Who Controls Big Business?
Many folks have been criticizing the Boards of Directors of big companies for not controlling their CEOs, and for allowing their companies to get into serious financial trouble (among other things). Of course the board members are elected by the Shareholders, who essentially “own” the companies and who are responsible for electing the right people to oversee their ownership.
But, just who are these shareholders? I ran across an interesting statistic the other day that pretty well answers that question. In 1960, 92% of the stock of American companies was individually held by private citizens…everyday people who elected the Board of Directors of the companies they held stock in.
Today…75% of the stock of American companies is held by “institutions.” This includes mutual funds, pension funds, Wall Street funds, and “other” large block investors. It is the fund and plan administrators who pick and vote-in the directors—not the individual stock owners.
In addition, I recently read a review of a report, put out by the Zurich-based Swiss Federal Institute of Technology, which studied 24,877 stocks in 48 countries. This report determined that the “backbone” of each country’s financial market “…consisted of remarkably few shareholders.”
Here is what the report said about American companies: “…while each American company may link to many owners, …analysis found that the owners varied little from stock to stock, meaning that comparatively few hands are holding the reins of the entire market.”
So, it appears that big companies are controlled by other big companies. Is it any wonder that everyday private citizens have little say on how the world economy functions? Or even how our own stock ownership is handled, because we cannot compete with the massive blocks of stock under control of “other” big businesses.
This sounds a little incestuous to me—does it to you?
The Nationalization of Big Business
Good grief, what has happened to America’s capitalistic, free enterprise system? As a red-blooded American, native Michigander, and alumnus of Kettering University, I am more than a little shocked, disappointed, and angry at what I see as a major blow to free enterprise, and more importantly, to democracy. Here’s why:
Following is a condensation of a couple of articles that came to my attention today. These are excerpts from an article by Monica Langley and Neal E. Boudette in the WSJ’s Morning Brief, and an article by Dr. Jeffrey Feldman in the Huffington Post.
WASHINGTON — Inside a windowless, ornate room Thursday (3/26) just across from the Oval Office, President Barack Obama and a group of senior economic advisers began the job of remaking the American automobile industry.
The first order of business: Oust General Motors Corp. Chief Executive Rick Wagoner.
Steven Rattner, a former investment banker who is heading the administration’s auto restructuring; chief economic adviser Lawrence Summers; and Treasury Secretary Timothy Geithner were among those gathered around the polished wood table of the Roosevelt Room in the White House’s West Wing. They were there to decide under what conditions the government would continue to prop up once-powerful Detroit car companies GM and Chrysler LLC. At Thursday’s meeting, once the Obama administration concluded the pair were running out of money, their effective dismantling began.
The White House meeting at which Mr. Wagoner’s fate was decided came five days before a March 31 deadline when the administration was set to rule on the viability of the companies.
The auto team (headed by Steve Rattner) prepared briefs for Mr. Obama on his options, as well as viability reports on both companies. The car team wanted an executive who could accelerate the changes it (the administration) desired. Mr. Wagoner didn’t have any support within the group. “This is Obama, and symbols of change are important,” said one person familiar with the situation.
A much harder decision was what to do with Chrysler. A conclusion that the company wasn’t viable could lead to 40,000 workers losing their jobs. To combat that threat, the government is negotiating with Chrysler and Italian car maker Fiat SpA for an agreement that Fiat will continue to make cars in the U.S. if it buys Chrysler, according to an official of the Obama administration.
After the Thursday meeting at the White House, Mr. Rattner asked Mr. Wagoner and Mr. Henderson to come see him the next day. Mr. Rattner broke the news to Mr. Wagoner at his office at the Treasury, according to an administration official. Afterward, Mr. Rattner met with Mr. Henderson, and told him he would take over as GM’s CEO.
