WishingWealth wrote:Aren't we a wee bit into obsession territory here? Or playing the devil advocate again?
At the danger of going off-topic (but when did that ever stop me ), let me give a few examples of what I had in mind.
Regulators established reserve requirements for banks that were totally inadequate (based on a misunderstandfing of VAR) or non-existent (some financial institutions, some new products). That facilitated excessive leverage by CEOs -- heads they won, tails, the shareholders lost. So far, who cares, except for the shareholders? But unfortunately all that risk-taking had very severe systemic effects when things unravelled, so the regulators should have cared as well. If the regulators had been on top of things, such extensive risk-taking wouldn't have been possible -- or, at any rate, it would have been more difficult -- helping the financial system and the shareholders, and, incidentally, limiting the CEOs' compensation.
Or consider deposit insurance in the U.S. Depositors were insulated from risk of loss, and so had little incentive to think about the business practices of the bank they placed their money in. As a result, such banks had one fewer restraint on the amount of risk they could take on. I believe that an effective regulator would have treated deposit insurance as just that -- insurance -- and charged banks premia that reflected the true risk of the insurance.
You have mentioned many times the lack of involvement of the investors/public at large in the governance question.
Yup. To my mind, it's the biggest single business issue facing our economy today. (If ever there was an internal contradiction in capitalism, it is separation of ownership and control, IMHO.)
Dunno what to do about it. Penalize inactive sharehoders, or at least large institutional investors who could certainly do much better? Find a set of incentives that would motivate more, and more effective shareholder activism? Get rid of securities laws that actively discourage shareholder activism? (I think the U.S. finally got rid of the one that deemed shareholders who were just talking to each other, fer chrissake, to be acting in concert, and so legally launching a take-over bid -- with all the requirements that entails. CEOs loved being able to block discussions among shareholders.)