It’s proxy voting season in America, when the shareholders, the real owners of corporations, get to have their say on how their businesses are run by electing the board of directors. Corporate magnates whine about the added regulatory burden they face since their ilk torpedoed the world economy five years ago, but reforms in recent years still leave shareholders powerless to influence the companies they own.
IBM, holding its annual shareholder meeting on Tuesday, is one of America’s great companies and one of my shareholdings. It’s also a poster child for how far reform has fallen short.
Shareholders elect boards of directors that have a legal duty to oversee management in the interest of shareholders. One of the worst abuses of the system is having one person serve as both Chairman of the Board of Directors and Chief Executive Officer. The very existence of a Chairman/CEO corrupts the idea of the board of directors effectively supervising management in the interest of shareholders. No one can supervise themselves objectively, and supervisors can’t be led by the person they’re supervising.
Management also routinely packs boards with likeminded executives that see the world (and appropriate pay levels) the way they do, though a Soviet-style system where nomination by management is tantamount to election. Because executives control the nomination process for lucrative and prestigious director positions, there’s strong, if unspoken, disincentive for director dissident, Rather than watchdogs for shareholder interests, corporate boards of directors become lap dogs for management whims.
Corporate management has successfully beaten back proposals for fair elections to choose directors. Enabling shareholders to nominate candidates to the board of directors on an equal basis would break management’s stranglehold on board members, and enable real oversight of management in the interest of shareholders. So management spent millions (in shareholder money) to stop democratic voting.
Among the more ludicrous arguments against fair elections was management’s claim it could lead to “special interests” gaining seats on the board. Of IBM’s 13 director nominees (all incumbents) this year, 10 are current or former Chairman/CEOs, including IBM’s own Virginia Rometty. Two more directors have served as university presidents, a different style of corporate potentate. No one questions whose interests they are serving; perhaps it’s obvious when you see that IBM has paid occupants of the Chairman/CEO post $116 million over the past three years.
As an IBM shareholder, I praise the company for decades of outstanding performance. But we’ll never know how much better its results could be with meaningful supervision of management by a board of directors that takes its legal responsibility to defend shareholder interests more seriously.
Totally globalized native New Yorker and former broadcast news producer Muhammad Cohen is author of Hong Kong On Air, a novel set in his adopted hometown during the 1997 handover about television news, love, betrayal, high finance, and cheap lingerie. See his bio, online archive and more at www.muhammadcohen.com; follow him on Facebook and Twitter @MuhammadCohen.