[Election-Methods] thoughts on delegatable proxy and it's application to share corporations

[Abd ul-Rahman Lomax]

At 10:48 AM 7/27/2007, greg wolfe wrote:
>When you own shares through a mutual fund you have essentially
>assigned your proxies to the mutual fund's management.  You
>get no say in how they are voted.  For example, if you invest in
>a socially responsible index fund through a mutual fund company
>such as Vanguard, your proxies WILL NOT be voted in the way that
>is recommended by the producer of the socially responsible index.
>Instead they are voted with the rest of the Vanguard owned shares
>in whichever way Vanguard considers to be in their interests.

I'm not familiar with the mutual fund rules. In a mutual fund, 
managers invest the funds in many other companies. The mutual fund 
holds the voting rights on those shares, and they do not pass them 
along. I wan't writing at all about situations like this. Mutual 
funds are quite a different animal, I think.

Now, it's possible to have a corporation with standard proxy 
structure and rules which also invests in the shares of other 
corporations. But this is not what mutual funds to, it looks like. It 
is more like they are a kind of bank, you have an account with them, 
and you don't get a vote. Unless it's a coop bank....

>In some ways this distortion is a positive effect since as unorganized
>uneducated-about-the-issues individual small share holders, stock
>owners tend to not exercise their vote or proxy in a responsible manner.

My point, actually. They often just sign those proxies, thus making 
it extremely difficult for reform shareholders to get any traction.

>Mutual fund companies aggregate enough power that they exercise their
>proxies in an educated manner which they presumably vote in what they
>perceive as their shareholder's aggregate interests.

I really have little opinion about it. A mutual fund could be 
organized democratically, but it's not surprising if they are not. 
(If it were, and you held shares in the mutual fund, you would get a 
proxy notice, and you could attend the annual meeting yourself and 
vote for the directors -- who choose the managers. Or you could name 
a proxy. But that is not the only way to organize a business, for sure.

My point is not that proxy democracy, as practiced in corporations, 
is ideal. It is that proxy democracy is not a new invention, it is 
quite old. So that it is missed by political scientists is 
remarkable. In the books I've been looking at, it is not even 
mentioned as a possibility, and, as a result, some of the knotty 
problems of scale seem to have no solution, we might as well make the 
best of it, is pretty much the conclusion...

> >There is a solution, indeed, and it is FA/DP organization of the
> >shareholders.... Cheap, very cheap and simple, easy, and I expect, it
> >would be highly effective. But it won't happen until people, in
> >general, figure out how disempowered they are by not being organized
> >for collective action.
>This is a very interesting idea to me.  Such an organization ought to
>be aware of who shareholders are and how many shares they own in
>a verifiable way.

Well, as an FA it doesn't need to nail this down. However, this is a 
huge subject. Basically, DP should make a good control system, but 
then you have a lot of issues with security and so forth... The Free 
Association approach avoids all this. Basically, the FA isn't going 
to act. The members are, and the members form caucuses, if nothing 
else simply the constituents of a single proxy. These caucuses, 
internally, validate memberships, and they would recommend to clients 
a proxy to name, the actual corporate proxy, who might or might not 
be the proxy within the organization, it might even be someone from 
one of the firms that makes a business of this.

The real point of FA/DP is the communication network it sets up. Yes, 
if someone wants to know who is real and who is blowing smoke, they 
can do that. But it does not have to be a central function. It can be 
decentralized.

FA/DP organizations will work this out as they go. By not collecting 
power, there is not a lot invested in the FA, and it can make lots of 
mistakes. But, by its nature, it will learn from those mistakes.

But mostly this is theory. I have experience with many of the pieces, 
but not the whole animal, it hasn't been done anywhere. Demoex was 
*not* a Free Association, it was a majoritarian power tool, and it 
subverted a fundamental principle of democratic assembly, which is 
the free debate on the Council. What's the use of debating if you are 
going to vote how someone else told you to vote?

If Demoex had refrained from making itself opponents of the status 
quo, they could have accomplished a lot more, in my opinion.

But DP should be quite good for political parties. I'm just looking 
beyond that communications structure at some of the factors that 
shape communications and which, if the hazards aren't realized and 
avoided, frequently torpedo reform efforts, or, worse, the efforts 
succeed, and bring something as bad or worse than what was there before.

>   Ideally mutual fund companies would allow indirect
>shareholders to vote-through their interests.   Ideally there would be a
>means for shareholders to communicate with each other and possibly
>contact shareholders who were not already engaged in the company
>FA/DP.

I somewhat disagree. You see, I've become suspicious of directed 
voting. Rather, the model I'd encourage is that a mutual fund 
companies would be democratically controlled. As a shareholder, you 
vote for the board, which hires the managers. You can advise the 
board. You have the power to remove the board. But, to my mind, it is 
not proper to *control* the board, certainly not in details.

