Senator Charles Schumer recently announced plans to introduce the “Shareholder Bill of Rights Act of 2009.”  This bill is a compendium of corporate governance reforms that shareholder activists have been advocating for many years.  Among other things, the bill would require companies to elect the entire board of directors each year, rather than putting only a portion of the board up for a vote.  It would also require that directors receive a majority of the votes cast before being allowed to serve, and the bill would make it easier for shareholders to nominate their own director candidates to run in opposition to the candidates nominated by management.

Senator Schumer’s bill is best understood as embodying the principle that, when it comes to corporate governance, more democracy is always better.  The assumption is that corporate governance will improve in tandem with increased shareholder voting power.  I question that assumption.

First, more democracy might actually lead to worse directors. 

Last fall, I commented on this blog about the potential effect of an Obama administration on the nature of antitrust enforcement in the United States. In particular, I noted that a new Obama administration might focus on repairing the lack of antitrust enforcement that had resulted over the past few years through a slavish adherence to Chicago School analysis. On Monday of this week, Christine Varney, Assistant Attorney General for the Antitrust Division, revealed an antitrust plan for the Department of Justice that removed any doubts that the Obama administration is shifting dramatically from the “theoretical economics” laden Chicago School antitrust philosophy and practices that dominated the enforcement goals of the Bush administration to a pragmatic antitrust policy based on the realities in the marketplace.

Rejecting the “laissez-faire” views that the Antitrust Division had practiced over the past eight years and attempted to enshrine in a policy statement in 2008, Ms. Varney declared that small- and medium-sized competitors, suppliers, and distributors are encouraged to whistle-blow on any anticompetitive practices. Indeed, she stated the government would welcome hearing from those who were suffering at the hands of dominant entities. Although Ms. Varney did not go so far as to adopt the European Union view of dominance as against the evolved modern American view that monopoly in itself is legal and that the burden is on the plaintiff to show that the defendant had attempted to further its monopoly position through anticompetitive practices, she hinted that challenges based on dominance will be given a much more welcome hearing. Moreover, Ms. Varney indicated that mergers will be scrutinized very carefully, especially in certain sectors of the economy. 

The Director of the Securities and Exchange Commission’s 21^st Century Disclosure Initiative, Dr. Bill Lutz, was on the Marquette University campus May 4.  He was kind enough to give an update on the Initiative over lunch to a group of faculty from the Law School and the College of Business Administration.  Dr. Lutz is an interesting choice to lead the SEC’s effort to reconceptualize the manner in which the agency collects, analyzes, and disseminates financial information.  He is Professor of English emeritus at Rutgers University, and one rarely thinks of the words “English language” and Form 10-K in the same breath.

The 21^st Century Disclosure Initiative finished its Report in January 2009.  You can read the Report here: www.sec.gov/spotlight/disclosureinitiative/report.shtml.  The recommendations in the Report are both modest and potentially revolutionary.  Today the SEC continues to operate under the same system of preparing and filing specific disclosure documents such as annual reports and quarterly reports that was instituted in 1934.  In the 1990s, the Commission adopted EDGAR, a system for filing and viewing each individual report electronically.  However, the “document centric” format remains and anyone searching for specific items of company data today on EDGAR still has to typically scroll through hundreds of pages to find what they are looking for.

The Report by the Initiative proposes the adoption of company-specific databases for each company required to file reports with the SEC.