"One person, one vote" is a phrase steeped in history, but it has its limits.
It’s unlikely that millions of Americans next year will pack into the annual shareholder meetings of the many bailed-out companies in which the U.S. government holds significant stakes.
In the first place, if taxpayers, all of them indirect shareholders in troubled firms such as Bank of America (BAC), American International Group (AIG) and Citigroup (C), showed up, where would the firms put them?
The companies in question could hold their annual meetings in football stadiums, but that seems impractical.
In the second place, experts believe taxpayer outrage will continue to focus on broader reforms – excessive pay across-the-board on Wall Street, for example – rather than honing in on the practices of any particular bailed-out firm.
Taxpayers “are mad as hell, but there isn’t a mad-as-hell box on shareholder ballots,” said Ralph Ward, editor of BoardroomInsider.com, an online newsletter that covers corporate governance issues.
Ward believes actual activist investors such as labor groups and socially conscious investment funds will “have a field day” at shareholder meetings next year due to disclosure reforms implemented in 2006 that will provide them with plenty of ammunition to back up their arguments in favor of reforms, especially in the area of executive pay.
“There’s a perfect storm coming in 2010,” he said.
But Ward thinks average retail investors and the millions of new indirect stakeholders via government bailouts are unlikely to make much noise at upcoming shareholder meetings.
If populist outrage does target annual meetings, “I think it will be rather spotty and erratic,” he said.
“There’s a lot of populist outrage, but unless there’s a specific item on the ballot that catches the public’s attention, it probably won’t manifest itself at shareholder meetings,” Ward added.
Three of the biggest recipients of bailout dollars – Bank of America, AIG and Citigroup – said in response to inquiries that their 2010 annual meetings were too far off to answer specific questions.
“We have not yet started to plan the annual meeting so we cannot answer your questions,” Bank of America spokesman Scott Silvestri wrote in an e-mail response.
A Citigroup spokesman said only that the company has not yet set a date for its annual shareholders meeting, and an AIG spokeswoman said the same.
But anyone wondering how their interests as shareholders in these companies are being represented by the government need look no further perhaps than the Obama administration’s recent crackdown on executive pay.
Consider the results of a recent ABC News/Washington Post survey in which 71% of the respondents said they supported the president’s plans to restrict pay for top executives at companies that received significant amounts of bailout money.
Clearly aware of public sentiment toward Wall Street in general and bailed out banks specifically, the Treasury Department, which actually owns the government’s stakes in troubled firms, has taken on the role of an activist shareholder.
Treasury’s point man, mediator Kenneth Feinberg, sent shock waves through the U.S. banking system last month by ordering pay cuts averaging 50% at the seven bailed out companies for which he was charged with setting compensation rates.
Elsewhere, the Federal Reserve has cracked down on banks and credit card companies, reigning in service charges and late fees assessed to consumers that used to generate billions of dollars in revenues for the firms.
This, apparently, is the government’s answer to how it will vote its shares now that it owns sizable stakes in these companies: it will affect change through leverage and actual legislation.
Calls to the U.S. Treasury seeking comment were not returned.
But many are uncomfortable – to say the least – at the rising level of intervention into the private sector that has been a direct result of these unprecedented government equity stakes.
J.W. Verret, a law professor at George Mason University, has written extensively on the unintended consequences of the U.S. government’s activist role as a major shareholder in bailed out companies.
In essence, he has argued that the leverage held by the government is simply too powerful for the firms to resist, and that reforms demanded by the government will in many cases be sought for political purposes rather than the long-term good of the companies. In particular, he has been a vocal critic of government-imposed pay restrictions.
“Pay restrictions will also limit banks in their competition for top talent, which risks exacerbating the banking crisis,” he said in testimony last summer before Congress. “Immediately following the announcement of compensation restrictions by the Obama Administration, Bank of America indicated that Deutsche Bank poached 12 of its highest performing executives and other reports indicated that UBS was hiring financial advisors from TARP firms with compensation increases as high as 200%. In a global environment, restrictions may place American banks at a competitive disadvantage,” he added.
All of this has raised the profile of pending legislation that would establishing an independent trust to oversee assets acquired by the government under the Troubled Asset Relief Program.
Proposed specifically to depoliticize the process, the legislation would allow the president to appoint three independent trustees to serve as fiduciaries to represent the taxpayers’ interests.
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