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Wed Jul 18, 2012, 06:11 PM

Romney Says Shareholders Have No Influence Over Corporations. Where Are Our Conservative Economists?


So, Romney is alleging that he is a super-capitalist who owned 100 percent of a company -- and had no influence over it whatsoever.

Conservative economic guru Milton Friedman must be spinning in his grave.

Friedman -- and conservative economists generally -- believe that it is the role of the shareholder, not government, to oversee business to reach optimal results -- both economically and socially. It is the shareholder, they argue, who holds corporate management accountable to achieve this goal. It is the shareholder who has the opportunity to do the right thing -- as the shareholders define it.

Obviously, Romney claiming no influence over corporate policy when he is the sole owner of the corporation runs directly counter to this conservative economic commandment.

So much for conservative economic principle. On the practical side, the situation is even more ridiculous.

Every CEO knows that he has to please his shareholders. One can argue what this means in a large, publicly-traded corporation. But when one shareholder owns 100 percent of the corporation, guess what: management will check with that shareholder on every major corporate decision to assure that that shareholder is happy.

More: http://www.huffingtonpost.com/mitch-rofsky/mitt-romney-bain-capital_b_1681795.html

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Reply Romney Says Shareholders Have No Influence Over Corporations. Where Are Our Conservative Economists? (Original post)
maddezmom Jul 2012 OP
madashelltoo Jul 2012 #1
Igel Jul 2012 #2

Response to maddezmom (Original post)

Wed Jul 18, 2012, 06:38 PM

1. Robme is delirious . . . plain and simple

Tell a lie someone can believe. Is it too much sun, too many family members at your heels, Robme? As parents, we understand a good nervous breakdown. Get some help. Take a break from everything and everybody. Stop pretending and you will feel much better.

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Response to maddezmom (Original post)

Wed Jul 18, 2012, 08:41 PM

2. Sure.

But Friedman knows this is mediated by the board of directors.

Shareholders have to hold the board responsible, but the board has its own fiduciary responsibility. Just as elected reps don't mindlessly vote majority opinion, there are times when a responsible director will vote contrary to the shareholder opinion even if it costs him his spot on the board.

Boards can exert tight control over a CEO, but good boards don't. Good boards set policy to guide the CEO, basically defining what the phrase "optimal results" means. That can mean running the company into the ground for social reasons, or destroying the union and communities by maximizing short-term profit at the expense of all else. Friedman would consider both to be bad.

Bain is even more diffuse than most, because the board would literally set policy for Bain Investment but wouldn't be able to neatly set policy that the managing directors on the board of companies Bain held. They'd have a lot of freedom to run the companies in order to achieve Bain's goals. If Romney wasn't actively functioning as CEO, then he'd interact as the president of the board (and appointer of any other board members) in advising the management committee and setting high-level policy.

I can't imagine a company in 2000 or 2001 would have a policy of "no offshoring." It was a really common practice, one that increased greatly for the next few years, and a response to overseas production costs and competition, as well as domestic competition. The way I see it, Americans would have still bought "made in China". The only question would be if the goods were made in China by a US company that ultimately paid US taxes and had some US workers or a Chinese company that only paid Chinese taxes and only employed Chinese workers.

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