Call for accountability by the unaccountable

Posted by Marc Hodak on April 27, 2009 under Politics | Be the First to Comment

“The lack of corporate responsibility and accountability to shareholders is one of the core problems we face,” the New York Democrat said.  (It was Schumer, but does it really matter which?)

Congress is all for responsibility and accountability… from others.  Schumer’s bill would include:

– Requiring “Say On Pay,” based on the fallacy that investors need more input into HR strategy

– Also “Say on Severance,” based on the widespread, but false perception that exiting CEOs of faltering firms get huge severances

– Elimination of staggered boards

– Requiring “Proxy Access”

What all these measures have in common is the increasing federalization of corporate governance.  Every single company incorporates under a charter designed and approved by the original shareholders (generally founders).  Every subsequent shareholder buys into the company under the existing by-laws in that charter, by-laws that explicitly lay out what rights the shareholders have.  These charters and by-laws are adjudicated in the jurisdiction of incorporation, often the state of Delaware, which has highly experienced, highly respected, and predictable courts.  Congress wants to trump that with central planning about how all corporations should be governed, by changing the rules for all existing corporations after the fact.

Congress commands a very different level of respect:

How much accountability does Congress have when, with ratings like that, they manage to have a re-election rate that rivals the old Soviet Politburo?

The main difference between Congress and corporate boards, of course, is that even with the overwhelming advantages of incumbency, failing boards still get replaced all the time, in the market for corporate control.  When a company performs as poorly as our government has, it gets taken over by another company.  When a company fails to provide an honest accounting of its assets as badly as Congress has failed, the board is replaced and sued for breach of their fiduciary duties, and those directly responsible go to jail.  Congress has no level of accountability that even comes close.