Legislation introduced by Senator Marco Rubio last week marks the first shot by conservatives in the incipient legislative war against woke corporate executives bent on using other people’s investments to instantiate themselves as unelected, unappointed policy czars.
The legislation, the Mind Your Own Business Act, would – in conjunction with state corporation law – enhance opportunities for shareholders to oppose CEOs who, by pushing their personal policy preferences, put aside their fiduciary duties to act in the best long-term financial interest of their companies.
Under the Act’s provisions, shareholders would be able to take CEOs and directors to court when they use company funds or put company reputation on the line to take political or social stances that are only tangentially related to the genuine business activities of the companies. Upon a showing that CEOs have mounted their soapboxes, the CEOs would be required to demonstrate that objective, competent research has shown the value of that move to the company. Failure to make this demonstration would make CEOs liable for self-dealing – for putting their personal interests ahead of their duties to the company – and would make them personally liable for damages.
You can imagine that this might chill unhinged corporate activism fairly substantially. Larry Fink (BlackRock), Brian Moynihan (Bank of America), Chip Bergh (Levi-Strauss) and their ilk are delighted to use our money to underwrite their efforts to override democratic policymaking. But one suspects that they will be much less delighted should such actions put their own assets be at risk.
You have no idea how many CEOs I’d like to sue either to force them to show how opposing voter ID was good for their companies’ bottom lines, or to pay me damages. Well, no – maybe you do have a pretty good idea. And maybe you’d like to join me. Which goes far to illustrate why this legislation is so powerful on its own terms.
But there is more power yet in what this bill signifies. This is, we hope, merely the first volley in a long and concerted campaign by politicians of the center/right against the new malefactors of great misfeasance. Right-leaning politicians, or at least the better of them, have started to struggle out of the confusion that has too long gripped their ranks: mistaking obeisance to CEO dictates for preservation of free markets and of American liberty generally.
Would that it needn’t be said at all, but these days it cannot be said too often: CEOs do not own “their” companies, either singly or along with their boards of directors. They are collectively the managers of the companies for the real owners, the shareholders.
Remembering this puts the novel spectacle of “woke” CEOs spouting their personal policy preferences as company policy, and obnoxiously declaring that the “purpose of the corporation” is stakeholder capitalism, in its proper light. These are firing offenses.
Imagine if a company were owned not in the corporate form but by a single person. The owner has hired a manager, who has in turn hired a set of advisors (the equivalent of the CEO and the board). Now imagine that the manager and advisors sent out a memorandum declaring that instead of taking their instructions from, and working for the best interests of, the owner, they would instead be considering the interests of employees, customers, the community – pretty much everyone. And since everyone won’t ever come to the same conclusion about what to do about anything, this really means that the manager and the advisors are just going to do what they personally want to do with the company.
It wouldn’t take the owner very long, after seeing a copy of that memo, to fire the manager and the advisors, and hire some new help that hadn’t lost its collective mind.
The case is the same with modern CEOs and directors. Whatever their pretentions, they are employees of the shareholders, nothing more. When they behave differently, they must go. Legal structures that make it difficult to discipline them when they act so spectacularly in their own, rather than in their bosses’, interests must be revised.
Only thus can investors – especially smaller investors – participate coherently in genuinely free markets, (reasonably) free of cronyism, politicization and system-rigging.
Senator Rubio’s legislation is one way to fix corporate governance and to move back toward functioning free markets. There are many others. Reforms to the U.S. Securities & Exchange Commission are necessary to keep it from forcing further politicization and new-style discrimination upon corporations. The proxy-advisory companies must be subjected to conflict-of-interest and transparency discipline. Shareholder proxy voting should be significantly reformed. None of this legislation will require new bureaucracies, or increase regulatory burdens. It will simply stop people and organizations from stealing the power of other people’s capital investments in order to push their own narrow, personal policy preferences.
The fact that the center/right – and especially the more thoughtful amongst its elected representatives – are waking up to all of this may be the best policy news yet in an otherwise fairly dismal year.