The Trouble With Shareholders Are ordinary investors also to blame for corporate greed in the '90s?
By Pat Regnier

(MONEY Magazine) – We must restore investor confidence in corporate America. It's time for boards to wake up and rein in overpaid cowboy CEOs. Companies should be run for the benefit of the ordinary shareholder. Sound familiar? It should if you've read a newspaper or financial magazine lately. After accounting scandals, stupid stock-option tricks and a lot of just plain bad business, almost everyone agrees that what we need is more power for shareholders. Well, I'm all for clean books and tougher boards, and I savor a white-collar perp walk as much as anyone. But demanding our shareholder rights shouldn't mean idealizing the "ordinary shareholder." Shareholders weren't just the victims of the '90s bubble. They were part of the problem.

I watched the crash as a business reporter in Europe, where shareholder capitalism is still a novelty. Not so long ago, European big business was the affair of a few power players, including the state, whose votes often counted for more than everyone else's. Managers tended to be conservative about, even inattentive to, growth. This shifted during the boom, as the state cashed out and firms sought capital from foreigners and individual investors. Executives like Vivendi Universal's Jean-Marie Messier sang odes to U.S.-style shareholder value. Germans called the new reality Aktienkultur, or share culture.

Did all this shareholder talk change Europe's companies for the better? They changed, that's for sure. Deutsche Telekom and France Telecom took on bazillions in debt to buy overpriced wireless assets. Messier briefly and disastrously played global media star. All were responding to--or taking advantage of--a new investor class hungry for growth. Not unlike Enron or AOL Time Warner, really.

Now many Europeans conclude that the old elites ran things better. But the trouble wasn't that investors were given too many rights. Their cash spoke as loudly as any proxy vote. Shareholders were too willing to throw money at CEOs' dreams and schemes, and didn't insist on financial prudence and transparency until it was too late. Corporate reform is a must, both over here and over there. It starts with demanding shareholders. --PAT REGNIER