Monday, April 24, 2006

In Your Dreams

I just love the whole free market idea - you know, how that invisible hand makes everything work perfectly. Take executive compensation: isn’t it great how we don’t need to worry about corporate execs overpaying themselves, because powerful institutional shareholders - acting purely out of economic self-interest - would never let that happen?

Hey, where am I? Sorry, must have dozed off over the Wall Street Journal editorial page...

The media is belatedly waking up to a big story: the indifference and inaction of the nation's largest institutional investors on issues of corporate governance. In the past decade’s tale of badly run corporations and overpaid CEOs, these institutions have been the dog that didn’t bark in the night. Gretchen Morgenson’s piece in yesterday’s Times nicely exposes some of the conflicts of interest that make these investors ineffective watchdogs.

The sudden consciousness-raising on this subject is, I think, largely the work of former Vanguard Group head John Bogle, who is quoted extensively in Morgenson’s article and seems to pop up everywhere these days. Bogle is to the world of institutional investors what those pesky retired generals are to Donald Rumsfeld. I haven’t read Bogle’s book, "The Battle for the Soul of Capitalism," but he's certainly yanking some people out of their free-market reveries.