Shareholders Don’t Want Board Members, Who Cares?

by Odysseas Papadimitriou on July 29, 2011

Board RoomImagine for a second a U.S. president loses an election, decides he’s just not ready to give up his power yet, and concludes that he’ll remain president for another four years, whether the American people want him or not. How do you think that would go over with the voters? Not so well, I would guess. In fact, he might have to board up the White House’s doors and windows to deal with the resulting revolt.

Well, if you think about it, that’s essentially what’s going on right now with the board of directors system in this country. According to Business Week, more than 200 board members at public U.S. companies over the past three years have received less than 50% of the shareholder vote at elections, yet all but a few retained their seats. Two-thirds of the S&P 1,500 doesn’t even require that board members garner the approval of a majority of shareholders in order to keep their positions. But how could that possibly be?

I have long maintained the need for an overhaul of this antiquated corporate mechanism, and what other proof is needed for this contention’s validity than the outright refusal of board members to adhere to the wishes of the people they represent. So, why do these boards still hold so much power?

Much of it has to do with tradition. Having a few individuals represent the interests of a company’s shareholders was once thought to be necessary given the limitations of communication (i.e. snail mail), which made it almost impossible for a business to get shareholder input and still make decisions in a timely manner. And since we’ve always done it this way, why change now, right?

The rest has to do with the very people who serve on these boards. Power corrupts. Being a director on a company’s board is a status symbol, an activity which boosts one’s self-importance and gives him or her the power over others that may be missing in other aspects of life. It’s understandable that these people would be hesitant to give it up, but they aren’t merely playing house in a corporate setting. They cannot simply defy the wishes of their shareholders without consequences, especially when modern technology makes them obsolete for major decisions.

In an age where information and opinions can be shared quickly and from anywhere in the world, there’s no good reason to retain the status quo. Proxies or representatives or whatever you want to call them are no longer necessary, if they ever were, because shareholders can simply vote on key issues via the Internet – even from their mobile phones. So, instead of allowing a select few individuals to act in what they believe to be the best interest of the shareholders, or perhaps more aptly, to forward their own agendas, why not let the shareholders make important decisions themselves? Instead of guessing what shareholders want, why not just let them tell you?

Shareholders bought the right to dictate some measure of a company’s policy, and that right is currently not being fulfilled. Some might argue that the Average Joe isn’t qualified to weigh in on matters of big business, but we don’t only allow rocket scientists to vote in the presidential election, do we? A change is necessary and a change is possible, if not simple, so let’s get on with it.

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