Wednesday, June 25, 2008

Democracy: The Modern Idol

The Stimulus:

In a post ( ) to his blog on June 18, Carl Icahn wrote about "the myth" of corporate democracy. He complains that "many corporate boards and managers are doing an abysmal job." He believes this is a result of poor corporate governance, and claims that "the average shareholder can do nothing about it." Further, "It is the board’s responsibility to hold a CEO accountable, and remove the CEO if he or she is not producing results," but this often does not happen, writes Icahn, because "boards are often too lazy and/or passive to rock the boat, especially since the company will continue to pay and pamper and even indemnify them under almost any circumstances."

"Worst of all," he writes, "the board itself is not made accountable because corporate board elections are generally a joke." This is because " . . . in corporate America there are no true elections. It is tyranny parading as democracy . . . Perhaps, with enough public support, the lawmakers and regulators will take note." (Emphasis added.)

Icahn also quoted Winston Churchill, implying that political governance and corporate governance are one and the same: "To paraphrase Winston Churchill, 'democracy might not be the greatest system there is but it is the greatest system mankind has invented so far.' "

And the Response:

In politics, democratic elections allow the citizens to choose representatives to run the day to day business of the government. What those representatives may do, however, is strictly limited by the US Constitution. We live in a Republic, not a Democracy. In a Democracy, a majority could vote to do anything under the sun. It is mob rule. In a Republic, the rights of the individual are protected from violation by majorities. Thank the Founding Fathers we live in a Republic, and not a Democracy.

A corporation, however, is not the same as a political government. It does not exist to protect individual rights. It exists to make a profit. It draws up a business plan to do so, and anyone who wants in can buy shares of the company's stock, assuming there are shares for sale, at a price they can afford. In buying the company's stock, the investor agrees to abide by the company's rules. Including any rules about electing boards of directors. There is no guarantee he will make money on his investment.

No doubt there are CEOs and boards of directors that do abysmal jobs. But Icahn's claim that the average shareholder can do nothing about it is not true. At the very least, if a shareholder does not like what the board or CEO are doing, he can sell his shares in the company. If he prefers not to sell, he can vote (either in person, or by proxy) for directors he thinks will do a better job. The fewer shares he has, the less voice he has in such elections. Which is what he agreed to when he bought the shares in the first place. That is contractual justice.

Evidently Icahn is not satisfied with contractual justice, but instead wants government interference in the economy, like any statist. Odd, for a man whose blog is headed by a statement about fighting tyranny.

It is not clear exactly what Icahn wants the government to do in this particular intervention. His statement that "in corporate America there are no true elections. It is tyranny parading as democracy," suggests that he doesn't like how boards are elected. If that is so, he should either not have bought stock in those companies in the first place, or he should sell his shares, or he should work, in accordance with the company's rules, to get the rules changed. The one thing he should not do is appeal to the government to interfere in a business enterprise. That is not within a government's rightful sphere of influence. It is a common tactic, though, of people who can't get what they want legitimately, to try to get it illegitimately - through the government.

At the end of his post on corporate democracy, Icahn wrote "I will discuss in future entries how simple it [removing terrible management] can be and what has constrained us from taking action." Perhaps in these future entries he will suggest legitimate ways, and leave the government out of the equation. Let us hope so, at any rate.

Saturday, June 14, 2008

Secretariat: A Hero of a Horse

In the late '60s and early '70s, America was embroiled in Vietnam and the Watergate scandal. Quoting Ayn Rand's paean to Apollo 11: "For thirty years or longer, the newspapers had featured nothing but disaster, catastrophes, betrayals, the shrinking stature of men, the sordid mess of a collapsing civilzation; their voice had become a long, sustained whine, the megaphone of failure . . . Now, for once, the newspapers were announcing a human achievement, were reporting on a human triumph, were reminding us that man still exists and functions as man," (from Apollo 11, in The Voice of Reason, page 167).

I was a seven year old child at the time of Apollo 11. It is still one of the earliest and fondest memories of my youth. A less pleasant memory was the televised hearings about the Watergate scandal, some years later.

Then, in 1973, along came Secretariat. I knew nothing of horse racing. I was unaware there hadn't been a Triple Crown winner in a quarter of a century. But there was a buzz about this horse that was impossible to ignore. In 1972 he had won "Horse of the Year" as a two year old, a highly unusual feat. As a three year old in 1973, he would be competing for the Triple Crown, awarded to a horse that wins the Kentucky Derby, the Preakness, and the Belmont Stakes.

