| 摘要 | I once had occasion to note that proponents of a new government agency to “represent” consumers had blundered in changing the name of the proposed tribunal from the “Consumer Protection Agency” to the “Agency for Consumer Advocacy.” Not only was the latter title less catchy, but it was also more (although not completely) accurate. Any degree of accuracy, of course, was fatal to the proposal because it called attention to its merits.
The creators of the “Corporate Democracy Act” have not made the same mistake. The title they have chosen has nothing whatsoever to do with the merits of their proposal.
Briefly stated, H.R. 7010 would (1) mandate federal eligibility requirements for members of corporate boards, impose liability for certain acts upon those directors, and expand the mandatory prerogatives of shareholders; (2) require corporations to comply with stipulated disclosure requirements; (3) impose heavy penalties on corporations that desire to move corporate operations from one locale to another; (4) give tenure to all employees of corporations; and (5) create a variety of penalties to be imposed on corporations and their executives for violating federal and state law.
Obviously, the catalyst that binds together this amalgam of diverse regulatory measures is not democracy, but a generalized anticorporate animus. And the title, “Corporate Democracy Act,” is intended not to describe the bill but to shut off debate.
Accepting the bill’s title at face value, however, a fundamental question may be asked. Why should business corporations, which claim only to be profit-making enterprises for private investors, be subjected to regulation in the name of democracy,* while organizations that boldly proclaim themselves to be “consumer advocates” or “public interest” groups would not be? It makes little sense to argue that Athlone Industries of Parsittany, New Jersey, must be “democratic,” while the Nader conglomerate should be run autocratically and in secret. It can hardly be said that the source of funds for the Nader groups over the past decade is of no interest. This is not, I hasten to add, to argue that “public interest” groups ought to be subject to such regulation. They ought not—but because it is bad law rather than because the alleged principle of democratization does not apply.
While there is no space here to conduct a detailed technical analysis of the Corporate Democracy Act, its text is so technically deficient that at least that fact must be noted. Some of the bill’s terminology is so general that the precise effect is in doubt. For example, is an airplane “a product … [which] may cause death or serious injury …”? Nor is its effect on existing law in areas such as a director’s duty of care clear. In fact, it seems to have been drafted by persons whose knowledge of existing law is sparse. For example, the bill seems to assume that corporate political contributions to candidates for federal office are legal.
Shareholder Power—A Shopworn Idea
Such relative refinements aside, however, the proposed legislation is fundamentally wrong-headed in what it seeks to achieve. So far as shareholder protection is concerned, the “problem” to which the bill is directed is an artificial creation of those who chronically favor contraction of the private sector. Proponents of the proposal want us to believe that Mark Green and the Building and Construction Trades Department, AFL-CIO, are the champions of private investors. The only senator to come to the rescue of shareholders is Howard Metzenbaum (Democrat, Ohio), while in the House of Representatives their protector is Benjamin Rosenthal (Democrat, New York), both of whom are among the most persistent critics of profit making in the private sector. That investor protection is a goal of the corporate democracy bill simply cannot be taken seriously.
Both the theoretical basis and the practical need for federal entry into this new field are illusory. The former consists of the antique notion that the chartering of corporations represents the conferral of some sovereign prerogative, which the states are bestowing improvidently. In fact, however, states “grant” nothing. A corporate charter is no more than a private contract recorded in a state office for the protection of third parties. The state plays exactly the same role as it does in the case of home mortgages, for which it provides a statutory code of general provisions and a place to record private contracts.
