Corporate law is so boring, even most attorneys roll their eyes and fall out of their chairs when chumps and knuckleheads start blabbing about it.  Just rich people fighting over the chocolate chips, right? In case you're not familiar with this peculiar area of law, here's a factual situation from a prominent opinion issued just this past year: A derivative complaint filed by plaintiff shareholders alleged that the defendants caused the company to issue stock options in contravention of an equity incentive plan by setting the exercise price of the issued options at an unfairly low value. Huh wah? It's worse than the pseudo-speak you get on CNBC.  Court opinions based on this stuff routinely run up 70-80 typed pages.  I would have said that having a working knowledge of this cr@p gives you great job security, but, well... jury's out on that one!

Anyway, the rule of thumb for liberals when confronted with issues relating to internal corporate governance is generally set forth thus: we don't like court opinions and rules that favor greedy directors in favor of poor peon joe regular shareholders.  The courts (and when I say courts, I mean Delaware of course) do seem to favor directors -- although there is a little controversy about this particular position.

Indeed, to a person not intimately acquainted with corporate fiduciary duties, the rule of thumb seems to work great.  After all, the people usually suing the pants off greedy directors are, in fact, shareholders.  If all you knew about this finite universe was what happened to Enron and Tyco and Worldcom -- leading up to Sarbox (that lawyer speak for Sarbanes-Oxley), you'd like the rule of thumb, too, and you'd be justified.

But now we should all know better.  Who are the shareholders?  Might they be....wall street brokers?  Big mutual funds? And can one, at this late date, really expect these kinds of shareholders to exercise their votes in a rational and compassionate manner?

Companies are owned by and beholden to shareholders who don't care about what they own.  They care about stock price fluctuations.  In fact, in some situations (in the case of certain kinds of derivatives), shareholders have a financial interest in seeing the company go down in flames. Mind boggling, yes? Anyway, big shareholders look for quick and dirty profits by achieving quick and dirty increases in short term stock prices.  Directors *have* to deliver this -- or lose their jobs.  Certainly, there are a lot of crooks; when shareholders vote to write in stock options so that they are assured directors will toe the party line (if fear of unemployment won't do it, greed will), things get even more dangerous.

That giant flushing sound? That's jobs going overseas and people getting laid off so Fidelity can pull in better third quarter numbers.  Here's some more icing: don't be surprised if you find out that it's the financial industry lobby convincing Congress and all and sundry NOT to adopt trade protections and global environmental regulation because, well, it will cut into 4th quarter profits.  The saddest part? That Fidelity account is yours and my retirement savings. Which is getting a big time haircut because our employers are slashing benefits.

Traditionally, the SEC governs the trading of  the equity of public companies.  It does not (historically*) have much to say about internal corporate matters unless they have direct impact on the trading floor.  It's state corporate law that determines how much power a shareholder or director has in the company and what can and can not legally influence their behavior.  Let me give an example.  Of something that will help for the better (I'm trying to get my Chope on): if state legislatures add a minimum time requirement that a shareholder must own stock before it can exercise its voting rights, companies will begin to care less about short term profits through stock price inflation and more on long term viability (which includes, by the way, maintaining a stable and expanding work force).

Not to mention it would dampen -- at least a little -- the derivative trading madness.

*Sarbox is a federal statute that imposes some relatively new provisions that apply to director conduct; companies complain that it amounts to a paperwork requirement.  It does not, however, change the basic legal standard of behavior to which directors must adhere.  Incidentally, it also forces auditors and attorneys to do a little documentary CYA. The TARP also has some implications, but I don't have the energy to go into that just yet.