Democracy of fools

One knock against Ross Perot's 1992 presidential run was the belief that he would try to run Washington like he ran his businesses. Used to getting his own way, he critics noted that his autocratic, "my way or the highway" attitude wouldn't fly inside the beltway, where compromise and alliance-building are so critical to success. Flip the argument around and you have the current rub against the shareholder democracy movement. If you can't run government like a business, you can't run a business like government.

The collapse of Bear Stearns and the subprime mess have Barney Frank and just about every other politician calling for more shareholder say in how companies are run; a populist, voice-for-the-little-guy play in an election year. But we've been down this road before, and one reason for the private equity surge in the recent past was the confusing and often-contradictory demands from outspoken shareholders after the last market downturn. Senior management got fed up, and went looking elsewhere for new sources of capital. This isn't to say stewardship isn't important and that investors shouldn't have a say. But let the market decide. Some companies are better about shareholder access and input than others. If certain investors feel it's more important, and company A does it better than company B, they're free to invest their money in the former. The current government-mandated "fix" for the problem will cost more (much more), negatively effect a company's ability to be flexible in increasingly competitive global marketplace and ultimately hurt the very people it's promised to help.

For an opposing viewpoint, I recommend former SEC chairman Arthur Levitt's piece "How to boost shareholder democracy" at www.wsj.com.

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