Why Shareholder Democracy is Essential

by Nell Minow for BNet.com, February 23rd, 2011.

John Carney, the CNBC.com business journalist, doesn’t like shareholder democracy.  He argues that reforms, such as say on pay rules, which give shareholders a non-binding vote on executive compensation, won’t improve corporate governance anymore than electoral reforms have improved our government.

But his views are based on antiquated notions about shareholders, and a distorted view of democracy and capitalism.  Here is some of what he overlooks:

1. Shareholders can make informed decisions. Carney makes the paternalistic and management-centric “shareholders are stupid” argument, sometimes referred to by economists as “rational apathy.” In a blog post for CNBC.com, he wrote:

At the corporate governance level, the problem is that things like say-on-pay introduce complicated elements into proxy elections. These complexities make it difficult for ordinary shareholders, typically equipped with only a passing interest and knowledge of the issues at hand, to form preferences, much less vote their preferences. (continue reading… )



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