Those pesky shareholders...why don't they leave us directors alone and let us play?

This is written in response to the article entitled Corporations Should Not Be Democracies written by Lynn A. Stout and published in the September 27, 2007 edition of the Wall Street Journal and can be found at http://www.law.ucla.edu/docs/stoutoped.pdf.

What Professor Stout fails to remember that being a shareholder entitles the shareholder to certain rights and that includes voting for directors and setting policy through shareholder initiatives. Being a shareholder mean being an owner with all the rights and responsibilities of ownership

It appears that what Professor Stout advocates is that all decision be left to the good judgment of the board of directors. We need only look at recent history to see how poorly many boards of directors do their jobs. The scandals at Enron, Tyco, and Hollinger International show how timely intervention by a vigilant board of directors could have averted tragedy.

Shareholder activism has always been with us in one form or another. Only recently has it become a major issue is because more and more large block holders of shares such as pension funds and private equity firms are starting to flex their muscles and are exercising the rights that have been theirs all along. It appears that Professor Stout is not comfortable with that.

There is an easy way to cure share hold activism and that is to not use the public equity markets for funding. If directors are so concerned about being able to develop and execute policy with the "interference" of stockholders, then they should simply use their own monies or offer debt in the public debt markets and buy up all the shares.

I am quite certain that the level of scrutiny that a board gives to corporate activities will rise in direct proportion to their own level of ownership.