Manne on Shareholder Democracy
Henry Manne is back with another article in the WSJ.Â This time Manne goes toe-to-toe with the “corporate democrats.”
Profs Ribstein (“Shareholder democracy is just one of the burdens that public corporations have to bear these days”)Â and Bainbridge (“it’s a brilliant spanking of the shareholder activists, which I highly commend to your attention”) have already chimed in on this one.Â Still, it is worth posting a few key paragraphs:
The hidden agenda of many corporate democrats is even more apparent when they argue that large corporations are indeed like small republics and should, therefore, like all governments, be democratized or constitutionalized. This is usually no more than an assertion that the large size of an otherwise private enterprise is sufficient to convert what would otherwise be a private ordering into something suffused with a public interest — in other words, an argument for more socialism. The very success of a private concern becomes the reason for destroying its privateness — a neat rhetorical trick if it was not so patently absurd.
Sometimes this argument is made a bit more logical by saying that large size necessarily means that external costs will be visited on the rest of society. This is the basis for the currently popular claim that so-called “stakeholders” should have a real voice in how the corporation conducts its affairs. But even if there are occasional costly externalities associated with corporate activities, rearranging corporate governance, which is obviously functioning adequately for investors now, is an irresponsible and costly way to solve that real political problem.
We need corporate activists today more than ever, but we need them to lobby and argue for repeal of our many costly and ill-serving bits of corporate regulation. They might start with Sarbanes-Oxley, then go back in time to cover the Williams Act and state anti-takeover provisions, the Investment Company Act of 1940, the Securities and Exchange Act of 1934 and the Securities Act of 1933. I know this is pie-in-the-sky idealism, but it does not change the fact that, on balance, the world would be a far better place without these laws or anything like them.
I don’t have anything to add to this other than a recommendation to go read it in full.