One slight gesture towards economic reform in the U.S. has been the provision that shareholders can vote on executive pay, and, last week, Citigroup shareholders rejected its CEO, Vikram Pandit’s $14.9 million package.
That’s news! Since WW II, owners of corporate stocks have been the largely invisible partners in our economic system. Before that, the exchange of shares was the province of those dealmakers and bankers who used their power to gain control of markets. Most Americans distrusted Wall Street, with the exception of the frenzy of investment that drove up prices before Black Friday, the 1929 crash the preceded the Great Depression. That experience, if anything, reinforced the skepticism and mistrust of the average investor.
With the advent of Investor Capitalism about 40 years ago, when vast numbers of ordinary citizens become invested in stocks, shareholders began to approach the market to park their savings and discretionary funds, to build their nest eggs, to acquire the down payment on a house, to prepare for retirement and their children’s education. Their aim was and still is, by and large, to get a better return, not to influence corporate policy. Shareholders were still technically the owners or our corporations, but, without significant holdings, they have been largely passive and invisible. They became mere investors, looking for the best deal.
Hedge funds have used their concentrated power of ownership to gain financial concessions from corporations. A few pension funds, pressured by their beneficiaries, have sought to exercise their social conscience in divesting themselves of stocks in companies that pollute the environment or exploit workers. But for the most part, such activism has been infrequent and limited. People still largely want to make money from their stock holdings.
But now that investors have been reminded that their shares give them a stake in management, we may be on the cusp of change.
A financial correspondent for The New York Times recently received the following message from an irate reader about the vote of Citigroup shareholders: “I’m about to vote my proxies and I’m going to vote against everything they want. . . . They all get too much money.” She called it, a “shareholder revolt.” (See, “Is Citi Just the Beginning?”)
And this morning’s Times noted that investors seem to be deserting the stock market. A senior VP at Ameritrade, commenting on the fact that their trades are down 16 percent, attributed the decline to wariness following the 2008 debacle. (See, “Stock Trading Is Still Falling After ’08 Crisis.”) This echoes the skepticism that followed the crash of ’29, now heightened by insider trading scandals and high-speed computer trading programs. The small investor has less and less a chance to profit in this environment.
The “Occupy” and “Tea Party” movements have exposed the depth of resentment about our financial system. The rights that go along with investor ownership stand a chance, now, of giving investors a new way to vent their frustration. The sleeping giant of small investors may be aroused, and that may give our financial markets a jolt.