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Shareholder Democracy Is No Demon

By Louis Lavelle

"STRONG ANTIDOTE." This reform almost certainly will make things better. Consider the issue of executive pay. When undeserving CEOs win outsize pay packages, the most that institutional shareholders can do now is to put a resolution on the proxy ballot that will likely be ignored, even if it wins a majority vote.

Consider the same scenario under a more democratic regime. Suddenly, institutional shareholders have a second, more powerful, tool in their arsenal. By running dissident director candidates against the compensation-committee members, investors could send a message that outrageous CEO pay will not be tolerated. Even if the shareholder nominees lose, the compensation-committee members might think twice next year before awarding another huge pay package. Says James E. Heard, CEO of Institutional Shareholder Services, a proxy-advisory service: "It would be a very strong antidote to bad board behavior."

If lack of accountability is the opponents' most specious argument, then their most creative must be the noti

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