Wednesday, May 16, 2007

Arms and the Man

We wonder if SEC Commissioner Paul Atkins hates himself. He purports to love free markets and be wary of regulation, yet he is a regulator. Of course he’s not alone; with so many anti-regulators running federal agencies, therapists all over Washington must be lending an ear to the inner conflicts such outer conflicts may produce.

Last week the SEC held the first in a series of “Roundtable Discussions Regarding the Proxy Process,” with Atkins among those attending. On one panel, a couple of institutional investors noted that before annoying CEOs with proxy proposals, they try to meet with companies in private and air their grievances about governance and whatever else. Apparently this often results in quiet changes to company practice or policy, and the best part is that Gretchen Morgenson never has to know.

We would have expected Commissioner Atkins, a Bush appointee, to like this concept. True, one of the institutions represented on the panel was Knight Vinke Asset Management, a self-described “activist fund,” and Atkins doesn't like troublemakers. But the other was TIAA-CREF, whose shareholder activism is known to be gentlemanly. And shouldn't a free marketeer be pleased when "the market," represented here by self-interested, sophisticated shareholders, pressures entrenched or clueless management so regulators don't have to?

Yet Commissioner Atkins seemed perturbed that big institutions - having no fiduciary responsibility to other investors - engage in what he called “behind-the-scenes maneuvering.” He even accused nice TIAA-CREF of “arm-twisting” companies into adopting measures that, if put to a shareholder vote, might go down in flames. “Tyranny of the minority,” he called it.

The odd thing is, we must grudgingly admit Mr. Atkins has a point. As more big shareholders explore the activist lifestyle, it's becoming apparent that no one has answers to all the questions this raises about inter-shareholder relationships. Enter the law professors: We predict that the topic of rights and duties among shareholders will soon be to scholarly corporate law journals what starlet anorexia is to Us Weekly.

Maybe Commissioner Atkins is just worried that all those twisted arms will keep CEOs off the golf course, leaving him no one to play with. Tell it to your therapist, Paul.