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Slade Gorton
Political leader

Slade Gorton

A former U.S. Senator and Washington State Attorney General, Slade Gorton served on the 9/11 Commission.

Shareholders First

It is really not up to Wall Street leaders to concern themselves with the long-term health of the economy. Their duty is to their shareholders, and if they work in their long-term interests, the national economy is almost certain to benefit.

The problem is they have subordinated those interests to immediate bonuses and profits for themselves and their employees at the expense of their enterprises as a whole. Eventually that caught up to them, but most of them were insulated against the devastating losses their policies imposed on their shareholders.

A major cure, I believe, is greater shareholders' rights over salaries, bonuses, and boards, with contests for board membership and referenda on compensation. Both the enterprises and public acceptance of Wall Street will be enhanced.

By Slade Gorton

 |  September 15, 2009; 6:36 AM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
Previous: 'What Would Happen If...?' | Next: Twelve-Step for Wall Street


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Spoken like a true Milton Friedman school CORPORATIST! Typical trickle down Reaganism - gee, didn't we have to bail out banks under Reagan as well? Seeing a pattern, folks? As in, Republicans = corporatists? Corporatism = destruction of the middle class (the NUMERICAL majority rather than who has all the money)?

If Wall Street has no obligation toward the long term health of the economy, then it's up to the government. The Federal Govt has an obligation to protect the citizenry from "enemies foreign and domestic". But therein lies the hook, doesn't it? We're no longer citizens, are we? We're CONSUMERS, right? Wall Street should be made to pay back every last penny of bailout with 28% APR interest. After all, that's only fair - that's what the going rate is for credit cards these days, yes? Pay back plus regulation that puts the fear of a higher being into these Wall St leeches.

The middle class are mass casualties of this Friedmanist vision of a global economy - nothing more than corporate speak for profiteering without regard to the human or social consequences. With views like Gordon's, we should count ourselves fortunate that this corporatist isn't an elected official anymore.

Posted by: pcw5150 | September 15, 2009 11:10 PM
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Apply this principle to three examples and you'll see why it's a problem: alcohol, tobacco, and porn. While executives pursue the almighty buck and push their products for shareholder benefit, the public will be left with cirrhosis of the liver and lung cancer, but at least they'll have an outlet for all the built-up tension.

Posted by: gce1356 | September 15, 2009 10:05 PM
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business ethics 101:
business must make profit, business must obey the law.

Therefore the only stewardship for society must be legislated. When free market theology crept into american politics and scaled back regulations they were actually enabling excesses and not the efficient markets they sold us.

bad religion huh folks?

Posted by: ricinro85212 | September 15, 2009 9:19 PM
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Most institutional investors (who own almost 70% of all stock) have portfolio turnover rates of 150-200%. While it is true that corporate management has been gaining power and sometimes using it for their own benefit, focusing on shareholders is unlikely to create a long-term focus. If you are holding a stock for less than one year, it is unlikely you care about long-term strategy.

There are many other players that have a much greater stake in the long-term success of the organization. Employees, value chain partners, customers, local communities and lenders often have more at stake than shareholders. Maybe it is time to give more power to these vested stakeholders. They care more about the long term wealth and success of the organization than fleeting investors.

Posted by: cote1 | September 15, 2009 4:37 PM
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I agree with Mr. Gorton, it's been all too painfully obvious since the late 80's that the enormous power CEO's wield over boards and the weakness of individual shareholders has led to a situation where leadership in a Fortune 500 company has become a membership in a pirates' club where you could be certain of receiving outlandish compensation up front, an inordinate portion of the shareholders' wealth as stock options, and no penalty for failure. The shareholders were expected to accept the reasoning that good ceo's and other officers were hard to find and increased the company's value enough that shareholders would see their share values increase, making it all worth while, but of course that simply doesn't happen. In real life the excessive compensation given the directorate came off the bottom line of the shareholders, whose share of the company tended to remain stuck in a value range.

We need to enter a new era where ceo's labor to find ways to maximize shareholder return, in part because shareholders will have the power over the enterprise that they ought always have had. My proposal would be that most mature enterprises ought to be paying out all of their profit in cash dividends, making shares extremely valuable and putting the shareholder at the front of the line. And stock options which expire unused should be distributed to the shareholders in some fashion so the long-term holders can be further rewarded for their loyalty. It's never been about short-term profit so much as about a struggle by the shareholders to wreak out any profit at all in a company that holds back all the revenue for the hired hands...

Posted by: razzl | September 15, 2009 1:18 PM
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He's taking that line about business responsibility to shareholders from Milton Friedman. Everyone remembers that line-- but few have read the rest. They have to act within the limits of law, regulation and prevailing norms. Wall Street leaders did everything they could to evade any limits on their choices. And Slade Gordon is right that their perspective was always for immediate returns, not even the long term health of their firms let alone the health of the economy.

Posted by: vhaufler1 | September 15, 2009 11:28 AM
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Just read this joker's first paragraph and you'll see a perfect example of the disconnect that rich people and politicians (is there a difference?) have...it's like they are some type of uber-citizens that don't have any responsibility to ensure that others get the same opportunities they had. They owe nothing to America, just to their shareholders. How disgusting....Note that Slade Gorton is a former US Senator.

Posted by: CidSinclair | September 15, 2009 10:55 AM
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