Comments on: Shareholder Activism and the “Eclipse of the Public Corporation” http://blogs.law.harvard.edu/corpgov/2008/06/25/shareholder-activism-and-the-eclipse-of-the-public-corporation/ Sponsored by the HLS Corporate Governance Program Tue, 01 Dec 2009 04:03:01 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: James McRitchie http://blogs.law.harvard.edu/corpgov/2008/06/25/shareholder-activism-and-the-eclipse-of-the-public-corporation/comment-page-1/#comment-19712 James McRitchie Thu, 03 Jul 2008 18:01:36 +0000 http://blogs.law.harvard.edu/corpgov/2008/06/25/shareholder-activism-and-the-eclipse-of-the-public-corporation/#comment-19712 Under the managerial form of governance that has been in dominant for most of Lipton's brilliant career, the board is composed of experts and operates primarily to provide internal technical advice. Under public governance, the board is composed of outside directors, shareowner interest groups and even more broadly defined stakeholders to link the corporation to mass markets and society... functions increasingly important for companies operating in a global context. Lipton's clients would be better served if he helped them adapt to the process of democratic deliberation, rather than fighting a rear guard action. How can they evolve to a system of selecting board members nominated by and directly accountable to shareowners? How can they supplement the annual meeting with an assembly of elected shareowners who provide advice to management throughout the year? By inviting public discussion in areas heretofore regarded as the exclusive domain of management, companies deliberate matters of public concern in advance and are less vulnerable to the vagaries of market bubbles and crashes. Lipton can best help his clients avoid the imposition of overly burdensome regulations by advising them on how to build democratic mechanisms into the very structures and processes of corporations themselves. See much more extensive comments at http://www.corpgov.net/news/news.html under the heading "Lipton and Democracy." Under the managerial form of governance that has been in dominant for most of Lipton’s brilliant career, the board is composed of experts and operates primarily to provide internal technical advice. Under public governance, the board is composed of outside directors, shareowner interest groups and even more broadly defined stakeholders to link the corporation to mass markets and society… functions increasingly important for companies operating in a global context.

Lipton’s clients would be better served if he helped them adapt to the process of democratic deliberation, rather than fighting a rear guard action. How can they evolve to a system of selecting board members nominated by and directly accountable to shareowners? How can they supplement the annual meeting with an assembly of elected shareowners who provide advice to management throughout the year? By inviting public discussion in areas heretofore regarded as the exclusive domain of management, companies deliberate matters of public concern in advance and are less vulnerable to the vagaries of market bubbles and crashes. Lipton can best help his clients avoid the imposition of overly burdensome regulations by advising them on how to build democratic mechanisms into the very structures and processes of corporations themselves.

See much more extensive comments at http://www.corpgov.net/news/news.html under the heading “Lipton and Democracy.”

]]> By: Joshua Humphreys http://blogs.law.harvard.edu/corpgov/2008/06/25/shareholder-activism-and-the-eclipse-of-the-public-corporation/comment-page-1/#comment-19691 Joshua Humphreys Tue, 01 Jul 2008 22:41:23 +0000 http://blogs.law.harvard.edu/corpgov/2008/06/25/shareholder-activism-and-the-eclipse-of-the-public-corporation/#comment-19691 There is a deep-seated paradox at the heart of the argument put forward here because the analysis refuses to disaggregate different forms of shareholder activism and assumes that corporate governance advocacy is a short-term proposition. Particularly misplaced is the blanket assimilation of CII or ICGN members, institutional investors, and other corporate governance advocates with hedge-fund activists and traders hoping to profit from short-term share price movement. As it happens, many leading corporate governance advocates are also long-term universal investors or responsible social investors demanding much more sustainable corporate performance over the long haul. As fiduciaries and owners, not traders, they are much more likely to use activism precisely to raise long-term issues; consequently, they're also eager to dialogue directly with Boards about material issues of concern in order to avoid public proxy battles. Only when management and Boards prove unresponsive do we get proxy fights. There is a deep-seated paradox at the heart of the argument put forward here because the analysis refuses to disaggregate different forms of shareholder activism and assumes that corporate governance advocacy is a short-term proposition. Particularly misplaced is the blanket assimilation of CII or ICGN members, institutional investors, and other corporate governance advocates with hedge-fund activists and traders hoping to profit from short-term share price movement. As it happens, many leading corporate governance advocates are also long-term universal investors or responsible social investors demanding much more sustainable corporate performance over the long haul. As fiduciaries and owners, not traders, they are much more likely to use activism precisely to raise long-term issues; consequently, they’re also eager to dialogue directly with Boards about material issues of concern in order to avoid public proxy battles. Only when management and Boards prove unresponsive do we get proxy fights.

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