There is a lot of precedent for this, the AA General Conference 
elects the AAWS board. But Conference votes on issues are only 
advisory. By tradition, the board will respect a Conference 
consensus, usually defined as a 2/3 vote, but the board has different 
responsibilities; among other things, it is essentially the agent of 
the state, charged with certain legal responsibilities. The way AA is 
set up, if the delegates really thought that the board had gone 
astray, they could easily cut off nearly all the funding.

It's a pretty libertarian model, relationships are free and not 
coercive. If it's my property -- these shares in the corporation -- I 
do have certain rights, and voting is among these. But voting in the 
immediate organization. Voting through means that shareholders who 
have no direct interest would be controlling votes. I don't think it 
is structurally sound. However, shareholders certainly could suggest 
policy to the board, and a board which really ignored the 
shareholders could be removed quite easily.

If the shareholders have a means of communication. FA/DP should be 
cheap and impose very low burdens, that is how it is designed, it 
distributes the communication load. So....

we'll see.

>Does there already exist any systematic share holder organization
>outside of the companies themselves?  I have not heard of any.

Right. It is what is missing.

One of the new ideas with FA/DP is rigorously separating property and 
power from intelligence. The company holds the property, ultimately 
it is the property, collectively, of the shareholders, and there is a 
control structure that manages the company. But the FA is simply 
about intelligence. It does not need much property. A shareholder FA 
might hire accountants and so it would need to collect funds for 
this. But it need not, and it should not, set up some new structure 
to waste more money, and to become a new conservative self-protective 
organization, and that is what formal organizations typically do, 
especially when they gain staff. Staff wants things to go on the ways 
that benefit staff.... I've seen it far too many times, particular in 
organizations that started out with volunteers. And then they get 
grants and staff and pretty soon the board is running around trying 
to keep the staff happy, and no way could they go back to volunteers 
and the whole original enthusiasm is gone, and it becomes an 
*institution*, sometimes in more ways than one, I've seen a nonprofit 
start to issue paychecks that it held, collecting the matching funds, 
and getting further and further behind..... Nobody was getting rich, 
nobody was absconding with funds. But it was highly illegal.

>What I have heard of has always aggregated through the ownership
>structure itself.  Eg. Shareholders who were interested in a particular
>agenda would purchase their shares through a social index fund that
>promised to engage companies along that agenda.  It would be
>interesting if the intelligence about companies was organized
>outside of the official structures established by the companies.

Of course. *Intelligence must be independent.* That's why it's so 
dangerous to mix it with control. It blinds it. The big problem with 
politics is that the people aren't organized. But, one might think, 
isn't that what the government is?

In a way. But governments and sovereigns in general are coercive. 
It's arguably necessary. But it's fatal to intelligence, or, more 
accurately, it stunts it. The people can control the government 
*easily* if the people were independently organized. Lots of people 
have figure out that the problem is that the people aren't organized. 
Problem is, they then simply try to organize the people in the same 
old, same old ways. Centralized power structures. Let's collect a lot 
of money and spend it in campaigns to convince people to ... what?

How is it decided? Look at so many "democratic reform movements." 
Practically none of them are democratic! They are oligarchies. Which, 
again, is one way of doing things. Good if you have a small core 
group and what you want to do is realize the goals of that group. But 
if what you want to do is to create means for the intelligence of the 
people to be realized, that's not going to cut it.

Still, FAs can and do create what Bill Wilson called "service boards 
and committees directly responsible to thoe they serve." Actually, 
the complete Tradition begins, "AA as such ought never be organized, 
but we may create service boards, [etc.]"

FA/DP uses the old systems, it does not seek to tear them down. It 
simply adds a very light, low-overhead communications structure that 
can organize consensus, rapidly, when needed.

>In short: A share weighted FA/DP about a company could be very useful:
>* in discovering what changes owners are interested in supporting
>* in leading to reforms where indirect owners can choose to
>participate in company management as if they were direct owners
>* in allowing more effective communication between share owners
>* in helping people discover who they wish to assign their actual
>share proxies to

What I'd see being done is an FA/DP, and the membership list would 
have a voluntary list of number of shares held. There would also be 
fields for validation. But the proof is in the pudding. If a caucus 
recommends that clients provide their corporate proxies to so-and-so, 
how many proxies actually show up?

What we will see is posturing, where someone who holds relatively few 
shares pretends to hold many, in order to fool others into thinking 
that their position or view is powerful, might as well go along with 
the program. But I don't think schemes like that will be particularly 
successful. The proxy structure organizes people without dependence, 
or not much dependence, on a central structure. Someone trying to 
take over the central structure will just end up with a mouthful of 
hair. The power is not in the center, in an FA it remains firmly with 
the members.