Shareholders don't need a bill of rights

(breakingviews.com) -- The Shareholder Bill of Rights Act of 2009 that Democratic Senators Charles Schumer and Maria Cantwell introduced on Tuesday in Congress proposes a raft of big reforms for public companies.

Each is worth supporting in its own right. The trouble is, shareholders are already tackling most of these matters themselves. A blunt act of Congress is the wrong way to proceed.

Schumer's bill contains a generous sampling of governance measures du jour. It would put an end to staggered board elections, making proxy fights easier. Elections would be decided by majority votes and companies would have to establish a risk committee. Firms would have to split the chairman and chief executive roles. Shareholders with stakes of more than 1% would be allowed to nominate directors to stand for election. And companies would hold advisory votes on executive pay. Taken together, these would increase the power of shareholders.

So it's hard to see how one could argue with Schumer's intentions. But consider the following: Staggered boards have largely been eliminated among America's most widely held corporations and majority voting for directors is already the norm at most large public companies. Shareholders are also increasingly demanding a split of the chairman and chief executive roles. Less than 20% of new CEOs in 2008 were also board chairman, down from 40% in 2004, according to Booz & Co.

Moreover, the Securities and Exchange Commission is currently considering a rule change to give shareholders the right to propose directors. And about 150 companies are expected to adopt advisory "say on pay" votes this proxy season, almost three times more than did so in 2007, according to RiskMetrics.

So shareholders are already voting for - and companies are moving to establish - desirable behavior as a norm. There is, then, no apparent need for lawmakers to get involved. Sure, after a year in which investors have seen nearly half of their investments wiped out, offering them a Bill of Rights sounds appealing. By all means, legislators should support moves to improve shareholder democracy.

That means not only fostering measures like these, but bolstering rule changes such as the SEC's plan to prevent brokers from voting undecided shares in favor of management. But mandating through legislation simply transfers decision-making, and accountability, from company owners to Congress. After a year of unprecedented bailouts that is the wrong message to send.