Management votes by default

Brokerage firms hold roughly 80% of listed company shares (NYSE only?) and if the owners do not instruct their brokers how to vote their shares, the brokerages vote in favor of management proposals. As a result, reports Gretchen Morgenson, "brokers control an estimated 25 percent of the shareholder vote at the typical annual meeting." (The estimate comes from the London-based organization Governance for Owners.)

The NYSE had proposed to prohibit the practice before next spring's annual meetings but has now decided to postpone the change until 2008 to give companies, especially those that now require directors to receive a majority of votes cast, more time to prepare. Some observers, including at least one member of the working group that formulated the proposed rule change, expressed concern that the rule change had been postponed because of pressure from opponents, which include the Business Roundtable and the Society of Corporate Secretaries. The Roundtable opposes the change "because it would require educating their shareholders on proxy voting issues, yet corporations cannot communicate directly with those who hold their shares at brokerage firms, for example."

Gretchen Morgenson, "Big Board Delays Plan On Voting," New York Times (natl. ed.), 3 October 2006, C1, C6.

Safeguards

Time for my quarterly blog update (I'll spare you my grumbles about why I can't seem to find time to do this more often).

Why is it that the U.S. seems so persistently to pay less attention to safeguards than its European peers? Of course, as soon as I write those words, I have to ask myself, "Who is this 'U.S.' that you are talking about?" Fair enough--there is no monolith that holds singular values. All we perceive is the de facto outcome of political battles, which doesn't necessarily tell us anything about the specific values that informed individuals' actions. So better to ask: What is it about the U.S. that its policymaking so often slights safeguards?

Three reports in today's New York Times prompt this question. One is on the National Research Council's review for Congress of the National Nanotechnology Initiative established in the 1990s. In the Times reporter's words, "the report cautioned that too little money was being invested in understanding the potential health and environmental risks of manipulating matter on such a small scale [billionths of a meter]."

Barnaby J. Feder, "Study Says U.S. Has Lead in Nanotechnology: A Hopeful Report Also Warns That Risks Deserve More Study," New York Times, 26 September 2006, C6.

The second concerns the U.S. program that permits intelligence agencies to monitor international financial transactions for traces of terrorist activity. The European Union's Article 29 data protection working party reports that the program lacks the safeguard--independent supervision--needed to make it consistent with European law. "That's a crucial point for us," says the German who heads the panel. "There must be independent supervision."

Eric Lichtblau, "Europe Panel Faults Sifting Of Bank Data," New York Times, 26 September 2006, A1, A19. See also Tom Zeller, Jr., "93,754,333 Examples of Data Nonchalance," New York Times, 25 September 2006, C5

The third report is on proposals in Congress to have the Department of Homeland Security build a wall (of fence, vehicle barriers, and electronic surveillance) along portions of the U.S. border with Mexico. In the wrong hands, walls can keep people in as well as out, so some kind of safeguard--e.g., independent supervision--might be appropriate here, too.

Eric Lipton, "Lawmakers Agree to Spend $1 Billion on Tightening Border," New York Times, 26 September 2006, A21.

The overall pattern seems pretty clear, but the reasons for it puzzle this observer.

Ely on economies of scale and competition

One of my favorite pieces that explores the tensions between economies of scale and competition is a three-part series by political economist Richard T. Ely in the May, June, and July issues of Harper's Monthly Magazine in 1887. His articles were entitled "The Nature and Significance of Corporations," "The Growth of Corporations," and "The Future of Corporations."

Economies of scale vs. competition

From a historical viewpoint, the tension between economies of scale and competition is unmistakeable, as is the difficulty that the makers of competition policy and economists have had in coming to grips with it. Now, according to a review in the FT, a new book on the history of economic thought takes this as its central theme -- a must-read on my list.

Tim Harford, "Nerds and saints of economic thought," Financial Times (U.S. edition), 26 June 2006, 14 -- review of David Warsh, Knowledge and the Wealth of Nations: A Story of Economic Discovery (W. W. Norton).

Does shareholder culture matter?

