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Corporations are Not Democracies


"Let me clear my throat."


This morning on CNBC, Massachusetts Chief Securities Regulator William Glavin came on the air to state his opposition to the purchase of Gillette by Proctor & Gamble (PG).

Mr. Glavin believes that Gillette was sold for a price which undervalued the company by some some 20%. He made noises about issuing subpoenas to executives at Goldman Sachs (GS), demanding that they explain their valuation in full. Mr. Glavin echoed the phrase that pays for young politicos on the move: Corporations need to be made democratic.

At the risk of seeming a little "Tom Cruise on Psychiatry", Mr. Glavin appears grossly ignorant on the topic of business. As he was simply aping a trendy argument, it seems a decent opportunity to state some simple truths:

  • Proxy voting absolutely should be based on the ownership percentage of company shares.

  • The cluster... er... The challenges and controversies being faced by Morgan Stanley (MWD) as they play musical-executives were entirely predictable. Were those outraged by the golden parachutes under the impression that Morgan was going to be the first Wall St. firm in history to not give those departing monster dollars?

  • Classy move by John Mack, tying his comp to performance. Seriously... great stuff. Of course, that only reduced the amount the Group of Eights actions have cost MWD by a relatively small fraction.

  • Billions have been lost (and paid out) by Morgan since it was decided that retired executives should have a meaningful say in ongoing operations. You know, because that's democratic.

  • And, truthfully, the Ancient Eight are as savy as outsiders get... most results created through this democratic activism turn out much worse. Blockbuster (BBI), I'm talking to you.

  • Mr. Galvin's effort to go head to head vs. Goldman on the topic of "Valuation" makes Don Quixote's fixation on windwills seem well reasoned. Goldman understands what Mr. Galvin doesn't: Value is what the market pays. Goldman could easily justify the French side of the Louisiana Purchase price. They can certainly justify the price of a stock-swap transaction that was approved by shareholders to within a nickel, either way.

  • Business people live, eat, sleep and dream about business. It's what they do and what they have trained to do all of their lives. Like boxing, it's an avocation generally cruel to those who "dabble" in it.

In other notes...

  • I'm off to NYC tomorrow morning, set to fill in for Todd-O at a Wednesday night Succo-Fest.
  • I'll also be guest hosting Squawk Box on Friday morning.
  • They wouldn't let me talk to the North Carolina AG, who was blathering his version Glavin when I hosted last month.
  • I'm going to have to insist on making this rant, should the topic arise on Friday.

No positions in stocks mentioned.

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