And what a beautiful horse. Chestnut hued, dubbed Big Red, he was admired as often for his beauty as for his strength, speed, spirit, and endurance.

Secretariat won the Kentucky Derby and the Preakness by two or three lengths each. He would generally start slow out of the gate, and then blow past the other horses with a burst of speed that made it look like the other horses were standing still.

But the Belmont Stakes is the test of champions. It is longer than the other two legs of the Triple Crown, and calls for speed and endurance, as well as an intelligent strategy. Secretariat, as usual, was slow out of the gate. But he quickly recovered, and was galloping neck and neck with the leader, Sham, the horse that had come in second place in both the Kentucky Derby, and the Preakness. After jockeying back and forth for a while, Secretariat finally left Sham behind, and continued stretching his lead until, by the end of the race, he was fully 31 lengths ahead of the next horse- a feat immortalized in the photograph at the head of this post.

America had its first Triple Crown winner in a quarter of a century. Before the Belmont Stakes, Secretariat appeared on the cover of Time magazine, Newsweek, and Sports Illustrated, all in the same week. Everyone loved Secretariat. Once again, the media were filled with stories of a glorious achievement, pushing the doom and gloom stories off the front page, if only for a while.

Secretariat was the product of careful breeding, and was trained, groomed, managed, and ridden to be the best that he could be. He was a magnificent animal, and his greatness was guided and enhanced by human intelligence. We admired him for his achievements, his desire to excel, to be the "first among equals," to be the best.

No one ever suggested he should slow down so as not to embarass his brothers. We were free to admire his superiority over his peers. For those of us who love a hero, Secretariat was living proof that they could exist, and glory in their own existence.

Friday, June 13, 2008

Suicide by Environmentalism

Our dependence on Middle East oil is a common object of ridicule. The critics of this dependence are generally the same people who caused the dependence in the first place - environmentalists. They have placed so many areas of America off limits to drilling - ANWAR, coastal waters, etc. - that we are left with no choice but to import oil from elsewhere.

But logic was never a strong suit among environmentalists. Consider the recent vote to continue restrictions on off shore drilling. The Democrats trotted out one of their standard excuses for not allowing more drilling:

"We are kidding ourselves if we think we can drill our way out of these problems," said [House Appropriations Committee Chairman David Obey, D-Wis], noting that no matter how U.S. oil sources are pursued “we still have a tiny portion of the world (oil) supply.”

Suppose for a moment that everyone, everywhere, took that attitude. Then no one would ever drill for oil except Saudi Arabia, and everyone would be 100% dependent upon them for their oil. That is the "logic" underlying the Democrat/environmentalist restrictions on drilling for oil. By that twisted logic, Americans should never have extracted any oil in this country at all, since we were never going to have more than a small percentage of the world supply.

But even that is giving the Democrats too much credit. There are enormous amounts of oil available from oil shale in this country, over and above all the oil waiting to be tapped off shore.

But environmentalists would rather fantasize about alternative energy sources like wind and solar - when they are not obstructing even those sources of energy, as eyesores. Last I heard, no one is stopping them from developing those energy sources themselves.

The free market could provide us with all the energy we need. If we had a free market.

Saturday, June 7, 2008

Red Wings in Action

Just a few pictures of the current group of Red Wings on the ice, plus one of Vlad for auld lang syne . . .




Datsyuk and Zetterberg:


Vladimir Konstantinov, the warrior:

Friday, June 6, 2008

Detroit Red Wings

For the fourth time in the last eleven years, the Detroit Red Wings have won the Stanley Cup, awarded to the champion of the National Hockey League. Since 1990, when Sergei Fedorov joined a lineup that already included Steve Yzerman, the Red Wings have been among the most skilled teams in the NHL.

Although Fedorov is no longer a Red Wing, he is indicative of the success of the franchise. The draft that netted Feodorov for the Red Wings is one of the greatest drafts in NHL history. That same draft for the Red Wings included Center Mike Sillinger and Defenseman Bob Boughner, who both went on to solid NHL careers. It included Winger Dallas Drake, who started with the Red Wings, was traded, and finally returned to the Wings as a free agent this season. It included Vladimir Konstantinov, a magnificent Defenseman who helped the Wings win the Stanley Cup in 1997, alongside his defense partner, Nicklas Lidstrom, who was also part of that same 1989 draft. Lidstrom and Fedorov will be in the Hall of Fame. Konstantinov almost certainly would have been too, had his career not been cut short by a tragic car accident, right after the Wings won the Stanley Cup in 1997. Picking three Hall of Famers in one draft is a good way to rejuvenate a franchise.

