Long in coming but no less welcome on arrival, IBM’s elimination of stock options for directors is a positive note on which to end the year. The Centre for Corporate & Public Governance added its voice to the chorus of corporate governance experts praising the move. For many years, I felt like something of a soloist in urging boards to adopt this position. Directors should never be on the same options train they permit management to ride. When they are, the results can be quite unsettling, as I predict we will continue to see with the ever-widening options backdating scandal in the U.S.
Now, could someone send a message about IBM’s move to Research In Motion’s directors on their BlackBerries ? I understand RIM’s board has some stock option issues.
Barry Diller’s diatribe against corporate governance advocates, whom he claims are “hurting” American business, prompts another observation.
Mr. Diller evidently observed no harm in the abuses typified by the dot.com bubble or the excesses in market valuations across the board which ultimately saw seven trillion dollars in shareholder wealth wiped out. He had nothing to say about the jobs and savings lost by Enron employees and offered no ideas about the epidemic of corporate ills that shook confidence in American capitalism more than at any time since the Great Depression. And he’s not offering any ethical prescriptions for the current scandal involving backdating of stock options. But if anyone dares hint that his $295 million in compensation last year might be a tad over the top, the hurt becomes unbearable.
Physicians are supposed to honor the Hippocratic oath. Mr. Diller seems to be practicing something that sounds like it, but has a very different meaning.
Report will please controlling owner-managers but does it serve the interests of investors who are treated like second-class shareholders?
Not to be confused with The Centre for Corporate & Public Governance, a group called the Institute for the Governance of Private and Public Organizations (interesting choice of names, don’t you think?), created in 2005, has come out with some suggestions on how to make dual-class shares more palatable. The study recommends a number of conditions that might make super voting shares, which give their holders a disproportionate say in the affairs and fortunes of the company, acceptable to even major investment institutions such as pension funds. Now, as an investor, you could get yourself all twisted like a pretzel in trying to accommodate the reluctance of company founders to step up to the reality that when a business goes public you can’t really pretend it is still private. Or you could just say no to such an outmoded, anti-investor scheme. (more…)
The other towering bookend of 20th century economics passed away this week. There must be something in the life of an economist that fosters “the long run”. Milton Friedman was 94. When John Kenneth Gailbraith died last April, he was 97.
I will leave it to others to chronicle Mr. Friedman’s staggering contribution to the literature and thought of the modern functioning marketplace. I have long contended that he underestimated the importance of the psychological aspect of the market and its interactions with people and governments and the consequences when public confidence in the workings of capitalism in a democracy is withdrawn. Were it not for the interventions of governments, whose intellectual champions were Keynes and Galbraith, it is widely believed that the free market would have collapsed entirely under the weight of the Great Depression and the rising tide of public outrage that was then shaping the political landscape. It remains a mystery to me why John Galbraith was never awarded the Nobel Prize for his work, if not the prodigiousness of his writings, in modern economics. Fortunately, the Nobel committee did not make that mistake with Mr. Friedman.
As for Mr. Friedman’s view that corporate social responsibility was “fundamentally subversive”: I think we have seen its absence in the boardroom, on Wall Street and in the environment on so many occasions and long enough to conclude that it is impossible for these giant institutions that shape the lives of countless millions to exist without being governed by the most evolved sense of social responsibility as to their conduct, which, at the very least, is to ensure that they do no harm. In any event, Mr. Friedman surely could not have failed to be impressed by the marketing potential that comes from companies attaching themselves to “good deeds” and popular social causes, which for many is what corporate social responsibility has been relegated to and through which shareholders often receive substantial rewards in company earnings and stock appreciation.
There are few on the scene today who begin to approach the passion, personality and authenticity of voice that were the hallmarks of these intellectual titans. It was good to have been a contemporary of a time when they both enlivened their profession and the lives of the people who occasionally glimpsed into it.
“Take these men for your example. Like them, remember that prosperity can be only for the free, that freedom is the sure possession of those alone who have the courage to defend it.”
–Pericles
Observance of what in Canada is called “Remembrance Day” occurs every November 11th. It is a time of year that is set aside to remind those who benefit from freedom of the ultimate sacrifice of the many who made it possible. Their sacrifice continues even today in fields that lie on the other side of the world.
Nothing can ever be done, no matter how deeply the words may be chiseled into the most timeless rock, to adequately reflect the heroism of the countless young men and women who have answered the call to duty. Their sacrifice is also honoured by those who serve the cause of freedom in other ways. Though they wear no uniform and no badge of rank, ordinary citizens who hold those who exercise power to account for its proper use, who demand transparency and openness in the conduct of the public’s business and are intolerant of accusations that to question the over reach of government and the erosion of civil rights and personal privacy is unpatriotic, also do justice to that sacred trust. They, too, are the enemies of tyranny and the sentries of freedom.
There are battles to defend freedom around the world. There are also battles at home to preserve it.
With loss of control in the House, Democrats winning the majority of governor’s mansions that were in contention and the reality that GOP rule in the Senate has been severely eroded if not lost entirely, President Bush and the Republican leadership were sent not so much a message as the entire Western Union company by American voters yesterday. The political equivalent of Hurricane Katrina has left its mark on the Republican Party and the calamitous war efforts of the Bush-Cheney administration.
It happens sometimes in democratic governance.
