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
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
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
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.