Finally, it seems, the long tussle between Arcelor and Mittal is being resolved. The concept of management culture is a familiar one, and the challenge of merging very different management cultures has long been recognized as a risk factor affecting the success of a merger. But do shareholder cultures matter in a similar way? Judged by the voting-rights provisions in their articles of association, Arcelor and Mittal occupy opposite ends of the prevailing spectrum of governance structures, so the merger, if it is consummated, will offer a good test.

Peter Marsh, "Arcelor succumbs to Mittal," Financial Times (U.S. edition), 26 June 2006, 1.

Challenges of national regulation of international markets

The Bundesbank has proposed what the Financial Times characterizes as a "system of 'self-regulation plus'" under which hedge funds would "open up their books for public grading by rating agencies and introduce a code of conduct." The proposal reflects concern about the risks entailed by heavy hedge-fund borrowing from banks and recognition "that national regulatory authorities would be virtually powerless if they acted alone."

Ralph Atkins and Mark Schieritz, "German central bank calls for hedge fund openness," Financial Times, U.S. edition, 17 May 2006, 2.

This calls to mind the words with which Alan Greenspan urged Congress in 2000 to exempt the then-$80 trillion market for over-the-counter derivatives from regulation, which illustrated how the "race to the bottom" dynamic, so familiar in U.S. history, works internationally: "I see a real risk that, if we fail to rationalize our regulation of centralized trading mechanisms for financial instruments, these markets and the related profits and employment opportunities will be lost to foreign jurisdictions that maintain the confidence of global investors without imposing so many regulatory constraints."

Joseph Rebello and Dawn Kopecki, "Greenspan Urges Congress to Execmpt OTC Derivatives From U.S. Regulation," Wall Street Journal, 11 February 2000, C11.

More on intra-EU regulatory arbitrage

"Since a European High Court ruling in 2002, EU companies are free to incorporate anywhere in the region," reports the Financial Times. "Some 30,000 small German companies have since registered as limited companies in the UK, mainly attracted by the lower cost."

The trend is now spreading, it reports, to medium-sized German companies that anticipate expanding and listing publicly. For such firms the attraction of UK incorporation (unlike incorporating as a Societas Europaea or SE) is that it would enable them to avoid Germany's co-determination law, which applies only to German company forms (Aktiengesellschaften)--though that interpretation may be challenged in court.

Gerrit Wiesmann, "Germans eye UK listings as a way out of worker law," Financial Times, U.S. edition, 24 May 2006, 16.

Solutions to regulatory competition in the EU?

In an op-ed piece in yesterday's Financial Times, a Belgian economics professor argues that "a flaw in the design of the eurozone" that leaves wages policies to be determined by the member states of the EU, rather than centrally, produces an unhealthy competition among the states. He cites the example of German wage restraints, which "improve Germany's competitive position at the expense of the other eurozone countries."

To stop "the downward spiral on wage increases set in motion by Germany," he sees two basic alternatives: either centralize policy in the EU or "further liberalize [EU states'] labour markets so wages are set by demand and supply instead of being dictated by government-sponsored cartels of trade uions and employers' associations."

An historian can't help noticing that the dynamic he depicts looks very "American" -- that is, it resembles the economic competition among the American states that first emerged in the 1850s and reached full force by the 1890s, producing what some scholars call a "race to the bottom" in state regulation. (The competition continues because so much economic policy remains in the hands of the American states. No one really disputes the existence of the dynamic, though assessments of it--good or bad?-- differ sharply.) In the U.S., the outcome of this dynamic was de facto liberalization of labor (and other) markets.

From this standpoint, the available solutions to the EU situation appear slightly differently: either centralize wage policymaking or let state-level competition do its work in liberalizing labor markets. But however one arrives at liberalized labor markets, the U.S. experience suggests that they won't prevent a downward spiral in wages, especially in the 21st-century context of global, inter-nation competition.

Paul De Grauwe, "Germany's pay policy points to a eurozone design flaw," Financial Times, 5 May 2006, 13.

Antitrust in the Noughties

Current antitrust policy, Stephen Labaton argues in the New York Times, harkens back to the late 1980s--and one might even say, to the 1890s: it takes a dim view of cartels and price-fixing, but generally regards mergers with equanimity.