As for the asserted practical need for federal intervention: That consists of the discredited notion that Delaware and other states tilt their corporation codes in favor of management and against shareholders. Even on its face, such a proposition is implausible. Investors need not purchase common stock at all, much less stock in Delaware corporations. They can invest their funds in bonds, partnerships, individual proprietorships, short-term paper, real estate, stock in foreign corporations, or even indulge in present consumption. Nor do underwriters have to participate in stock issues by Delaware corporations or brokers have to recommend such stock. It is simply absurd to think Delaware can monopolize international capital and that Saudi sheiks are forced to sacrifice their petrodollars to greedy managements freed by Delaware law to bilk stockholders. If Delaware were in fact to tilt its laws toward management, the sole result would be to impair the access of corporations chartered there to the capital market. It is simply inconceivable to think that underwriters and investment counsellors would not impose heavy burdens on stock offerings made under a corporate code unfair to shareholders. States that offered better gains to shareholders would in fact get the most corporate charters. If anything, competition for charters leads to corporate codes that optimize the shareholder/management relation.
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© 1980, Regulation Magazine
Limiting management discretion to act without formal shareholder approval is a shopworn idea that collides, each time it comes by, with the same harsh reality: shareholders do not want more “power.” Shareholders generally have neither the time nor the desire to participate in management; when they are dissatisfied they prefer simply to sell their stock in the company. Indeed, state law frequently will not respect shareholder votes that ratify management conduct precisely because those votes are meaningless. Shareholders understandably view themselves as investors—like bondholders, but with a more volatile stake in the firm. In fact, one of the great contributions of the corporate form has been to permit the separation of equity investments from the responsibilities of control.
Existing voting rights in common stock play a critical function, because they blend the investment market with a market for control that permits takeovers. If management is inefficient, earnings will suffer and the price of stock will fall. This will create incentives for attempts (by way of merger, tender offer or, less frequently, proxy fight) to replace management through a shareholder vote and thereby reap a capital gain from the increased efficiency of the firm. The market for control thus gives management good reason to keep the corporation’s stock price relatively high, a goal consistent with the well-being of shareholders. The provisions of the Corporate Democracy Act are irrelevant to this aspect of voting rights—the only aspect that significantly matters.
Of course, the recent flap over shareholder “power” has nothing to do with investor welfare. Rather, it is an attempt to construct legal procedures which allow small groups that have failed to achieve their goals through the democratic political process to continue to pursue those goals by embroiling management in time-consuming and highly publicized disputes. Although sizable numbers of shareholders are almost never involved, management’s desire to avoid controversy often caps such movements with success in affecting corporate conduct.
The bill’s attempt to strengthen shareholder “power” is not just meaningless. It would also be harmful. Shareholder votes are often cumbersome and require considerable legal advice given at the highest rates. Moreover, the bill seems to outlaw the use of different classes of stock; such a restriction, by reducing the flexibility of terms on which new investors can be admitted, would impair a corporation’s access to capital markets. Finally, opening up the mechanisms of corporate governance to political zealots who have failed to win support for their causes would weaken the institutions and processes by which political majorities govern.
The attempt to strengthen the board of directors is an error in other ways. The bill would reduce the number of persons eligible for membership on boards by limiting the number on which one person may serve. The authors of the legislation no doubt regard financial experience and technical knowledge as of little importance, if not positively harmful, and foresee no problem in finding qualified people. In fact, the pool of people qualified to perform the functions of a strengthened board is necessarily limited so that, to limit it even further, might affect corporate performance adversely.
A strengthened, active board, moreover, is hardly more “democratic” or “independent.” Deeper involvement in the ordinary affairs of corporations would require that directors spend more time and receive higher fees. The “independent” directors would thus become management in all but name.
More Burdens and Dangers
The Corporate Democracy Act also purports to give “affected communities” better information on the impact of corporate decisions. What this means, it turns out, is the imposition of financial penalties on firms that decide to shift the locale of certain corporate activities. Not only would such corporations have to continue to pay local taxes and wages to laid-off employees for a period of time but they would also have to give two years’ notice of the move. Such notice would in most cases drastically impair the ability of the firm to operate efficiently during the intervening years. (See also Richard McKenzie’s article, page 32, this issue.)
