Democracy: The Modern Idol

The Stimulus:

In a post ( http://www.icahnreport.com/report/2008/06/corporate-democ.html ) 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.

A Republic - If You Can Keep It

The Founding Fathers bequeathed to us a glorious Republic based on the inalienable rights of Man. We squandered that bequest long ago. How do we get it back?

The course of human events is moved by philosophy. When a rational philosophy (such as Aristotelianism) is dominant, freedom expands. When an irrational philosophy (such as Platonism) is dominant, freedom contracts. As an Objectivist, I am working toward the re-establishment of a dominant rational philosophy - namely, Objectivism. How long will this take?

In discussing this with me, a friend and fellow Objectivist wrote "when I think about how much effort is required to grasp Objectivism, I am less than confident about the future of our society."

I think that is the key. Objectivists sometimes talk about how quickly Marxism became a worldwide phenomenon. The implication being that Objectivism might duplicate that feat. But the point is, Marxism wasn't intellectual at all. It was just a call to rob the rich and give to the poor. "From each according to his ability, to each according to his need." That's all people took away from Marxism and that's why they - the poor, the lazy, the envious - flocked to its standard. And why they still do, under different names, like modern liberalism, environmentalism, compassionate conservatism, and the anything-goes catch all, "democracy."

Objectivism is exactly the opposite. People, if they understand it, are more likely to run away screaming, than flock to it. They don't want to have to think, they don't want to have to work, they don't want to have to be responsible for their own welfare. Establishing and maintaining a Republic is damned hard work. To quote Benjamin Franklin, in answer to someone who asked him what kind of government the Constitutional Convention of 1787 had come up with: "A Republic - if you can keep it."

We failed to keep it. We will have to duplicate the efforts of the Founding Fathers and their generation - the genuine "greatest generation" - to regain a Republic based on individual rights. It will not happen quickly, or easily. There is no royal road to a just society.