We got a hint of it when the government ousted Ken Lewis as chairman of Bank of America; it became more obvious with the decisions of pay czar Kenneth Feinberg. And then of course there’s the revolving door into the corner office at AIG. But the defenestration of Fritz Henderson makes it clear if there was any doubt: Barack Obama is the most powerful and effective activist shareholder that this country has seen in a very long time.
Needless to say, this is not common when it comes to state-owned companies, which often amble aimlessly in random directions for decades. The Obama administration, by contrast, has clearly made a decision to err on the side of action and decisiveness, and to fire any CEO who isn’t showing (as opposed to promising) results. Good for them: would that America’s institutional investors followed suit.
That said, it’s easier for the government to behave like this than it is for most shareholders. If Ed Whiteacre wants to know what GM’s majority shareholder would like him to do, all he needs to do is pick up the phone and ask. At most companies, by contrast, the communication between the board and the shareholders they work for is distant and strained and largely filtered by management. Maybe the trick, when it comes to improving corporate governance, is to improve communication between shareholders and directors. Any bright ideas on that front?
At the same time, this development proves that the dream of the bank-nationalization crowd — the idea that the government could take ownership but have little if any control over management — was never going to happen. When this government takes over a company it does so with both hands: there’s nothing arm’s-length about it. And I’m happy about that: owners should take responsibility for maintaining their property.