This aspect of the bill is, of course, outright protectionism—the functional equivalent of a tariff and just as detrimental to consumers. The “affected community” to which the corporation was going to move and the potential employees living there are left out in the cold, and the cost reduction that would benefit consumers is prevented. Economic mobility is in the society’s interest and, if individual hardship requiring remedial aid results, the proper remedy is not a protectionist law penalizing that mobility but transitional government aid.
So far as corporate disclosure is concerned, there is already an enormously burdensome tax imposed by the federal government in the form of paperwork. If anything, investors want less of this, not more. The bill’s wholesale reporting requirements would produce only increased costs, a mountain of unread material, and socially useless litigation. Expansion of reporting requirements should occur only in connection with an articulated governmental policy administered by a relevant government agency. In that way, the overall burden of disclosure requirements could be more easily identified and taken into consideration. Calls for public reporting on every matter that happens to occur to corporate critics will inevitably increase costs without corresponding benefits.
The Corporate Democracy Act also prohibits the discharge of any employee except for “just cause.” On a rhetorical level, that seems simple justice. As a legal proposition, it is disastrous. In effect, every employee would be given tenure and, to justify a discharge, serious misconduct or deficiency would have to be proven in legal hearings entailing vast amounts of time and expense. The fact that better workers might be available would be irrelevant. The model for this provision is the civil service—which, these days, is generally not thought of as a model for anything else. In some parts of the country, where tenure provisions like those contained in the bill protect public school teachers, private schools paying much lower salaries than their public counterparts have much better teaching staffs because they have the unlimited power to hire and fire.
The bill also provides a variety of expanded penalties for violation of vaguely defined state or federal laws. This wholesale approach has great danger, because its impact cannot possibly be assessed. Hundreds of laws might be affected—which ones cannot be identified in advance, given statutory language whose lack of precision is exemplified by “an offense resulting in … damage to the natural environment.” In truth no one can assess the impact of such provisions until years of litigation have passed. Since there is an easy and sensible alternative—varying the penalties available under particular existing laws—this part of the legislation has absolutely nothing to recommend it.
The Love Canal of the New Class
The proponents of the Corporate Democracy Act have done a disservice to the nation. Instead of focusing on real problems and suggesting remedies tailored to those problems, they have adopted a wholesale, punitive approach accompanied by strident rhetoric (“crime in the suites”) designed to appeal to base emotion. The very real problem of proliferating state anti-takeover statutes designed to insulate the managements of local firms from the market for corporate control is disregarded in favor of calls for more power to shareholders who do not want it and will not use it. The problem of reducing the destabilizing effects of economic, mobility on individuals is ignored in favor of attempts to restrict the mobility itself. What may be a need for more corporate disclosure is lost in demands for the production of every piece of information that might interest the corporate critics, regardless of the cost society would ultimately have to bear.
If we have learned anything from the professional corporate critics in the past, it is that their animus against the private sector is so intense that they cannot be trusted to address real problems sensibly. At one time, a staple of their proregulation rhetoric was flammable children’s sleepwear. When government solved that problem in a fashion that ultimately resulted in expensive carcinogenic pajamas, the critics continued to attack the manufacturers. Gas-guzzling antipollution and safety devices were heaped upon cars at the behest of corporate critics without regard to fuel consumption, but when the energy crisis hit, car manufacturers and oil companies were said to be at fault. The critics’ present remedy for that crisis is to keep gas prices low to prevent corporate price “gouging”—the most effective device known to human kind for encouraging consumption. The Corporate Democracy Act comes from the same crowd, and goes in the same unthinking direction. It is the Love Canal of the New Class. ■
*Indeed, one should also ask why some corporations are apparently excluded from coverage by the bill. As introduced in the House, it applies only to “manufacturing, mining, retailing and utility corporations.” It would not seem, for example, to apply to the broadcast media, a rather odd exemption in light of the claim that this legislation is necessary to reduce the influence of large corporations on American social, political, and economic life.
Ralph K. Winter is William K. Townsend professor of law, Yale Law School, and adjunct scholar of the American Enterprise Institute. |
