Thursday, January 14, 2010

CEOs: We Own You! by Eliot Spitzer

This EXCELLENT article by Wall Street activist Eliot Spitzer describes the upside down world we live in, where CEO's think that shareholders work for them and not the other way around. Meanwhile these CEO basically have our paid elected Members of Parliament in their pockets. Witness the enormous power that the Canadian Council of Chief Executives (now headed by none other than John Manley...pffft).

The revelation contained in this article is spot-on for the income trusts issue, since the income trust model afforded the TRUE OWNERS of these businesses, the unitholder investors, with a increased degree of REAL ownership in these companies, not found in the ownership of corporations by way of traditional common shares.

This increased degree of REAL ownership is achieved in very simple, yet powerful ways, like the legal obligation of a trust to pay our a fixed proportion of its earnings eacm month to the OWNERs and the widely held convention that income trusts will only make acquisitions or do financings if they are "accretive" to the monthly distributions paid to the OWNERS, meaning that the distributions will increase otherwise why do the acquisition or financing in the first place. It is these disciplines of income trustsm and NOT their tax treatment that caused investors to pay a premium for a company that became a trusts rather than a corporation, for the simple fact that the investors were getting more for their money. What a novel concept!

This changed dynamic as between the true OWNERS of a business, the investors and the paid employees of those companies (ie CEOs) is what caused the employees (ie CEOs and Directors) who ostensibly represent the interests of the onwers to go to Ottawa and lobby the Harper government to kill income trusts in the full knowledge that doing so was contrary to the true interests of their OWNERs. Harper and Flaherty complied with the employees wishes to sabotage their owners.

How technology can help stockholders take control of the corporations they own.
Posted Tuesday, Jan. 12, 2010,
By Eliot Spitzer

Twitter, text messages, YouTube, and other technology transformed politics in 2008. This success raises a compelling question: Can the same technology awaken the more dormant world of corporate democracy? For decades, shareholders have abandoned their responsibility to use their votes to shape corporate behavior. But perhaps technology can revive democracy on Wall Street. Could shareholders, gathered by an emergency twitter message, soon converge on a shareholder meeting to demand a claw-back for ill-gotten bonuses? Could proxy voting in 2011 generate the same enthusiasm as actual voting did in 2008?

CEO sign.Evolving technology gives shareholders more controlThe importance of the issue cannot be overstated. Virtually every thoughtful discussion of corporate governance concludes that unless shareholders act like the true owners they are, all the proposed corporate reforms will fail. While there are some who claim shareholders are simply too ill-informed to participate meaningfully, this argument should carry no more weight in the corporate context than it does in the traditional political arena.

About 25 percent of shares are held by retail investors—owners like you and me, as opposed to mutual funds, pension funds, or hedge funds. This 25 percent block of votes presents a huge opportunity, because only about one-quarter of that block votes. In other words, 18 percent of all shareholders are simply sitting out. After the economic cataclysm of the past two years, one might think the opportunity to bring these new voters to the table—just as in the 2008 campaign, is real. How to do it is the issue.

Technology may be the answer. Several Web sites focused on corporate proxy voting are hoping to emulate the success of recent political campaigns. is an information source that tries to help retail shareholders more effectively use their proxy voting power. It permits shareholders to track upcoming board resolutions and see how major institutional investors are planning to vote; it also permits owners of shares in mutual funds to see how those mutual funds have voted their proxies over time and permits an easy comparison with other mutual funds on a broad range of "shareholder activism."

A shareholder interested in knowing more about the Jan. 13 annual meeting of Walgreen, the pharmacy company, for instance, could easily see that several institutional investors are opposing management on a number of significant issues, including ratifying the auditors and eliminating the requirement of a supermajority vote in certain contexts. Armed with this knowledge, retail investors might decide to investigate more, join forces with the opposition, or remain passive.

ProxyDemocracy is the corporate equivalent of knowing how major editorial boards judged a political candidate. Some of the institutional investors whose views are displayed—such as certain activist unions—may be aligned with individual shareholders, but ProxyDemocracy intends to be neutral in the information it provides., on the other hand, is a more overtly ideological site, providing its own list of shareholder advocates. It tries to direct shareholders to important ballot proposals at upcoming annual meetings. is an advocacy site, designed to organize retail shareholders around corporate governance issues, rather than to focus on particular annual meetings.

Whether these new information portals will work remains to be seen. There are at least two critical hurdles that still have to be overcome: First, most shareholders don't vote because they assume their votes don't matter; shareholder votes are almost never close.

Second, there is no water cooler for corporate democracy. A presidential or mayoral race prompts conversations among friends and colleagues and generates daily press coverage. A corporate proxy vote doesn't. We don't all own the same shares, and even if we did, we probably wouldn't talk about it.

Even so, bringing the technologies of the "new politics" to the corporate context will make information access easier and ultimately even permit direct shareholder-to-shareholder communication. In the long run, reinvigorating corporate democracy is almost as important as reinvigorating political democracy. Much as we may believe that a new regulatory regime will fix our corporate sector, the more important levers of influence will, and should come from the activities of shareholders, aided by new technology.


Dr Mike said...

So how did that happen anyway---it is the owners who should be in control & not their employees.

This sounds suspiciously like the government where we hire the MPs but they do whatever they want with very little consideration for the voters who are their employers--we have no control here either.

We are the boss but not really.

It appears it sucks to be us (again),

Dr Mike popovich

Anonymous said...

Great, great, great work Brent. !!!!

You are a superstar!

Thank you isn't enough....

Jean Marie L.

Moxy Vote said...

We also enjoyed Mr. Spitzer's story and appreciate the reference he made to Moxy Vote.

One point of clarification: the article states that ", on the other hand, is a more overtly ideological site, providing its own list of shareholder advocates." It's worth noting that Moxy Vote is not providing our own recommendations or ideologies -- we provide a platform that allows others to do that work.

Moxy Vote will accept advocates of any political, religious or ideological persuasion, with the goal of putting passion into the somber act of proxy voting. We intend to increase retail participation in the proxy voting process, and we'd love to host debates among liberal advocates, conservative advocates, activist hedge funds, individual shareholders and the companies themselves.

James McRitchie said...

Spitzer says there are at least two critical hurdles that still have to be overcome:

“First, most shareholders don’t vote because they assume their votes don’t matter; shareholder votes are almost never close.” However, this year that is changing. With most of the Fortune 500 using majority vote requirements to elect directors and with “broker votes” no longer allowed when retail shareowners fail to vote within 10 days of the annual meeting, your vote counts more than ever. We are sure to see several directors turned out of office. That doesn’t stop them from replacing tweedle dee with tweedle dum, but its a good start.

Second, “There is no water cooler for corporate democracy. A presidential or mayoral race prompts conversations among friends and colleagues and generates daily press coverage. A corporate proxy vote doesn’t. We don’t all own the same shares, and even if we did, we probably wouldn’t talk about it.” That’s where sites like and my own blog come in. People should be talking about how they are voting. It would be great to have TV shows like the Nightly Business Report actually providing analysis of the issues facing owners, rather than tips for the next bet. If PBS doesn’t do it, Spitzer could do it through

Of the two problems, the second is more important. When shareowners start talking to each other about how they’re voting, more will vote… and, more will vote intelligently. We will also start taking on more of the issues that currently send the system off balance.