Sunday, April 09, 2006

Morgan Stanley and its august company

What is common to Algeria, Russia, Zimbabwe, Iraq, Egypt, Myanmar, Florida/South Dakota and Morgan Stanley ? Dysfunctional democracy!

While nation-states go through a lifecycle that has democracy thriving at one point and steadily degenerating at another, for investors dysfunctional is the only kind there is. Shareholder democracy is a sham even in those rare cases where measures are put to vote.

Take for example the recent 53% majority vote by shareholders of Morgan Stanley to have future grossly outrageous severance packages put to a shareholder vote. Morgan Stanley's stunning response - The board will take them into consideration. That's all we can tell you. That is some democracy. I am no seer, but I can tell you that the measure would be forgotten soon.

Most fund managers, probably the most overcompensated professionals, never put up a fight with companies they invest in. After all, they are playing with other people's money, and they are being paid enough to buy a new chalet every year. Why fix a good thing ? When on rare occasions funds do wake up, like this instance, companies just ignore shareholder sentiment. This is made easy as there are no SEC guidelines that require companies to submit to these measures.

For more on this, read David Weidner's piece at Marketwatch. If you are invested in Morgan Stanley, take a few minutes to call Investor Relations to let them know you are unhappy with the way things are going. You will be doing all shareholders a big service. Of course, unless IR gets tens of thousands of calls, it wouldn't even be noticed.

I had earlier made my own list of recent disappointments for shareholders.

On a slightly positive note, Coke's board will now get paid only if the company meets performance targets. What a concept! This is the first instance where a board is being held accountable, but hopefully won't be the last. Given the number of directors who seem to get a free ride, with most of them seemingly being paid for having a pulse with one foot in the grave, widespread adoption of such a performance-based pay will reduce the pool of available worthies to occupy boards. That should be better than the same members serving on dozens of boards.


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