Rep. Barney Frank (D-Mass.) appears to be working in tandem with the Obama administration on making executive pay subject to shareholder votes. That seems fair enough; shareholders deserve some say over companies in which they have a stake. However, as CNBC “Squawk on the Street” host Mark Haines noted in an interview wiht Rep. Frank this morning, the nature of such ownership complicates things.
As Haines noted, many public company shares are in the hands of large institutions — he mentioned mutual funds specifically — not “mom and pop” owners saving for their retirement. Those funds invest their assets on behalf of somebody else, namely individual investors, who are removed from corporate shareholder decision making by virtue of going through sucn an intermediary. What was surprising to Haines making this point was Rep. Frank’s reaction. He did not address this specific point, got agitated, and ended the interview.
This begs the question: What role does Barney Frank envision for institutional investors in corporate decision making? One large category of institutional investor comprises union pension funds, which, as Diana Furchtgott-Roth of the Hudson Institute notes, are seriously underfunded, in part due to union bosses using those funds to advance political causes that do nothing to increase shareholder value. The fact that the unions that control these funds are major donors to Democratic politicians make that question awkward, but especially worth asking.
Video below. The interesting part begins at 4:50. (Thanks to Margaret Griffis for the CNBC video.)