Freedom for Whom, Washington?

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If you're not outraged, you haven't been paying attention -- or maybe you've been brainwashed into thinking "pro-big business" equals "pro-market." To me, recent congressional attempts to gut shareholder-friendly corporate governance provisions in the financial reform bill suggest that some members of our economy think they should be more "free" than others. Guess which side you and I fall on?

Last minute sellout?
Last week, Senate negotiations regarding the final financial reform bill appeared to remove some of its corporate governance provisions, including a mandate for majority voting.

Even more ominous is the attempt to block "proxy access," a move apparently being pushed by Senate Banking Chairman Christopher Dodd at the White House's request, as it tries to assuage the Business Roundtable's concerns. The new plan would add a provision requiring that investors own a whopping 5% stake in a public company for two years, before they can gain the right to nominate their own candidates to the board of directors.

The California Public Employees' Retirement System (CalPERS), which has fought against shoddy corporate governance policies at many companies, recently expressed its shock at these developments to the White House. CalPERS noted that no single shareholder owns 5% of such major companies as Bank of America (NYSE: BAC  ) , IBM (NYSE: IBM  ) , and ExxonMobil (NYSE: XOM  ) . Even the 10 largest pension funds by assets don't hold more than 3%.

Clearly, this restriction would limit the amount of change institutional or activist investors could push for in corporate America. That's a huge deal, because institutional investors need to take a more aggressive role in pro-shareholder affairs. If anything, the mutual fund industry has been asleep at the wheel. Governance experts have even accused some funds, like AllianceBernstein LP (NYSE: AB  ) , Blackrock's (NYSE: BLK  ) Barclays Global Investors, and Ameriprise Financial (NYSE: AMP  ) , of being "pay enablers," rubber-stamping overly generous compensation and other bad behavior they ought to condemn.

And if you're afraid that "activist investors" with an agenda and an axe to grind might somehow have their wicked way with public companies, get real. No one's forcing any shareholder to vote for even the noisiest rabble-rouser's proposals, unless they believe those initiatives are in their own best interests. (That said, I'd argue all shareholders should make it their business to listen to other stakeholders' concerns, at least.)

Freedom for whom?
Too often, lawmakers who claim to defend "free market principles" are actually rigging the playing field for certain interests, at the expense of the rest of us. Look no further than the oil industry, and specifically BP's (NYSE: BP  ) recent and agonizingly ongoing tragic disaster. When the government intervenes on big business's behalf, imposing liability caps and handing out subsidies, it's not making the market any more free. It's just paving the way for disasters like the Deepwater Horizon and the well from hell.

Such distortions "free up" companies to take on too much risk. In a true free market, these companies would have to acknowledge worst-case scenarios, and prepare for the possibility of bankruptcy if they're inadequately prepared. I, for one, am sick of watching companies burn down the house, without ever getting any say about whether they should have been playing with matches in the first place.

Last week, my colleagues Dayana Yochim and Ilan Moscovitz beseeched individual investors to petition Washington not to kill shareholder rights. True, companies deserve the freedom to conduct their business without undue restrictions. But as part owners of public companies, shareholders should also have the liberty to voice their concerns without having to resort to selling their shares.

Shareholders and their rights are an essential part of a vibrant marketplace. Let's hope Washington stops rigging the game against us.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy. Try any of our Foolish newsletters today, free for 30 days.

Read/Post Comments (4) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 23, 2010, at 9:10 PM, xetn wrote:

    How can anyone be so naive to believe that politicians represent the interests of the citizens? The politicians lie to the voters enough to get elected and then only support their benefactors (big business, lobbyists, and the likes of GS). Almost all government regulation benefits some at the expense of everyone else (bank bailouts anyone?). Or how about "change you can believe in"? What a joke!

  • Report this Comment On June 24, 2010, at 2:23 AM, jomueller1 wrote:

    Freedom is one of my top values. To bad that a country that shed the oppression by the imperium did not provide real freedom for it's citizens. They believe they are free because they are constantly told so. The lack of freedom starts with school bullies and peer pressure and continues with officials who do not care about anyone but themselves. The workers rights, the health care system, and the financial system are geared to keep everyone dependent on the established powers. I call it it a modern form of slavery. Do not forget, the so called "founding fathers" had strong business interests which they could pursue more easily without the British scalping them. That thinking became the doctrine of the country in the disguise of "free markets" which do not exist, never did.

    But the brain wash covered with "patriotism" worked and very few see it. In my 20 plus years in the US I only once met a person who rejected patriotism. But the citizens of "the best country in the world", many of whom never learned much about the "rest of the world", believe they are better and better off than anybody else in this world. Sorry guys, you are wrong!

  • Report this Comment On June 24, 2010, at 12:55 PM, TMFLomax wrote:

    Some new info on the ongoing negotiations on the corporate governance provisions:

    Lawmakers agree to permit less frequent pay votes:

    The House proposes a compromise on proxy access:

  • Report this Comment On June 27, 2010, at 5:39 PM, mountain8 wrote:

    Dear jorn,

    I've been in america all my life and have visited or fought in a bunch of countries. My read is that no country has a government that represents people.

    The US is something new, a democraticly elected facio-socialist oligarchial dictatorship. And yes, I am quite patriotic as to what happens within our national boundaries, I think anyone living here that puts a hyphen before "american" is not an american. I am no longer proud of america. We are the arrogant bullies the French have always believed us to be. Unfortunately it seems to be the best of the bunch in governments I am familiar with. And nobody here seems to be willing to give up anything to change it into something to be proud of again.

    Please be patient. We will destroy ourselves in a very short amount of time.

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