Corporate Political Speech and Proxy Access

If, thanks to Citizens United, corporations are free to spend bucks on political campaigns, it's about time shareholders were given the right to have a say over where those bucks are spent. 

Prof. Bebchuk sets forth a few practical suggestions for legal reform that could help the cause.  Full paper available here)

The business rountable, on the other hand, would paint shareholders as "third party outsiders" who have no business influencing corporate decision-making.  This is no surprise, of course.  And there are various and sundry "theories" of corporate governance and economics justifying this position.  E.g., investors "contract" away their rights to influence because it's more efficient to have a board of directors run the show.  Yes, yes, I know, this is about as realistic as the "social contract" theory espoused by Rousseau et al.  You ever sign a social contract with Uncle Sam???   

While observing all the briefing submitted in the case challenging Rule 14a-11, one wonders how the plaintiffs' bar would label workers.  Third party outsiders? But they are no more "outsider" than are shareholders.  Unlike many investors, they have a very vivid interest in the long-term success of the company.  So, shouldn't they have a say as to what their company does, too?  How it spends its campaign contributions?

Yet, it would be reasonable to suspect that investors will be jealous of any piece of the corporate coffer going to worker-specific interests.  Their business is -- no matter how passionate their PR campaign -- to make money for their beneficiaries.  Unless and until unions can get their acts together and make their pension funds pay attention to something else other than independent directors and "say on pay," at least.  (recognizing, of course, that state law authorities would scream bloody murder at such antics -- but that's an essay for another day).*

Under the favorite-son nexus of contracts theory, workers can have just as much a right to corporate governance as do shareholders -- it all depends upon the contracts they negotiate.   See also, e.g., Stout & Blair's team theory; workers as "residual" claimants in the success of the firm, etc.  And, given their unequal bargaining power, perhaps the state can step in, as it does with our collective bargaining laws, to give unions more influence in corporate decision-making, and thus corporate political speech.  Perhaps some day we can see a Rule 14a-8 for other stakeholders.  Or even a 14a-11.

So, any argument presented by investors that they can have a say to corporate free speech, while the workers can't, necessarily involves a moral judgment about who's more important when it comes to steering the corporate bastion.

Awk-ward.

Well, whatever.  Push comes to shove, American industry may just stop incorporating, and rid itself of the whole mess.

*updated - Feb. 1.  Nevermind - Race to the Bottom already did.

More to the point, shareholders wanting to communicate with other owners to make the case for a change in the board need access to information on board behavior.  On this score, Section 220 and the credible basis standard has been used to deny shareholders access to such basic information as the reasons for arguably excessive compensation (see Seinfeld) or the board's refusal to accept letters of resignation of directors who did not receive the requisite support under a majority vote provision (see Axcelis).  The courts in Delaware have long used excessive procedural thresholds to deny shareholders basic information that any owner of a business would want to have.  See Disloyalty Without Limits: Independent' Directors and the Elimination of the Duty of Loyalty.

In Case You Ever Wondered...

Who "they" were....

And if anyone was seriously thinking that Davos was actually supposed to involve genuine discussions about resolving the financial crisis and recessions -- and not a dog and pony show of political and business elite making various (frighteningly influential) PR stunts -- now you know.

Because they all felt the need to leave the forum early to "do anything for a drink" at a hoi polloi party in DC.  Where the motto is:

“You don’t have to have a drink to have a good time, but why take the chance?”

Ouch! I shot my foot!

Right now, pending before the District Court for DC, is a challenge by the Business Roundtable on a new rule, promulgated by the SEC under marching orders of Dodd-Frank, that mandates access to corporate proxy materials for certain larger and long-term investors.  Meaning, they get corporate campaign financing for their own director candidates.  Before 14a-11, normally only management could nominate directors; they reaped the benefits of access to corporate coffers to finance campaigns, and they don't suffer the collective action problems of a diversified shareholder base.

"Proxy access" is the jargon.  The rule under fire: Rule 14a-11.