Much of the article, however, is actually about signs of impending conflict between the Justice Department and the FTC over the latter's effort to combat what appears (to the legal amateur) to be cartel-like behavior--inter-firm agreements in which name-brand drug manufacturers pay generic manufacturers to delay the introduction of rival products.

Stephen Labaton, "New View of Antitrust Law: See No Evil, Hear No Evil," New York Times, 5 May 2006, C5.

What next? Mashups

Combining data with Google Maps -- a new Internet phenomenon, it seems. I'm a big fan of mapping historical data, especially for lectures. But I'm not really versed enough to do it effortlessly, so I often just can't find the time. Now here's a new twist.

Jane Gordon, "Mapping the Invisible City Outside Their Walls," New York Times, 3 May 2006, A25.

Early computers and national security

Yesterday's New York Times carried an obituary for Henriette D. Avram, whose career exemplifies both the role of national security in the genesis of the American computer industry and the spill-over effects from that early collaboration. After studying mathematics in the early 1950s at GW while her husband worked for the National Security Agency, she, too, "went to work for the N.S.A., where she learned computer programming." After a hiatus at a software company, she moved to the Library of Congress in the mid-1960s, where she led the project that produced Machine Readable Cataloging, or Marc. In the 1970s, Marc became the national, and then the international standard for electronic library catalogs. It remains the basis for the newest iteration, Marc 21.

Margalit Fox, "Henriette D. Avram, Modernizer of Libraries, Dies at 86," New York Times, 3 May 2006, C15.

Competing social conceptions of the corporation

Because of the striking differences in their styles of corporate governance, I've been following rather closely the news reports on the efforts of Netherlands-registered Mittal to take over Luxembourg-registered Arcelor. Two recent reports, including a long one on Mittal's governance structure:

Peter Marsh, "Arcelor investors expected to take issue with E4bn loan," Financial Times, U.S. edition, 27 April 2006, 21.

John Plender, "Mittal kingdom: why governance may be an impediment in the pursuit of Arcelor," Financial Times, U.S. edition, 28 April 2006, 9.

In a paper that I presented last month at a conference at Washington and Lee University's School of Law, I used the Mittal-Arcelor case briefly to illustrate competing social conceptions of the corporation today -- will post a link to the article manuscript when I'm finished revising it. Meanwhile, I am delighted to hear that historian Philippe Mioche at the Université de Provence, Aix-en-Provence, is writing an article on the history of the two firms.

For news reports on Arcelor's annual shareholder meeting, held on Friday, click here.

The political creation of uniform markets

In a preliminary ruling, the European Court of Justice has declared "quite patently discriminatory" the French practice of levying higher taxes on dividends paid to non-residents.

Quoted in Vanessa Houlder, "Decision on withholding taxes set to spur reform," Financial Times, U.S. edition, 28 April 2006, 3.

Principles for Responsible Investment

An international consortium of pension funds, holding assets of more than $2 trillion, has pledged to adhere to six "principles for responsible investment" that address environmental, social, and corporate governance issues. The underlying assumption is that these issues affect the long-term performance of their investment portfolios.

Mark Turner, "Pensions funds sign pact to ensure ethical investment," Financial Times, U.S. edition, 27 April 2006, 6.

Containerization

Economist Marc Levinson previewed his new book, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (Princeton Univ. Press, 2006) in a column in this morning's Financial Times (April 25, 2006, 17). This sounds like a "must read" for those interested in the history of business, technology, and globalization.

Anyone interested in this topic should also keep an eye out for a forthcoming book by Shane Hamilton, asst. prof. at the University of Georgia and a former undergraduate of mine, on truck drivers and the post-WWII food economy.

Another try

So my efforts last year to be more concise and therefore more regular in blogging failed abysmally. Also, like so many others, I've been completely overwhelmed by email for the last year.

Techno-twit that I am, I am now trying out a new technological fix to both problems: an amazing little Windows Mobile-based smartphone called the HTC Universal, made by a Taiwanese company. I have Cingular's version of it, simply called the Cingular 8125. Amazing is an understatement. (The screen doesn't actually swivel; it slides. But who cares, given its other capabilities.)