Biz Democracy

American politicians and business leaders talk a lot about bringing both free enterprise and democracy to every corner of the world. Fine idea.

What's less often discussed is how to keep business itself democratic. Doing so can set an example for new capitalist nations, where secret deals and cronyism distort the system.

"Greenmail" of the 1980s has largely ended. That was the ploy raiders used to become more equal than other shareholders, demanding above-market payoffs to go away. That defied the very meaning of "shares."

Now comes a more complex matter: fairness to shareholders versus fairness to employees. The Securities and Exchange Commission (SEC) has just caught stockholders, large and small, off guard with a ruling that allows firms to install options programs without a stockholder vote on a move that can dilute their shares. The SEC's only proviso: that ordinary workers share in the bargain-price option program of the top brass. What this means, in practice, is that shareholders lose a voice on whether to grant the costly options programs.

The SEC would do well to reconsider. True, granting options beyond the executive suite is good for morale. It's often beneficial for the bottom line. Profit-related bonuses provide an incentive for superior performance throughout a company. That's usually good for earnings. Therefore it should be good for stockholders, mutual fund holders, and tens of millions of pension-builders. But options can also be examples of self dealing or poor judgment. So the SEC should continue to require boards to sell the merits of any options program to stockholders and then let them vote. That's the democratic approach.

You've read  of  free articles. Subscribe to continue.
QR Code to Biz Democracy
Read this article in
QR Code to Subscription page
Start your subscription today