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February 26, 2013 at 12:33 PM
When is dictatorship preferable to democracy? In a corporate setting, apparently.
Recent controversies involving Herbalife and Apple are by no means coincidence, and could be related to abuses aided by the shareholder democracy movement, according to The New York Times.
Shareholder democracy refers to the push in recent years to make it easier for shareholders to have a direct say in matters once reserved for the board of directors, like CEO compensation, for instance.
But an idea that began with the best of intentions has been co-opted for other purposes, possibly nefarious, the paper reports.
It quotes Martin Lipton, a longtime counselor to the Fortune 500 and a partner at the law firm of Wachtell, Lipton, Rosen & Katz. Lipton said that long-term shareholders in public companies are being undermined “by a gaggle of activist hedge funds who troll through SEC filings looking for opportunities to demand a change in a company’s strategy or portfolio that will create a short-term profit without regard to the impact on the company’s long-term prospects.”
In a widely distributed memo on the subject of hedge fund manager David Einhorn’s lawsuit against Apple, titled “Bite the Apple; Poison the Apple; Paralyze the Company; Wreck the Economy,” Lipton wrote, “The activist-hedge-fund attack on Apple—in which one of the most successful, long-term-visionary companies of all time is being told by a money manager that Apple is doing things all wrong and should focus on short-term return of cash—is a clarion call for effective action to deal with the misuse of shareholder power.”
