Tag: Calvin Coolidge

The Story: Bill De Blasio, the 109th Mayor of New York City, announced last week that he is running for President of the United States,...

Corporate governance, in contrast, historically has been conducted by people spending their own money, subject to the will of shareholders with a common ownership interest in the company. Calvin Coolidge famously noted that “the business of America is business,” because Americans are “profoundly concerned with producing, buying, selling, investing and prospering in the world.” But today government is working to remake the dynamic business sector in its own feeble image. The claim that investors can do good and well at the same time by investing in socially desirable objectives is reminiscent of Bill Clinton’s 1992 campaign proposal to invest private pension funds in chosen public projects. The outcome of this experiment in promoting the public interest with private money is now called the financial crisis. Index funds are now the largest shareholders of 40% of all public U.S. companies. When an index fund participates in corporate governance, conflicts of interest can arise. Since funds are voting their investors’ shares and not their own, they may be inclined to vote in a way that prioritizes their public image and fundraising above the performance of the company on which they’re voting. To restore those protections, the Securities and Exchange Commission should reverse the guidance it offered in its 2004 Egan-Jones letter and its subsequent ruling on behalf of Institutional Shareholder Services, which allows investment managers to use proxy advisers to escape responsibility for conflicts of interest. But when fund managers and investment advisers cast votes with shares owned by investors, the investors’ interests must govern, rather than the interests of activists, managers or advisers. Political issues should be debated in Congress and state houses, not corporate boardrooms and shareholder meetings.