Once word started to trickle out that a White House decision on the auto makers’ fate was imminent, GM officials and some Michigan lawmakers began making calls. Michigan’s Democratic governor, Jennifer Granholm, called the White House to ask for a meeting with Mr. Obama. Told she’d need to come in by Friday, which wasn’t possible, she had a personal phone call with the president and urged him to consider the communities that could suffer.
Mr. Wagoner told GM’s board Friday evening that he was asked to step down and informed directors the administration wanted a majority of them to resign, according to two GM officials. Several volunteered to quit over the weekend. Other GM officials speculated that they would also be asked to resign.
On Sunday, …Mr. Obama made one call himself to some of the Michigan delegation, including U.S. Sen. Carl Levin and his brother, Rep. Sander Levin, and Michigan Sen. Debbie Stabenow. He told them that he planned to put some administration staff into the Detroit companies, according to one person familiar with the situation.
Sen. Corker, a Republican from Tennessee, said he told Mr. Rattner on Monday that he was alarmed that the administration would dictate what kind of vehicles would be constructed. “Deciding what vehicles and plants will survive is setting industrial policy,” the senator said.
For the complete article, click here.
Let me see if I have this correct-
- The administration does not give money to the auto industry-Congress does. (Unless the Treasury dept. is diverting funds Congress provided previously.)
- The President has formed a small group of people (the auto team) who are dictating how the American auto industry will be run.
- The head of the administration’s new auto team is Steve Rattner, a former Investment Banker.
- Steve Rattner personally fired Mr. Wagoner and personally appointed Mr. Henderson as the new President of GM.
- The administration is dictating what cars the auto industry will build, and what plants will survive.
- The strong-arm tactics by President Obama and his auto team run roughshod over the Articles of Incorporation and By-laws of GM, rending corporate law meaningless. (Nationalization?)
- The President told some of the Michigan delegation he was going to “put some administration staff” into the Detroit companies.
- The auto team is doing the negotiation between Chrysler and Fiat.
There also seemed to be a few people missing from the Thursday meeting–like:
- Where was the Board of Directors?
- Where was the Michigan delegation?
- Where were the shareholders (the government is only one shareholder)?
- Where were the “car guys?”
- Where were the “union guys?”
- Where were the Congressional leaders?
- Lastly, where is the fairness, executed by the administration, between the auto industry and the banking industry?
What does Michigan think of all this? Here is what Dr. Jeffrey Feldman had to say in his article in the Huffington Post today:
Fear and anger are rising in Michigan: Fear that things are about to get much, much worse than they already are; anger that the federal government is strong arming the Mitten State just a short while after opening up America’s coffers to Wall Street with no strings attached. New York gets what it wants, when it wants it from Washington, Michigan gets slapped in the face. The fat cats on Wall Street caused this problem, they sank the economy, and they got paid off…Executives in Detroit get tarred and feathered and escorted to the door.
For the complete article, click here.
Now, I am not saying that all these things shouldn’t happen to, or within the American auto industry; nor that they wouldn’t happen anyway, but I am shocked, and disappointed, at the way events are being dictated to the auto industry by the President, and his select few, who are taking over the entire industry. That is not how capitalism works. That is not how democracy works.
Finally–Shareholders Take Action
The investment group, Finger Interests Number One, Ltd., owns a small block of Bank of America stock, and has charged, in a regulatory filing, that the board of directors of Bank of America ignored shareholder interests when they approved the purchase of Merrill Lynch & Co.
Now, three board members; Ken Lewis, CEO; O. Temple Sloan, lead director; and Jackie Ward, director, are up for reelection, and the investment group is asking shareholders to vote these incumbents out and bring in new blood. The election of board members will take place at the Bank of America annual meeting in late April.
It is about time shareholders discarded their complacency and started fulfilling their obligations as “owners” of companies–especially those “owners” of failing companies. Makes one wonder what role shareholders played in the current crisis on Wall Street. I wonder how many shareholders actually spoke out during the nomination for board members–or even voted for that matter.
Have you looked closely at your portfolio lately?
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