Eventually the Wings added three more skilled Russians to their lineup: Slava Kozlov, a skilled young Winger; Slava Fetisov, an aging but skilled defenseman, and Center Igor Larionov, a puck control specialist, as so many Russians were. Coach Scotty Bowman put these five together as a unit, the Russian Five, and they were amazing to watch. They played the same puck control game of the old Soviet national teams.

Eventually, all five of the Russian Five were lost to the Wings, to free agency, retirement, or career ending injury. But the Wings continued to play a puck control, or puck possession game, unlike any other team in the NHL. Because the Wings were so consistently good, they always ended up in poor drafting position. They haven't had a top ten pick since about 1991. Normally they pick at the very bottom of the round, about 20th or lower. So they never have the opportunity to draft the "can't miss" prospects like the Crosby's, the Malkin's, the Ovechkin's, etc.

That doesn't mean they don't draft great players, however. They do. They just have to look harder and smarter to find them. But find them they do. Pavel Datsyuk, Henrik Zetterberg, Tomas Holmstrom, Johan Franzen, Valtteri Filppula, all selected in the third round or later, all star players in the NHL. Datsyuk and Zetterberg, in my opinion, are the two most complete forwards in the NHL. And Nicklas Lidstrom is the best defenseman.

There are now seven Swedes on the Red Wings roster, with more on the way. The Wings are a heavily European weighted team. This is one of the results of having to pick lower in the draft, when all the best North American prospects are already gone. But it is also a result of a deliberate policy of favoring skill over size, which is the opposite of how most teams draft.

The results speak for themselves. Four Stanley Cups in eleven years. People used to accuse the Wings of buying the Stanley Cup, since they had one of the highest payrolls in the league. But when the salary cap was put in place, and the Wings' payroll was cut in half, they continued to be the class of the NHL, consistently finishing first in their division, and advancing well into the playoffs. And now, winning the Stanley Cup again.

The Red Wings are the model franchise of the NHL.

Tuesday, June 3, 2008

The Volga Boatman

In her movie diary for 1926, Ayn Rand gave the Cecil B. De Mille silent movie The Volga Boatman a rating of 5+, the highest rating on her scale. The story is set during the Russian Revolution, and revolves around a love triangle. The woman is a Princess, who is loved by a Russian noble, and by a revolutionary leader. On that level, the plot is similar to AR's We the Living, and no doubt to many other novels.

As in We the Living, the revolutionary, named Feodor, is idealistic, although not nearly as intellectual as Andrei Taganov. The Russian noble, named Dmitri, is brave and arrogant, like Leo. The Princess, named Vera, does not resemble Kira particularly, but does have similarities with another Ayn Rand creation - Dominique Francon.

One scene that emphasizes this connection occurs near the beginning of the movie. Princess Vera hears some Volga boatmen singing as they pass near her home. The Volga boatmen are peasant laborers who pull boats against the current, up the Volga river, by means of ropes harnessed to their bodies. One of the singers in particular catches her ear, and she goes down with Dmitri to investigate who it is that sounds like "the soul of Russia."

So the wealthy young woman goes to look at the laborers, and sees the man she had heard singing, as he and the other boatmen are taking a rest break and a drink of water. She stares at the man, Feodor, in open admiration - and he stares right back, as openly as she. This recalled to my mind the scene in The Fountainhead in which Dominique went to her father's quarry and stared at Roark, who stopped working and stared back.

Then Dmitri intervened, and ended up giving Feodor two lashes across the face with his whip, leaving nasty cuts each time. Feodor took the blows without flinching. This too recalls the same sequence in The Fountainhead, although there it was Dominique who wielded the whip, and not a rival lover.

I don't know, of course, but it seems likely to me that AR wrote that scene as something of an homage to the similar scene in The Volga Boatman.

The movie itself claims to take no side in the conflict of the Russian Revolution, although it pretty clearly does favor the revolutionary side. Still, the heroes all run afoul of the revolution at one point or another.

I recommend the movie, which is available now on DVD.