Why do we care? Proxy access for larger, long-term investors can pressure corporate management to govern more in their interests -- hopefully, in a long-term, sustainable manner.  Which is good for children and other living things.

The thing is, advocates of proxy access had tried before to gain keys to the executive boardroom suite through an amendment of Rule 14a-8, which allows shareholders to propose bylaw amendments.  They could, if they got enough support at corporate general meetings, amend the company's by-laws to provide for shareholder proxy access -- in terms more restrictive, likely, than those currently mandated by 14a-11.

But the business roundtable fought it tooth and nail.

Is this either "take no prisoners," or a "D'oh" moment???

thanks to the folks at The Race to the Bottom for this one.

And in Related News

From Davos:

Governments around the world must stop banker-bashing and create the right environment for lenders to support economic growth, some of the world’s most powerful bankers will tell finance ministers on Saturday.

Bankers say the meeting will be an effort to replicate internationally the attempt by UK banks to persuade the government to make peace. “We need to stop authorities around the world throwing sticks and stones at us. We should be past that now,” said one.

Blankfein awarded $12.6m in shares

By Justin Baer in New York

Published: January 29 2011 00:45 | Last updated: January 29 2011 00:45

Goldman Sachs awarded its chief executive, Lloyd Blankfein, $12.6m in restricted stock and
more than trebled his annual salary, in a sign the public backlash against the bank’s pay
practices may have waned.

Waning public backlash? Or waning political backlash?

GE Corporate Tax Liability: When shareholders and stakeholders collide

Corporate management is supposed to make money for shareholders.  So says the centuries of case and statutory law.  Sure, corporate management can diverge from this primary focus to do things like "protect the corporate" bastion from raiders.  But they need not.  On the other hand, if corporate management exhibits enough negligence and bad faith to cause a drop in stock price, they may face liability to shareholders (who sue, ostensibly, on behalf of corporate interests).

Before globalization -- of securities and product markets -- this charge on corporate management did not necessarily harm workers.  A rising stock price generally indicates (or so says the common wisdom) a successful company.  A successful company hires lots of workers and pays them well.

When a corporation can pick up anchor and move operations overseas, this fragile balance unravels in devastating fashion.

Suddenly, management faces a conundrum: shareholder profits will increase if they hire lower-paid foreign labor.  Likewise, they increase if the company can avoid corporate income tax.  Indeed, without moving abroad for cheaper labor and lower tax rates, many argue that management would lose their entire business to the vagaries of free trade.  Certainly they would face derivative suits from disgruntled shareholders.

No where does this tension resonate more than with that grand old blue chip GE, who, according to Tax Analysts, enjoys a 3% effective U.S. corporate tax rate (for those taking notes, it's technically supposed to be 35%) because it moved enough of its operations overseas.  Because the U.S. doesn't tax income on foreign subsidiaries, so long as those subsidiaries are stuffed with a minimum amount of genuine business operations.

Meaning, the kind of operations that require the retention of workers.  Foreign ones.

And, if they move those operations to the right places, they don't even have to pay income tax to the foreign governments.  Who generally, to lure jobs and industry, are liberal with their tax rates.

But GE is such a great, stable investment for US workers saving for their retirement -- or at least it used to be, before the advent of GE Capital -- and many American pension funds benefitted from its global footprint.

It's all a bit perverse, no?

What can we do?

We could tax the income on all subsidiaries of any U.S. corporation, no matter where they are and what they do.  And pray the companies don't re-incorporate elsewhere.

We can demand corporations adopt fiduciary duties to corporate stakeholders.  And pray the companies don't re-incorporate elsewhere.

Obviously, a coordinated global response is necessary.

But, not the kind that advances the cause of unrestrained free trade.  Whoops.

You Can Give Your Bonus Back if You Don't Deserve It

Gil Meche, of the KC Royals, did.  After deciding that, due to injury, that he didn't deserve his last year of pay.

