Where are the stockholder protests?

March 4, 2011

Protests against one-man rule are erupting throughout the Middle East and Moslem North Africa.  Where are the stockholder protests against one-man rule of corporations in Europe and America?

Since the cold war, dictators have ruled in the Islamic heartland.  The U.S. has sometimes turned a blind eye, and sometimes propped up these dictators with guns and or money.  In part because of American support for the status quo, the dictatorial regimes were able to remain in power even as they became increasingly unpopular.  Most of these regimes exhibit two ills that are typical of dictatorships or absolute monarchies. 

First, the dictator often embarks on megalomaniacal quests for glory.  He takes foolish risks and wastes the country’s resources on conquests that enhance his own prestige, but bring misery to his people.  

Second, the strong man runs the country for his own benefit.  Whenever a military coup, a popular uprising, or a new strong man ousts a dictator, there are charges of comingling of funds and there is a mad scramble to recover the old leader’s ill-gotten gains.

The people in the Middle East and North Africa have suffered both these ills at the hands of their rulers.  The people resented exploitation for the aggrandizement of a dictator, but local rulers stayed in power by means of ruthlessness.  The world, being more concerned with stability in the region and a stable oil supply looked on in greedy neglect.  But, even in these ruthless regimes that enforce their rule with the aid of secret police and routine torture, the people rose up.

Most people agree that when it comes to running a country (at least their own country), a dictatorship is a poor form of governance.  However, when it comes to running a corporation, nearly everyone agrees that a dictatorship is preferred.  The CEO in a modern corporation, without powerful shareholders, is answerable to no one.  The CEO packs the board, and there are no internal checks and balances that limit his power.  Big corporations suffer from the same problems of dictatorship. 

First, the CEO often embarks on a megalomaniacal quest for glory.  He takes foolish risks and wastes the company’s resources on mergers or perilous schemes that enhance his prestige, but decrease the stockholders equity.  

Second, the CEO runs the company for his own benefit.  In good times the CEO reaps huge bonuses.  The CEO often under invests in the company’s long-term future or cooks the books to further inflate the firm’s paper profits and his bonuses.  When the firm begins to fail, he bails out with his golden parachute. The company may be bailed out, but the stockholders are wiped out. 

This scenario has played out repeatedly in the S&L crisis during the term of Bush I, in the Enron et al crisis during the first term of Bush II, and in the Banking System crisis during Bush II’s second term.

There are no secret police threatening exploited stockholders.  Why do they not protest?  Why do they not demand a “Stockholders Protection Act”?  Is it because they are so gullible that they believe company propaganda about the romance of the free market? Or is it because the fund managers who control blocks of shares that are big enough to matter are playing with other people’s money? In any case, until there are limits on CEO power, the stockholders will fare little better than citizens of Libya under Moammar Gadhafi.


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