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Home Publications Blogs Beat the Press NYT Exposes More Corruption in Corporate Governance

NYT Exposes More Corruption in Corporate Governance

Saturday, 13 April 2013 05:43

Corporate governance structures in the United States make the old Soviet Union look like a model of democracy. As it is, the voting structure is so rigged to favor insiders that it is almost impossible for shareholders to remove even the most incompetent directors and install better management.

This is mostly done through the structure of elections to give incumbents an almost unbeatable advantage. However the NYT tells us that even in the rare cases where the incumbents are voted out they don't always leave. Columnist James Stewart identified 41 cases where directors lost elections but still continued to hold their seats on the board. 

This is why we need Director Watch (TM). The basic story in corporate America is that the CEO and other top management pay off the directors to look the other way as they pilfer the company at the shareholders' expense. And then the CEOs run around claiming that they earned their big paychecks. Leonid Brezhnev would have been jealous.

Comments (11)Add Comment
"at the shareholders' expense"
written by GeneralWelfare1776, April 13, 2013 7:54
When CEOs pilfer the company, it is far more likely to be at the expense of the other employees (and sometimes customers or others dependent on the company) than at the expense of shareholders. The macro numbers make this obvious: during the three decades in which CEO pay has soared, employee pay has stagnated, but shareholders have done just fine.

This is not surprising. Shareholders have no legal claim on corporate surplus (or more) seized by managers; they are legally entitled to receive just what directors choose to give them. Moreover, there is no reason to imagine that shareholders have market power (as purely fungible suppliers of a purely fungible sunk cost) to seize more than they already take: if they had the power to demand more, they'd already be receiving it.

Corporate "democracy"
written by GeneralWelfare1776, April 13, 2013 8:01
There is nothing "democratic" at all about corporate "democracy" regardless of how much influence shareholders have. Corporations vote per share, not per person. Shares are not the "demos" in any sense.

Moreover, shares are for sale. A system in which the winner is the one who buys the most votes is some form of plutocracy, not democracy.
Silence of Corruption is Deafening
written by Last Mover, April 13, 2013 10:07
This is big commie lie. Lenin, Stalin, Kruschev, Brezhnev, all of them never paid a dime to anyone to look the other way. If anyone wasn't already looking the other way they were conveniently disappeared.

The corporate takeover of America has progressed well beyond the scandalous corruption of its disgraceful innards. Like the commies, the entire nation is expected to look the other way like herding sheep in the desired direction. It's not the same as getting disappeared but the silence is deafening.
An interesting site
written by Rachel, April 13, 2013 10:26

And a great idea, to make it easier to track the appalling waste.
And these are the entities Citizen United empowers.
written by Luke Lea, April 13, 2013 11:30
Rogue nation!
Corporate Tyranny
written by Xelcho, April 13, 2013 12:11
The comparison to the CCCP is a bit misplaced. The soviet model was simply to put party members on the board. To really straighten things out, or at least to make corps do more than just rape the world and the labor force, requires a bit more thought. Richard Wolff has done a bit in this department. A step would be to have boards composed of employees that rotate and/or co-ops. Thus forcing the decisions to be expanded out from a cabal of board rooms and executive suites.



The New Industrial State
written by Ellen1910, April 13, 2013 1:00
Forty-five years ago JKG noticed that the managers had coopted shareholder power and had done so in order to reduce risk and to ensure the survival of the firm (retaining earnings to finance expansion rather than distributing the earnings to shareholders and relying on debt to finance expansion).

It is not surprising that once having noticed that they were faced with no countervailing power, managers also noticed that their compensation was at their choosing.
written by urban legend, April 13, 2013 2:27
Executives now "align" their compensation with shareholders, construing it as their duty to "enhance shareholder value" (and their own compensation in the process), when as a matter of unenforced law, their first fiduciary duty is to the corporation itself.

The state does not grant a corporate charter -- protecting investors from their common law legal obligations -- in order to enhance shareholder value, it does so for the public purpose of enhancing economic activity. Enhancing the value of the corporation -- with growth in shareholder value being derivative of corporate success, not the direct focus of corporate effort -- requires a completely different orientation by executive and board, one that would make even $10 million packages very rare. It probably would also mean being more accommodating to higher employees compensation and even collective bargaining, in recognition of the fact that higher employee morale is a key element in enhancing corporate success.
written by Jennifer, April 13, 2013 8:26
Is there a plan for formal outreach? I think there are a lot of activist shareholder groups, some small, some large (including some pension groups), that I would think would be interested in this.
Make them accountable
written by bakho, April 14, 2013 7:13
Make them accountable!!!!!!!

CEOs use their big paychecks to gain political power as well. Comparisons to the FSU are apt.
Executives aligned with shareholder interests is a social catastrophe
written by fairleft, April 15, 2013 5:21
other than that I don't have a problem with cracking the whip on CEOs to make sure they obey shareholders' commands. Seriously, though, the notion that CEOs and Boards of Directors are _supposed_ to align their actions with the 'shareholder democratic will' is a complete misunderstanding of the _social_ institution (created by the govt) that corporations are supposed to be. So, yeah, CEOs should 'align' with something, but that thing needs to be multi-faceted and include worker, community, creditor and shareholder interests (for a start). Frankly, back in the 50s and 60s when mgmt was divorced from shareholder interests far more than it is today, corporate mgmt was much more 'responsible' and long-term oriented.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.