Shareholders aren’t regulators
Eliot Spitzer is surely right about this:
Our market has been–and will continue to be–undermined by regulators who are intellectually or ideologically unwilling to confront powerful market players.
I can’t agree with him, however, about his proposed solution to the problem:
Instead of adding bureaucracy, we should be using the government to help invigorate shareholders to police companies. They should be empowered to control executive compensation, eliminating all the conflicts that now encumber those decisions.
Shareholders, like all stakeholders, will make a better determination about the use of their capital than bureaucrats who don’t ever suffer the downside of a bad investment. We need to facilitate opportunities for shareholders to actually participate in key decisions, and to deny those whose interests are not aligned from hijacking them. Strangely, we’ve heard a lot about executives and bureaucrats in this moment of reform. But shareholders, a force integral to the integrity and vitality of markets, have largely been left out of the discussion. We need them now more than ever.
Shareholders simply don’t have the time, information, or ability to do this: they’re owners, not managers. And they certainly have no way to address systemic, as opposed to company-specific, risks. Federal and indeed international regulations and regulators are absolutely necessary; the only question is whether they will be sufficient.