Any investments bankers want to step up?  For example, the people whose bonuses arose from the $2+B Goldman got for its own accounts due to the AIG bailout?

Bearing Down on State Pensions

This time, it's Moody's:

With the SEC's recent investigation into California, for misstating the financial health of CALPERS, it may come as good news to bond investors that Moody's recently decided to start incorporating pension fund liabilities into its rating of state debt securities.

And certainly it's not a surprise, as bankers at Davos warned of financial Armageddon, should Basel III force investors into the "risky" sovereign debt market.

But I can't help but think that the move is meant not to help markets, but to force States into a quick solution before we can have a serious national conversation about dealing with state budget woes.

It works like this.  The banks (so they say) want safe investments.  Now.  And what's safer than a government bond?  Indeed, they will be forced to buy these bonds, if and when Basel III gets implemented.  And states rely upon governmental bond markets to operate.  Moreover, everyone's scared of a new toxic-asset crisis.  So what happens next is a bit like blackmail:

Mr. Kurtter [from Moody's] said Moody’s had decided it was important to consider total unfunded pension obligations because they could contribute to current budget woes.

“These are really reflections of the budget stress that states and local governments are now feeling,” he said. A company with too much debt could close its doors, he said, but governments do not have that option.

“They have a tax base. They have contractually obligated themselves to make these payments. These are part of the ongoing budget stress,” he said. “It ultimately all comes back to being an operating cost. Addressing those problems is really what’s happening today.”

In other words, to get back their high-grade rating, and ensure access to credit, States have three options:

(1) raise taxes
(2) slash spending
(3) spin off pension funds through bankruptcy

Which one do you like???  I'm betting the pols and banks will bear down on #3.

Thanks Moody's.

Come Again?

The peacocks at Davos are strutting:

For example, the bankers argued that the so-called Basel III rules might encourage banks to load up on sovereign bonds, even though recent experience has shown that government debt is more risky than it used to be. Ultimately the overall economy will suffer, they said.

So... they should invest in unregulated derivatives based on toxic assets instead?  If I was a sovereign government that guaranteed those debts, and if I was a taxpayer funding those guarantees, I might be insulted.  And if I was a banker, I might further be insulted if those government bonds were funding things like bank bailouts.  But whatev.

Perhaps they are pandering to the likes of Paul Ryan, who Believe that Ireland had government deficits prior to the implosion, and that England has a currency problem.  And that we should cut spending on social services now because...otherwise we'd have to cut spending on social services later.

Query on Basel III

I'll begin with a tired accounting joke:

An engineer, a lawyer, a social worker and an accountant sit in an arithmetic classroom.

What's 2 + 2? 

asks the teacher.

The engineer -- he loves math and is a bit of a teacher's pet -- pulls out his slide rule, mumbles, and responds

Somewhere between 3.99999 and 4.000001, under stable conditions.

Looking pensive, the social worker raises his hand.

Everyone's experience can inform these kinds of answers.  Perhaps this is something we can best work out through honest discussion.  But commonly, human experience would indicate that the answer for most people is 4.

The lawyer, irritated that he's wasting so much billable time, glances at his watch and growls out

It's likely, under the precedent established by the Second Circuit in Einstein v. Sagan, that any litigation involving the question of 2 + 2 would result in liability resting with 4.  This is an excellent opportunity to settle under favorable terms.  I'd suggest starting at 3.8 and negotiating downward.

The accountant, patient with these wishy washy types, finally responds

What do you want it to be?

So the Basel system establishes, among other things, how much in capital reserves a bank's got to keep around to insure against the risk of bank runs.

But isn't a company's capital, under accounting rules, simply assets minus liabilities?  So the amount of "capital" a bank has at any one time depends upon how accurately it reports its assets and liabilities?

And isn't the thing firms like to play around with most is accounting for assets they don't really have, and downplaying their liabilities? By manipulating accrual rules, underestimating or discounting future liabilities, spinning off debts to "special purpose vehicles," etc?  Think Enron and the Banksters.  And most other securities fraud litigation.

