Our Response to Terence Corcoran’s Attack on Proxy Access

Terence Corcoran has written an attack on proxy access:

The idea that corporations are little democracies that should be overseen like mini political institutions has been an insidious corporate governance concept for decades. The good news is that the idea has mostly fizzled, allowing corporations to continue to pursue their prime objective — maximizing shareholder value — with minimum interference from the forces of democracy.

Still, like Marxism and 3D TV, bad ideas never die, as demonstrated last week when the Canadian Coalition for Good Governance (CCGG) released a report declaring shareholder involvement in the corporate director nomination process “is an essential component of shareholder democracy.”

via Terence Corcoran: Shareholder democracy – the same old sham | Financial Post.

The use of ad hominem attacks and snarky language does not obscure the fundamental failures of fact and logic in this tirade. No one needs Hollywood to show that corporate directors are captive to executives and often fail to create shareholder value; the financial pages are sufficient. Mr. Corcoran thinks that 3 percent of the stock is insufficient to support a singularity of interest to nominate directors, ignoring two key facts. First, 3 percent is quite often more than the amount held by the members of the board, and therefore those holders are more likely to be aligned with the other shareholders. Second, that is just nomination. It requires more than a majority to actually be elected. Executives like Mr. Corcoran love to rhapsodize about the purity of the free market until it actually works. Really, analogizing it to Marxism? This is capitalism 101; capitalism is not named after the executives. If a majority of the shareholders wish to replace the directors, they should have the right to do so. If management trembles at the idea of persuading shareholders that its candidates are superior or does not like the free market test of being a public company, it can go private, where I assure you the private equity investors will have a great deal to say about who serves on the board. After all, it’s their money. As for the claim that all of the investors are fickle and short term? Once again, that is the market speaking. If shareholders do not have the right to replace directors, their only option is to sell the stock and by shares elsewhere. Proxy access is a modest and vastly more efficient and market-based option.