Pissing In His Own Tent

It has to be hard waking up every day believing that everything is a war and everyone is a liar. It seems that it causes a special kind of incontinence.

Today uber-progressive David Sirota makes this post:

The War Over Shareholder Democracy

[...]

The New York Times this weekend reported on one of the weapons being used: legal loopholes. A new report shows that “investors, no matter how few of a company’s shares they own, [are able] to profoundly affect the outcome of corporate resolutions that are put to a vote at the annual shareholder meeting” by “borrow[ing] a large number of shares for a nominal fee and use them to cast a corresponding number of votes.” In other words, savvy investors – including management – is able to vote more votes than they should be able to.

“Shareholder democracy is an ideal that is perhaps rarely achieved under the best of circumstances,” the Times goes on to note. “It’s not likely to be attained if sophisticated investors can manipulate the outcome of corporate voting merely by borrowing the shares they need.”

Which shows how little Sirota understands about the nature of the transactions. According to the NYT piece:

The number of votes he can acquire is limited only by his ability to put up collateral — which is required to be 102 percent of the value of shares borrowed — and the number of shares available on the securities lending market. This market primarily serves those who wish to borrow shares in order to sell them short, but there is nothing to prevent its use by those whose motive is to influence the outcome of corporate votes. (emphasis added)

So in other words, those who want to have the voting rights actually have to put up assets to do so in excess of the amount of the actual purchase price on that day. So those who wish to play this game need a great deal more than “a small fee.”

But here is the interesting point:

Over the 12 months covered in the study, the professors found that a majority of vote borrowing was conducted by those who opposed management.

Now, I’m no rocket scientist but it seems here that this “loophole” is a two edged sword. Given the amount of money under management by union pension and health & welfare accounts it seems that maybe the activists have quite equal opportunity to play – not to mention the massive money inside state pension funds like CALPERS.

But given that the research found that most of this activity was used against management, one has to wonder which side of the war Sirota is on. I wonder if he knows.

This entry was posted on Monday, April 17th, 2006 at 1:44 pm and is filed under Putz Watch - Sirota. You can follow any responses to this entry through the RSS 2.0 feed.