In other words, a bank's "capital" reserves can be anything it wants it to be.

So what's the point of mandatory minimum capital reserves unless we get the auditing rules in line????

Breaking News: Captain Obvious Now Writing for the FT

Honest-to-goodness above-the-fold headline:

Record US budget deficit projected

Fiscal outlook weakens after tax deal

Ambac v. Sack of Sh*t*

The initial complaint is available here.  The facts detailing the proposed contents of the amended complaint is available here.

The double dip:  Bear Stearns bought bad home loans from banks.  They then repackaged the loans and sold them, in pieces, as bonds to investment trusts.  Bear Stearns then demanded their money back from the home loan lenders because the assets were toxic.  They didn't give the money to the bond holders.  They kept it to inflate their books.

So they get rid of the liabilities by dumping them on unwary bondholders, and increase their inflow by demanding money back from home loan lenders.

Voila.

You'd think the shenanigans they'd think up would be more complicated.

As a titillating tidbit:

Bear Sterns (or rather, its corporate successor) fought valiantly to keep this lawsuit under wraps.  In a motion to keep this mess secret, and the court docket away from prying public eyes:

The accusations in the Amended Complaint are conspiracy-theory fiction, with a commensurate amount of truth.  With no apparent reason to do so other than to tarnish their reputations and drive up the costs of this litigation and its burden on third parties Ambac also seeks to add 10 individuals as defendants in its Amended Complaint against EMC.

Surely, that's the concern, here -- evil plaintiffs wanting to maliciously and irrationally tarnish the sterling reputations of investment bankers hailing from bailed out banks.

Anyway.  They lost.  Obviously.  Read this stuff with a nice fluffy latte.


*The notorious Bear Stearns email, acknowledging the bullcr@p that they sold to investors.

.

Liftoff for Say-on-Pay

Beginning this year, exec compensation schemes will be subject to shareholder advisory votes for large public companies.

Will the shareholders vote? Will they just be shooting us all in the foot?  Tying compensation with corporate stock performance -- the source of most excessive compensation, i.e., stock options -- was supposed to help investors.  To encourage management to do whatever was necessary to increase share price and make those investors rich.

Just, it turned out, making investors rich over the short term isn't always great for the company in the long term.

So can we trust this babysitter?

Is there another, better, way to incentivize corporate management to behave better?  Hopefully say-on-pay initiatives will open the door for further exploration.

Tomorrow

The financial crisis inquiry report is due.

Wonder how much of it lines up with the content of Dodd-Frank?  Guess we have to make it through 576 pages of light reading first.

Delaware Doing its Bit on Toxic Assets

Not that Delaware doesn't have an economic and political interest in derivative litigation following the financial crisis arising from High Finance's love affair with toxic mortgage-derived assets -- making money for lawyers, if not shareholders (see Citibank and AIG opinions, from the Court of Chancery). 

But, apparently, the quaint folks down the hall at the Super Court think it might be more useful to local denizens, not to mention more politically correct for the Bidens of the world, to do their part on curtailing foreclosures ab initio. 

Or, at the very least, to demand that homeowners be notified and offered a chance of negotiation before facing a default judgment and the sheriff's billy club.  Cheers!

Unfortunately, mediation comes with a cap of settling debts at a monthly payment rate of no more than 38% of the unfortunate (fka) homeowner's pre-tax salary.

Wonder how helpful that is for the unemployed.  Which, in Delaware, is likely. 

The Self-Regulation of English Gentry and Gentlemen

Back when liabilities from asbestos lawsuits were threatening to take down Lloyd's of London's reinsurance underwriting markets, British high finance came up with a Brilliant Plan: find braindead outsider Names (investors) to underwrite reinsurance policies for Lloyd's syndicated asbestos policies.  And then run screaming and braying to Parliament to pass laws immunizing them from shareholder suits by mandating that any such lawsuits be heard in English courts and under English law... and making sure English law and English courts woudln't provide a remedy to securities fraud plaintiffs.

