GM and Ford lobbied hard to veto California voters efforts to adjust emissions standards and clean up the air quality of the state. Perhaps if GM had to actually answer to it's shareholders about things like executive pay and about whether or not to have long-term fuel efficiency strategy, things could have been different. Who knows, they might have been able to compete with Toyota.
The rules of politics haven't changed just because we have a new President and a Democratic congress and, in the long run, the power of corporations to shape policy won't go away. So why don't we change the rules of corporate governance so that shareholders have more of a say in how much these companies pay their executives and how their behavior affects the air we breath or the water we drink? Is it possible that in the future an average citizen could make a bigger impact voting for the board of directors of AT&T or General Electric than for a congressman? With the aid of Internet efficiencies this could be a reality today.
The former president of the New York Stock Exchange, Catherine Kinney, said that the best way to assure responsible corporate behavior is increased shareholder involvement in corporate decisions. However, under the current system of proxy ballots mailed to unorganized individual shareholders, it is unlikely that the average private investor could ever have real impact on corporate behavior. Recent corporate malfeasance has proven this current system to be unsatisfactory - we need to strive for a system in which every shareholder, even those owning less than a single share, can vote online about important corporate decisions.
Sound far-fetched? So did E*trade in 1995. There are only two tools needed to make this corporate democratization happen. The first is the ability to compute our fractional shareholdings (through mutual funds, retirement accounts, etc) on a daily or weekly basis. The second tool is a law requiring public corporations to hold web-based shareholder elections. This is how the system might work:
An average citizen, call her Emily, receives an email alert from Greenpeace. She learns that a timber company owned by, or selling to, a multi-national corporation is deforesting a portion of the Brazilian rainforest. Despite requests to stop from respected environmental groups in America, Brazil and in Europe, XYZ has refused to change its policy.
Emily checks her financial holdings website and views a complete tally of every company in which she owns stock. This tally not only includes the stocks in companies that Emily has chosen to buy independently, but every single stock or fractional portion of a stock that Emily owns through her mutual funds, retirement account or pension plan. (Mutual funds already compute this sort of information on a daily basis.) Emily sees that she owns only three-quarters of a share in XYZ. While such a tiny ownership stake is certainly not enough by itself to change corporate behavior, let alone steer the company out of the Brazilian rainforest, the power of organization and fraction voting changes the power dynamic.
If average shareholders are organized around high profile issues by reliable, well-branded organizations such as Greenpeace or MoveOn, their votes would make a difference. In this hypothetical case, Emily checks the Greenpeace website and sees that thousands and thousands of other small, green, and empowered fractional shareholders are preparing to participate in the upcoming online vote for the XYZ board of directors. Emily, along with other activated shareholders, obtains a "master control number" from her financial holdings website, plugs it into the online corporate website, and votes for board members who advocate a more environmentally responsible profit vision for XYZ.
Similar victories are possible in a range of other shareholder issues, for example, CEO compensation packages and fiscal responsibility.
In addition to being profitable, we need our corporations to be honest and socially responsible. Public corporations are designed to allow for shareholder participation but voting logistics have limited input to only the rich and powerful. We need to update the process so that it takes advantage of current and future internet efficiencies.
Online fractional voting will not be an easy victory. Corporate leaders will view it as an infringement on their power. Critics will repeat the patronizing mantra that kings and dictators have been saying forever about democracy, that "its dangerous to give too much control to the simple-headed masses." Digital security concerns are also likely to be invoked, even though the Vanguard Group's use of internet proxy voting is already providing a secure functional model.
Empowering Emily will not be painless but it is difficult to imagine it not happening -- the tools exist, corporations have proven that they need oversight and we need to protect our investments. Before we allow public corporations to tell us to mind our own business, we need to ask the question, "Who owns Who?"