Drawing Business by Empowering Shareholders

This month North Dakota Governor John Hoeven signed a new law granting shareholders greater power over companies that incorporate in the state after July 1. Among other things, the measure gives shareholders an advisory vote on executive pay.

I note with mild dismay that the author of the new law is William Clark, a Philadelphia lawyer who represents activist investors interested in creating such laws [Martha Graybow, "Delaware Beware: North Dakota Wants Your Business," Reuters online, 2007.04.25]. As I have mentioned elsewhere, I prefer to see the citizens of a community (town, county, state) coming up with their own laws with a minimum of outside influence.

Nonetheless, North Dakota's legislature and executive have looked this proposal over and decided it makes good policy. The Economist agrees the move could boost North Dakota's economy, although many corporations may resist efforts by shareholders to win more power by reincorporating in America's favorite tundra, and if the plan starts to work, Delaware will surely fight to retain as much its corner on the legal incorporation market as it can ["Anywhere but Delaware," Economist.com, 2007.04.17].

Whether it will work or not, this effort by North Dakota to draw business and bucks is notable because it seeks to promote economic development by empowering not the businesses but the people -- at least some of the people -- the business serves. I'm not ready to characterize the law as a sign of popoluism run rampant among our neighbors to the north, but it does spread power, at least a little, from the board room to the stockholders and open an avenue for greater corporate accountability. If the corporate executives and the majority of stockholders are all greedy and contemptuous of the public (like the Enron bosses), then employees and customers are still up a creek. But long-term shareholders interested in seeing their company grow sustainably and honestly will have a better shot at keeping their CEOs from raiding the company coffers and violating the public trust inherent in every corporate charter.