After all the Sturm und Drang surrounding implementation of
Sarbanes-Oxley, how "reformed" are corporate boards? According
to Ira
Millstein, not very.
How could this be? Chalk up another one to human nature: "My
impression is that management does not like reform and so complies and
complains and resists….[Moreover,] management never much liked boards." Nor
is it fun any longer to be a visible public-company director. Once
board membership was limited to "cronies," "harmless academics," and
the occasional obligatory "woman or minority," but now CEO’s cannot be
so confident their board will be a lap dog.
Still, management has a virtual hammerlock over the nomination of directors,
and since a nominee can be elected with a single vote (say, the CEO’s)
even if all other shares vote "withhold," there is no incentive for management
to change its ways. Millstein proposes an ingenious reform: That
nominees must win a majority of all votes cast, so that "withhold" essentially
becomes "against." At first glance, I like this enormously: It
has the lawyer’s (and the economist’s!) virtue of drastically changing
the behavioral incentives by "merely" changing a procedural rule.
Imagine if "none of the above," as a ballot-box option, could defeat
actual candidates for the Congress and Presidency of the United States. Now
there’s a thought experiment for you.
