Part of the problem is that most shares that are nominally held by individuals are actually held for them by retirement funds and the like, creating even further distance.
Well, you can think of the choice of retirement fund as first tier in a multi-tiered democracy. Individual → Fund → Director. Yes, the fund is managing other people’s money and thus has eroded incentives, but on the other hand it is a full-time job and its votes are concentrated enough that people will actually talk to it.
But forget about individuals—is it a democracy of investment funds? Yes, they really get to choose the directors, and the directors really (can) run the company. And the investment funds talk to each other. But they are spread too thin. They own too small a share of too many companies to keep up with them. The way that the large shareholders control companies is by convincing investment funds to vote for their candidates. Once they have control of the board, it’s pretty easy to keep it, because the board nominates new candidates and there is standing source of opposition. But just because someone, say, Icahn, has 5 or 10% of the shares, doesn’t mean he has much power. Sometimes the board will just accept his advice, but other times he has to lobby the investment funds to democratically take over the board.
Anyhow, my point is that the funds do a lot of talking, so I am skeptical that the problem is not talking.
Part of the problem is that most shares that are nominally held by individuals are actually held for them by retirement funds and the like, creating even further distance.
Well, you can think of the choice of retirement fund as first tier in a multi-tiered democracy. Individual → Fund → Director. Yes, the fund is managing other people’s money and thus has eroded incentives, but on the other hand it is a full-time job and its votes are concentrated enough that people will actually talk to it.
But forget about individuals—is it a democracy of investment funds? Yes, they really get to choose the directors, and the directors really (can) run the company. And the investment funds talk to each other. But they are spread too thin. They own too small a share of too many companies to keep up with them. The way that the large shareholders control companies is by convincing investment funds to vote for their candidates. Once they have control of the board, it’s pretty easy to keep it, because the board nominates new candidates and there is standing source of opposition. But just because someone, say, Icahn, has 5 or 10% of the shares, doesn’t mean he has much power. Sometimes the board will just accept his advice, but other times he has to lobby the investment funds to democratically take over the board.
Anyhow, my point is that the funds do a lot of talking, so I am skeptical that the problem is not talking.
The point of the original proposal was not the talking but the exercise of the right to vote, similar to a democracy. Good post, though.