Wednesday, May 16, 2012

Wall Street Journal Defends Hired WellPoint Executives' Lack of Accountability to the Company's Owners

The lack of accountability of the hired managers (or executives or bureaucrats) of health care organizations came into sharper focus thanks to a bizarre, in my humble opinion, Wall Street Journal editorial from last week. 

Background: Shareholder Campaign for Oversight of Hired Executives Use of Corporate Money for Political Purposes

In the background is the campaign by some of the owners, that is, shareholders of giant publicly held for-profit insurance company WellPoint to make its executives' attempts to involve the company in politics more transparent and accountable.  (See our previous post here.)  As noted more recently in Fortune (by way of CNN),
shareholders and major U.S. companies have been meeting behind the scenes to discuss improvements in oversight and disclosure practices. 'Companies need to remember that shareholders have a right to know how their money is being spent,' wrote Eric Sumberg, spokesperson for New York State Comptroller Thomas P. DiNapoli, representing the New York State pension fund, in an email. 'Transparency and full disclosure will help to deter high risk political spending that could hurt shareholder value.'

Aetna and WellPoint are two companies contending with shareholder proposals on political spending disclosure this year.

The Center for Public Accountability (CPA) rates the disclosures at Aetna and WellPoint as having 'room for improvement.' Both WellPoint and Aetna have disclosure practices that 'leave significant room for serious misrepresentation of the company's political spending through trade associations,' according to the Center's Political Accountability and Transparency Reports. According to the Center reports, both companies gave money to AHIP (American Health Insurance Plans). And $86 million in funds from AHIP were allegedly funneled to the Chamber of Commerce to lobby against health care reform, according to reports from Bloomberg and the National Journal.

Note that this money was supposedly used by WellPoint executives to undermine the Obama administration's health care reform proposals while the company was publicly supporting aspects of these proposals.

The Wall Street Journal Says Hired Executives Not Accountable to Shareholders

The Wall Street Journal's editorial page's denunciation of this campaign by corporate owners to assert their rights, and the accountability of hired managers opened thus,
The campaign to intimidate companies from exercising their free-speech rights is in high gear as shareholder proxy season arrives, and the most prominent early target is health-insurer WellPoint. The arc of this attack will be one of the election year's political leitmotifs, and it should be on the radar of every corporate boardroom.

In the favored new tactic of the left, unions and activists are using politicized shareholder resolutions to send a message to corporations: Drop support for free-market and conservative causes, or you'll take a political beating.
The Journal conveniently ignored that the campaign is not from outside the corporation, but from its very owners, and that the people they are supposedly trying to intimidate are actually supposed to be responsible to them.  In addition, it begged the question of how political spending by hired corporate bureaucrats unaccountable to the people who own the company could possible have anything to do with free markets.

If some owners do not think that executives should be spending company money on political causes (especially presumably causes that the executives favor, or that reflect the executives' self-interest), they have a perfect right to think so, and to act on their thoughts.

Then the  Journal went on to assail the shareholders' challenge to some members of the WellPoint board of directors.  After first defining Change to Win as a "union front group," -
Change to Win is now targeting WellPoint's annual meeting on May 16 when it will demand that shareholders vote against board members Julie Hill and Susan Bayh (wife of former Indiana Democratic Senator Evan Bayh) because the company has refused to disclose or stop all of its political spending. Among the company's crimes? Corporate funding of, you guessed it, ALEC.
Now let us back up a minute. This is about a campaign by stockholders, that is, people who are owners, albeit fractional owners of WellPoint. It is some shareholders who want to vote against the particular board members.  WellPoint directors are supposed to have a fiduciary duty to represent the stockholders', that is, the owners' financial interests. If stockholders think members of the board of directors are not representing the stockholders' interests, the stockholders have a perfect right to vote against them. 

However, the Journal fulminated,
The union attack on WellPoint is notable for targeting two board members by name and the effort to make extra hay out of Susan Bayh's political profile. (Added frisson: Evan Bayh has worked as a consultant to the Chamber.) The ad hominem attack is right out of the Saul Alinsky playbook and is intended as a warning to other corporate directors that their personal reputation will be damaged if they don't force companies to stop donating to industry groups.

Note further that all stockholders are owners, whether they are also union members, or have green hair. Note further that the owners again have a perfect right to criticize or vote against board members who they believe are not properly exercising their fiduciary responsibilities to stockholders, that doing so has nothing to do with the ad hominem fallacy, and that this right is not nullified for stockholders with particular political opinions, or stockholders whom the Wall Street Journal does not like.


So we see the Wall Street Journal, supposed defender of capitalism, attacking a fundamental part of capitalism, the right of ownership, corporate ownership in this case. Instead, presumably, the Journal editorialists thinks that hired corporate executives ought to be completely unaccountable to the stockholders, and able to do whatever they want, including to do what is in their self-interest but not the owners' interests.

So this is how far the coup d'etat by hired executives/ managers/ bureaucrats has progressed. Supposed defenders of capitalism are now defending the rule of hired corporate insiders, completely disregarding the rights of owners. All we are lacking is a catchy name for rule by the hired managers/ bureaucrats/ executives. I am open to suggestions.

We have long criticized leaders of health care organizations who are ill-informed, unaware or hostile to health care professionals' core values, self-interested, or even corrupt.  We have discussed how bad leadership has advanced as leaders have become less accountable.  It appears that the lack of accountability of health care leaders, and their tendencies to put their own interests first, is part of a larger problem.  This is the take-over by most of society's important organizations by the managers, bureaucrats, and executives who were hired to run them.  For profit corporate hired leaders have become unaccountable to the corporations' owners.  Non-profit organizations' hired leaders have become unaccountable for the mission, or for their organizations' stakeholders. 

If we want health care, and democratic society to survive, we need to counter the managers' coup d'etat and make leaders accountable once again. 

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