Robert Russ, CPA
In theory, corporate governance consists of stockholders, board of directors, and management. In theory, the stockholders elect the board and the board hires and supervises management. In reality this is not the case. Management hires the board and the board hires management; stockholders have no voice in the management of modern corporations. Somewhere in the last 200 years we have evolved to the system we have today. Corporations today are self-run entities with no direct stockholder allegiance.
I am an accounting Ph.D. student. One project that I have been researching is corporate governance in early US corporations. In these early corporations the board of directors was nominated and elected by the stockholders. Several of the companies that I have reviewed used a committee of stockholders to review the annual financial statements and the actions of the board of directors. These committees would then present a report to the stockholders at the annual meeting. While this concept goes far beyond the SEC proposal, the current SEC proposal at least makes progress towards allowing stockholders some voice in corporate affairs.
Some have said that allowing this would make board meetings unruly, as directors would have different agendas. Is this a bad thing? The purpose of the board is to oversee management decisions; a board of directors that simply "rubberstamps" management decision is not acting in the best interest of the stockholders. The board should question management actions before approving them. Some of the corporate downfalls in the last two years appear to have had connections to boards that did not question management decisions.
I think the current proposal to allow large block holders to nominate board members is a good start. I believe it will still be very difficult for any of these additional nominees to get elected, however, at least this proposal creates a manner in which alternatives can be inserted into the proxy voting process.
Robert Russ, CPA