Barack Obama, activist shareholder

By Felix Salmon
December 2, 2009
defenestration of Fritz Henderson makes it clear if there was any doubt: Barack Obama is the most powerful and effective activist shareholder that this country has seen in a very long time.

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We got a hint of it when the government ousted Ken Lewis as chairman of Bank of America; it became more obvious with the decisions of pay czar Kenneth Feinberg. And then of course there’s the revolving door into the corner office at AIG. But the defenestration of Fritz Henderson makes it clear if there was any doubt: Barack Obama is the most powerful and effective activist shareholder that this country has seen in a very long time.

Needless to say, this is not common when it comes to state-owned companies, which often amble aimlessly in random directions for decades. The Obama administration, by contrast, has clearly made a decision to err on the side of action and decisiveness, and to fire any CEO who isn’t showing (as opposed to promising) results. Good for them: would that America’s institutional investors followed suit.

That said, it’s easier for the government to behave like this than it is for most shareholders. If Ed Whiteacre wants to know what GM’s majority shareholder would like him to do, all he needs to do is pick up the phone and ask. At most companies, by contrast, the communication between the board and the shareholders they work for is distant and strained and largely filtered by management. Maybe the trick, when it comes to improving corporate governance, is to improve communication between shareholders and directors. Any bright ideas on that front?

At the same time, this development proves that the dream of the bank-nationalization crowd — the idea that the government could take ownership but have little if any control over management — was never going to happen. When this government takes over a company it does so with both hands: there’s nothing arm’s-length about it. And I’m happy about that: owners should take responsibility for maintaining their property.

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Comments
6 comments so far

my bright idea is to improve boards by drawing from more than the upper 1% of the income distribution table. now it’s someone else’s job to produce the bright idea of how to implement that!

Posted by howard | Report as abusive

In trying to characterize what is comforting and yet exciting about this administration, you are absolutely correct. It is a far cry from the decades of “let well enough alone”, and speaks volumes about the role of government in a democracy. The cries of “socialism” are invalid. Accountability is a major cornerstone of successful capitalism. Bravo!

Posted by Lee Stone | Report as abusive

Obama has been better than others likely would have been at pushing big corporations on the public dole to take positive restructuring action. But it still stinks. Nationalization followed by orderly dissolution was the only real solution. Regardless of how the government manages bailed out firms, the lesson will be lasting: take the biggest risks and if you win, you take home billions and if you lose, the government will back your losses. It will be almost impossible to change that perception. Even if the government lets a reckless firm or bank go under now or two years from now when the expense of this becomes so overwhelming, it will do nothing more than create contradictions, create confusion. It will not be clear that the government will let billionaire risk takers bear their own losses until they refuse to bail them out many, many times in many different situations.My expectation is that the US is finished. The average person’s disgust with these bailouts and the fact that the rules only apply to average people and the super rich get to take the common man’s tax money at gunpoint for their own vaults of plunder will stop people from their borrow and spend habits and ultimately it will force government to devalue the dollar more aggressively than they have until now.In short, I think the inescapable end of all of this will be a fantastic deterioration in the standard of living in the United States accompanied by some sort of civil unrest, or a very big foreign war that conveniently destroys some important engines of global economic production putting the US back in the driver’s seat like it was after WWII when the whole world was a smoking ruin except for the US where not so much as a glass bottle was broken and that enabled the US to demand whatever it liked for its economic production and expertise because no one else had any.As a final note, what’s with the picture Felix? Either that’s a bad haircut or it’s a toupee, but regardless, it’s probably wise to get another photo on there.

If Obama wants GM to succeed, he better get rid of Whitacre. Fast. Whitacre’s biggest accomplishment was that the near monopoly he ran (ATT) didn’t go our of business. Unlike ATT, GM has lots of competition, and the same tactic of providing as little value as possible for as much as possible isn’t going to work (of course, he was pretty good at lobbying Congress, but that won’t be enough to get people to buy garbage). Too bad he doesn’t know anything about cars, maybe he can ask his chauffeur.

There are a lot of SEC and State regs that prevent Investors from exercising control over the Board and management. Making a laundry list of them would require more time and space than this comment field is suited for, but here’s my big idea: Make it a Federal law that the shareholders may choose to change the State of incorporation of the corporation on a simple majority vote. This would dramatically change the focus of States such as Delaware from “management friendly” to “shareholder friendly”.I would also set into Federal law that poison pills and tiered Boards are a violation of the shareholders’ basic right to control the company it owns, and therefore illegal as a matter of public policy.Together these two reforms would go a long, long way towards active investor control.

Posted by Brock | Report as abusive

I think James Kwak has the best take on this:http://baselinescenario.com/2009/12  /02/never-a-good-sign/

Posted by Kramer | Report as abusive
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