This was particularly reprehensible, as part of Lloyd's hedge strategy in the face of these liabilities was to recruit tens of thousands of naive American investors, exploiting Americans' inexplicable desire to associate themselves with British nobility and panache -- all who would be liable "down to their last cufflink"  -- thus unburdening their own gentrified balance sheets. 

As if American dentists wear cufflinks. 

So little-guy investors ended up bailing out a UK financial institution. 

(By the way, doesn't this sound familiar? The toxic asset problem... except with environmental and health catastrophe, rather than housing bubbles)

Lloyd's strategy worked.

Looks like the auditors are about to do the same, now.   In the form of liability caps to securities fraud plaintiffs irate about the fact that the auditors promised banks were in good health -- but only because the government explicity -- but secretly -- promised to bail out those banks. 

Whoops.

Well, at least the English are honest about their doggeded favoritism to the financial elite.  Our lawmakers in the U.S. still feel the need to pander to more... earthy... sensibilities.  Half our citizens do live, after all, in wig wams.

Directed Corporate Free Speech

It's sort of funny that those who lobbied so hard for corporate "free speech" seek to limit the kind of speech corporate investors can make within the confines of the corporate bastion.

From The Race to the Bottom, on the business roundtable brief regarding the new SEC proxy access rule:

Petitioners also assert that another cost omitted by the SEC was the intended use of access as leverage by unions and public pension plans to gain unique benefits unrelated to their interests as shareholders.  According to the Brief, "union and government pension funds are the most activist shareholders and would impose costs by, among other things, using Rule 14a-11 as leverage to obtain concessions from the company not related to shareholder value."

So, corporations can say anything they want -- and spend all the money they want -- on any topic in politics... but their investors can only talk about shareholder value. 

Theoretically, apologists for Citizens United would say, real peoples' speech is corporate speech -- just, well, amalgamated.  But when those real people want to say something about something they find important other than stock price, they're supposed to shut their traps. 

Cute.

Better Governance: Democracy or the Philosopher-King?

In their paper, Shareholder Voting and Corporate Governance Around the World,  Peter Iliev, Karl Lins, Darius Miller and Lukas Roth come to the conclusion that activist U.S. institutional investors tend to vote against the recommendations of "entrenched" "insider" management of foreign firms.

At first blush, one might think these pro-democratic reforms in the style of corporate governance of foreign firms cannot be but a good thing. 

But that blush arises from a misconception about how many foreign firms work.

The firms of many developed countries -- the U.S. and U.K. excluded -- do not operate as publicly traded companies.  They have a few major (and often interrelated) family and corporate shareholders.   They have relationships with house banks as business partners.  They retain executive "insiders" that rise within the corporate ranks, hired for their firm- and industry- specific technical and operational knowlede.  I.e., they do not arise from the ranks of "corporate management" professionals found in America.

Benefits of this business model include the embrace of long-term growth strategies and a certain operational "expertise."  Standing debtor relationships with banks encourages those banks to invest for the long term and to monitor the activity of management (much in the same way shareholders are expected to in the U.S.).  Long-term equity relationships with shareholders elicit the same benefits.   Meanwhile, both banks and long-term shareholders have an interest in preserving the economic success of the surrounding community -- if the community falls apart, so do their investments. 

It amounts to a pretty stable model for country-wide economic growth. 

Drawbacks include, of course, the risk of self-dealing and channeling.  See, e.g., Parmalat.  And, of course, the inability for U.S. financiers to secure a piece of the profit for themselves.  This is because of, in part, transparency problems - the banks and major shareholders can monitor corporate peformance without the benefit of 10-Ks and 10-Qs; the corporate books are always open for their inspection.  Those books are, of course, closed to outsiders.
 
