August 20, 2014
That’s the complaint of Steven Davidoff Solomon in a NYT column today. His complaint is that three people, who are small shareholders, repeatedly bring resolutions that have to be voted on by all shareholders. His argues that these resolutions rarely pass, however they cost the companies tens of millions of dollars a year to field votes.
There are two problems with the logic of this argument. First, we have no sense of the potential payoffs from these resolutions. Since most corporations are largely controlled by top management they able to secure pay for themselves that is two or three times what they would get working in comparable positions in countries like Germany or Japan. If a resolution can bring compensation more in line with the company’s international competitors, it can save shareholders hundreds of millions of dollars a year in excessive payments.
The other issue is whether these resolutions might result in changes in corporate behavior even if they are not passed. The study from the Manhattan Institute which provided the basis for the column did not consider this issue. If a resolution causes companies to change their behavior by calling attention to improper practices then it can have large benefits for shareholders even if it is not approved.
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