If deceptive labeling of bills in Congress were punishable by government agencies, Sens. Chuck Schumer (D-N.Y.) and Maria Cantwell (D-Wash.) would be paying a hefty fine.
Their so-called "Shareholder Bill of Rights," recently introduced in the Senate, would impose a one-size-fits-all regime on public companies that would limit choices for shareholders, reduce corporate performance and allow political agendas of pressure groups to trump the interests of ordinary investors. Most egregiously, the bill would make illegal a key feature of the corporate governance structures that have served shareholders very well at companies from Google and Microsoft to Berkshire Hathaway.
The bill would make it illegal for the CEO of a public company to also serve as the chairman of its board. Critics of this practice, such as union pension funds and other activists, argue that the chairman needs to be independent of the CEO to provide better oversight for shareholders.
A prominent example these critics point to is Bank of America CEO Ken Lewis, whose bad calls while also serving as the company's chairman cost investors and taxpayers billions. Lewis was recently removed from his position as chairman, but not CEO, by a shareholder vote.
But this example, like most anecdotes devoid of data, is very selective. In many instances, by contrast, some of the best-performing companies in America have been led by the same individual filling the two positions.
For many decades, for instance, Warren Buffett has served as chairman and CEO of his conglomerate Berkshire Hathaway. Yet Berkshire shareholders have not had much to complain about in terms of the company's performance.
Similarly, shareholders have not generally been displeased with Eric Schmidt's tenure as chairman and CEO of Google since it went public in 2004. Examples of successful stints as chairman and CEO in the recent past include Bill Gates at Microsoft, where he served in both positions until he retired as CEO at the height of Microsoft's success in 2000, and Jack Welch at General Electric in the turnaround years of the '80s and '90s.
Nor is there any real evidence that having a separate chairman and CEO will keep a company from blowing up. Citigroup has had separate individuals in these positions since 2004, but as its shareholders (and U.S. taxpayers) are painfully aware of, this hardly improved its corporate governance.
Different governance structures are appropriate for different firms. A new company in its entrepreneurial stages often wants the same person as chairman and CEO for more of a focus on growth. A more established company may function better by separating these positions. Regardless, a company won't have effective governance without diligent oversight by boards and shareholders, and that's what policymakers should be focusing on improving.
The overall lesson from the experiences of these companies is that shareholders are perfectly capable of deciding on things like whether the chairman and CEO should be separate, and that these matters shouldn't be dictated to them by the government. The same can be said for the bill's other mandates such as "say on pay," the requirement of an annual nonbinding shareholder vote on executive salaries that's also being pushed by the Obama administration.
"Say on pay" has been on the proxy ballots of many companies, and shareholders have rejected the provision in the vast majority of cases, seeing the process as redundant and a waste of the company's resources. So why should Schumer or President Obama now impose "say on pay" on shareholders who already have said that they didn't want it?
Schumer's bill is also on a parallel track with the Securities and Exchange Commission effort to impose "proxy access," the ultimate corporate governance Trojan horse. Under this mandate, a company - and all of its shareholders - would be forced to subsidize the election campaign of any candidate for the board of directors whom as little as 1% of shareholders wish to nominate.
But this would lead to all sorts of pressure groups, such as union pension funds and "green" foundations, cutting deals with CEOs. A union could, for instance, threaten to run candidates for the board unless the company imposed "card check," or forced unionization among its workers.
These special interest gains would come at the expense of ordinary shareholders, as the company's performance would likely decline. And a recent survey released by the U.S. Chamber of Commerce showed that a large majority even of union households believe that pension funds should be managed to maximize retirement returns rather than, in the survey's words, "advance the union's social and political goals."
So in the spirit of truth in advertising, Schumer should change the name of his legislation to the "Bossing Shareholders Around and Reducing Shareholder Value" bill. Or better yet, withdraw this destructive proposal altogether.
Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute, a free-market think tank in Washington.