But what happens to this balance when you throw U.S. shareholders in the mix, giving them a voice in governance?*

Hopefully, the U.S. shareholders will look out for foreign companys' longevity and sustainability.  I'd bet that certain activist investors might, especially the public-pension-fund kind.  But, unfortunately, many U.S. investors are short-termers whose objectives for corporate growth may... diverge from those dasterdly foreign "insiders."  Meaning: layoffs, exportation of jobs, and other short-term fixes that temporarily increase stock prices.  Not to mention that U.S. investors, even the "nice" kind, probably don't have German workers' best intersts at heart, no matter how well meaning they are.  Their job is to, after all, make money for pension funds.

Over the past decade or two, we have seen the growth of capital markets in Continental Europe and in Japan.   One can only hope that these countries will, like the U.K., counter the increased short-term investor influence in these companies with robust social safety nets.

* Some argue that these countries opened up their markets to foreign investors as a reaction to economic slumps in the 1990s.  Others argue that they wanted their own stock markets so they could get a piece of the High Finance Pie that was being scarfted down by the likes of Goldman, Lehman, etc.  A topic to be addressed another time!

The Raison d'etre of High Finance

Is overblown.  Exponentially.

I always wondered why the heck we really want securities markets to begin with.  I mean, what can stocks and bonds do that a bank can't?  Germany and Japan, for example, built thriving and modern economies without them.  Case in point -- Germany didn't have a modern stock market until the 1990s.  Instead, financing comes through loans from other corporations and from the Hausbank -- the company's long-term banking business partner. 

But assuming, arguendo, that public issues  of equity and debt is an efficient way to raise money, at least a viable option to bank-based finance... what, exactly, is the purpose of secondary markets -- which don't really raise any money for the "user" of the funds?

In America, a corporate borrower wanting to raise money for capital investment has a few options:  (1) It can get a bank loan from a commercial bank; (2) it can sell equity or debt to non-public markets (the province of hedge funds and... Facebook); or (3) it can issue and sell stock or bonds on public markets.

For those chosing option #3, it's called an IPO ("Initial Public Offering").  So the company will create stock from thin air (with the aid of an underwriter, an investment bank) and sell it on the NYSE.  But... that stock doesn't just disappear.  It continues to change hands over and over and over again.  This is the "Secondary Market." 

The sale of stock and bonds on the secondary market doesn't actually make any money for the issuer, the corpoation that wanted to raise funds to begin with.

So what's the point of them??

I understand that these secondary market stocks can  perhaps serve collateral for other debt obligations of the issuer -- they can redeem shares and take advantage if the price goes up.  Sort of like borrowing on your house that appreciates in value.   And they provide liquidity for initial IPO investors who would otherwise be too afraid to invest in stock they could never unload.

But.... given the SIZE of the markets, how much is actually serving a liquidity and/or collateral purpose, i.e., an actual useful purpose, and how much is just.... gambling?  Has anyone ever tried to measure this?

Paul Krugman pointed me to an answer:  it's gambling.  Per an economist at the NY Fed Reserve -- a bastion of progressivism, of course.


Krugman references the following Paper by Charles Steindel.

January 20, 2011, 8:44 am

Growth in the Naughties

Yesterday I posted a brief note about how to think about the 2000-2007 expansion, now that we know that there was an unsustainable housing-and-debt bubble. My point was that this doesn’t mean that the growth was somehow fake; real output of goods and services did indeed rise, even if the legacy of that growth was debt that create macroeconomic problems now.
Charles Steindel emails to remind me that he actually did a quantitative assessment (pdf). In that analysis, he asked how much our estimates of actual growth are affected if we consider the possibility that (a) what Wall Street was doing wasn’t actually productive (b) much of the housing will end up being less useful than expected (e.g. ghost towns at the edge of urban areas).
What he finds is that even with fairly strong assumptions about phony financials and wasted investment, you can’t make more than a minor dent in growth estimates. On the financial side, the point is that we measure growth by output of final goods and services, and fancy finance is an intermediate good; so if you think Wall Street was wasting resources, that just says that more of the actual growth was created by manufacturers etc., and less by Goldman Sachs, than previously estimated. On the housing side, the point is that residential construction, even though it was at high levels, never got much above 6 percent of GDP. So even if you believe that a large part of the construction taking place late in the housing boom had very low usefulness, it only subtracts slightly from growth over the course of the whole period.
Meanwhile, Mike Konczal points us to new work at the SF Fed on the role of household debt in the slump, further reinforcing the case that stressed household balance sheets are at the core of our problem. Indeed. What this says, however, is not that the economy couldn’t and shouldn’t be producing more; it just says that we should be pushing harder on unconventional monetary and fiscal policies.

The Competition Myth From an Investor Perspective

Today's Krugman piece, while excellent, doesn't quite go far enough.

I cannot argue with the economics: our financial woes arise from financial markets, and not some inherent lack of "competitiveness."  If, that is, anyone is to give any credence whatsoever to Ricardo et al. regarding comparative advantage (cf., Obama and pols, to "absolute" advantage)  But they don't teach econ to college kids anymore -- even the Ivy League kind, apparently.

What Krugman misses in this piece, however, is that not only do our financial woes arise from financial market shenanigans, it is these very markets that will stand behind Obama's America, Inc. platform -- a platform that encourages the slashing and exporting of jobs. 

Specifically, I'm talking about this part:

But isn’t it at least somewhat useful to think of our nation as if it were America Inc., competing in the global marketplace? No.

Consider: A corporate leader who increases profits by slashing his work force is thought to be successful. Well, that’s more or less what has happened in America recently: employment is way down, but profits are hitting new records. Who, exactly, considers this economic success?

Still, you might say that talk of competitiveness helps Mr. Obama quiet claims that he’s anti-business. That’s fine, as long as he realizes that the interests of nominally “American” corporations and the interests of the nation, which were never the same, are now less aligned than ever before.

(emphasis added)

Who, indeed? benefits if jobs are sent overseas?

"Greedy corporate executives!"

-- the kneejerk liberal response.

But why, I ask, would greedy corporate execs make a ton of money if jobs were shed????

Their stock options.  Which balloon in value as the short term share price rises.

Why do execs get stock options?

To incentivize them to do everything possible to raise share price over the short term.

Who wants to incentivize them?

The financial markets.

Big fat investors.

Goldman.  Who's got its hands on both sides of every transaction -- and not just the "proprietary trading" kind.

On the Sanctity of Compensation Contracts and the Death of Activist Investors

Remember back in 2009, when bailed-out financial conglomerates protested that they had no choice but to fork over enormous bonus contracts, that the business world was howling that the law required the enforcement of employment contracts?  They had no choice! They would be sued!

And we all know that the profits continue to slush about Wall Street unabated?

Meanwhile, apparently, the sanctity of employment contracts doesn't count when it comes to state workers who make $20K a year.

With Newt Gringrich at the masthead, conservative state governments are whispering about the halls of Congress that states have no choice but to unwind these pension funds through federal bankruptcy.  A move that, among other things, will require some very difficult new federal legislation and some tiptoeing around Constitutional separation of powers.

To put it bluntly: someone decided that federal tax dollars were better spent bailing out bonus contracts than bailing out modest pension funds.

Of course, the simplest solution is to allow states to survive a few years with unbalanced budgets.  But a workable, practical solution isn't actually the point of all this.  And we might remember, at this juncture, that it was the conservatives that boxed states in with their balanced budget constitutional amendments.

The point is to stick it to unions once again.  Most union membership in this country -- the pathetic crumbs that remain, at least -- lies with state workers.  Ask any state worker and they will tell you that they don't mind the lower government salaries because they were promised a livable pension at the end of their lives.  It's called "deferred wages."  Now, with those pensions disappearing under the austerity fairy dust, what state employee would ever join a union again?

The point, also, is to pull the rug out under activist union pension funds --  the only voice on corporate boards howling about outrageous executive compensation.  The only and last influence working people have  in corporate America.