Now Is a Good Time for Corporate Despots in America

"Winston Churchill once quipped that "democracy is the worst form of government except for all those other forms that have been tried from time to time." What is true for countries is usually true for companies, too.

Except lately. Corporate dictatorships are in vogue. Companies where founder-chief executives hold on to special voting shares, such as Meta Platforms and Alphabet, or run boards as their own personal fief, such as Elon Musk's Tesla, are doing remarkably well.

One major stock market left behind by the dominance of the despots is London. Once a rival to New York, it has lost listings to the U.S., where founders can hang on to control using dual-class shares with extra votes, something hard to do in the U.K. Britain's tight rules on related-party transactions also put off owners -- such as SoftBank Group and Saudi Arabia -- whose flagship listed companies often deal with linked firms.

Now Britain is changing the rules to attract more would-be corporate dictators. Its financial regulator this month is ditching shareholder protections in an effort to attract IPOs back to the venerable London Stock Exchange.

The hope is that owners of companies will like London more if they can maintain control, while management will like London more if they don't forever have to ask pesky shareholders for permission for things.

The reality is that it probably won't make much difference to London anytime soon, since London's problems -- now that its wild politics have calmed down -- are mainly due to the lack of domestic investors in stocks. But the change demonstrates where power lies at the moment. Investors in the U.S. have been all too happy to buy companies where the founders have kept control, or act as if they did. Benign dictators are in fashion.

This isn't necessarily a challenge to Churchill's doctrine. True, it's much easier to get stuff done when you don't have to worry about re-election. But without democracy, leaders can't be chucked out when they stop being benign.

The history of corporate success fits this model perfectly. Founders who manage to create, expand and list a company are usually pretty good. It isn't surprising that shareholders like to give successful founders a free rein, avoiding all the usual corporate-governance restraints designed to prevent flights of fancy by a runaway CEO.

Founders also have skin in the game, in the form of a large part of their fortunes tied up in the stock, unlike the hired help who fill the C-suite at most big companies. Their flights of fancy might not always work out -- Alphabet's "moonshot" ventures have mostly lost money -- but are part of the point of investing with a founder promising growth.

The problems come later. Normally a CEO is constrained by the board, which is democratically elected by the shareholders. If the board doesn't keep the CEO in line -- classic mistakes include value-destroying takeovers and expensive new corporate HQs -- directors may be ousted.

In companies that give extra votes to the founder, it becomes hard or impossible to change the board, let alone kick out the CEO. And if flights of fancy get out of control, or if the CEO starts running the company for his or her own benefit rather than for shareholders more broadly, there is little investors can do other than sell -- as they did when Mark Zuckerberg, who controls Meta through special voting stock, pushed the company to spend billions of dollars on the "metaverse."

Academics study this by looking at cases in which both voting and nonvoting or lower-voting shares trade. For the first dozen or so years after an IPO, corporate democracies and dictatorships tend to trade in line.

After that, the benefits of a benign corporate dictatorship wane, and the shares that have full voting rights trade at a significant premium, according to a 2019 study of 920 companies by Hyunseob Kim of the Chicago Federal Reserve and Roni Michaely of the University of Hong Kong and the European Corporate Governance Institute.

This makes sense. The interests of founders and outside investors are aligned when a company is small and fast-growing, as both profit mainly from its growth. Once it is big and slow-growing, the founder has less of an incentive to promote growth, and more reason to try to extract the benefits of control, such as by setting pay or awarding contracts. Their interests are no longer aligned.

London's outright ban on dual-class stock has been tested by market forces and failed because companies simply listed elsewhere, usually on the Nasdaq. Britain will now have a corporate-governance regime that puts more onus on shareholders to protect themselves.

That is as it should be. But there are limits because so much money is passively run. Big pension funds in the U.K. liked the ban on dual-class shares and are now pushing index providers to tweak their rules to reduce index exposure to nonvoting shares.

"Active investors may be able to vote with their feet, but index investors are forced to buy the companies which are included in their index," said Caroline Escott, acting head of sustainable ownership at Railpen, which manages pensions for railroad workers.

The evidence from the U.S. is that once dual-class shares are in place, they're hard to get rid of. In-demand IPOs will still be able to set their own rules, and founders like to keep control. The longer that high-profile companies with dual-class shares prosper, the harder it is to resist the idea that it isn't a problem.

But dual-class shares will be a problem eventually. Shareholders need to worry about the founder's children, and their children, still being in control in a few decades. One idea would be to demand robust sunset clauses on founder voting stock at the IPO. Sure, let the founder keep control for many years. But not forever.

The U.K. has set its rules so institutional pre-IPO investors can't keep extra voting shares for more than 10 years after an IPO. The rules say nothing about founders, but might be a useful nudge to pension funds to insist on broader sunset clauses.

Democracy has drawbacks, but in the long run it is still the best we've got, for companies as well as countries." [1]

1. EXCHANGE --- Finance & Markets -- Streetwise: There Is a Time for Corporate Despots. Mackintosh, James.  Wall Street Journal, Eastern edition; New York, N.Y.. 20 July 2024: B.10.

JAV bando sustabdyti Rusiją nuo husių apginklavimo: o kaip su mintimi nustoti mėtyti akmenis, jei gyvenate stikliniame name?

 

 „JAV žvalgybos agentūros perspėja, kad Rusija gali apginkluoti husių kovotojus Jemene pažangiomis priešlaivinėmis raketomis, keršydama už Bideno administracijos paramą Ukrainos smūgiams Rusijos viduje JAV ginklais.

 

 Naujoji žvalgyba gauta, kai JAV vyriausiasis Artimųjų Rytų vadas neseniai įslaptintame laiške gynybos sekretoriui Lloydui Ostinui informavo, kad karinės operacijos regione nesugeba atgrasyti nuo husių atakų prieš laivininkystę Raudonojoje jūroje ir kad reikia platesnio požiūrio.

 

 Baltieji rūmai ėmėsi konfidencialių veiksmų, siekdami sutrukdyti Maskvai tiekti raketas Irano remiamiems hūsiams, kurie aštuonis mėnesius atakavo laivininkystę Raudonojoje jūroje, parodydami solidarumą su palestiniečiais Gazoje.

 

 Husių grėsmė buvo pabrėžta anksti penktadienį, kai ginkluotas bepilotis lėktuvas, kuris, pasak Izraelio kariuomenės, buvo paleistas iš Jemeno, smogė Tel Avivui – pirmajam sėkmingam šios kovotojų grupės taikiniui į miestą nuo Gazos Ruožo karo pradžios. Vienas žmogus žuvo, o keli buvo sužeisti per sprogimą, kuris nugriaudėjo bute prie JAV diplomatinio pastato, pranešė pareigūnai.

 

 Administracijos diplomatinės pastangos užkirsti kelią Maskvos raketų perdavimui Jemenui apima trečiosios šalies panaudojimą, siekiant įtikinti Rusijos prezidentą Vladimirą Putiną neprisidėti prie Irano, tiekiant ginklus husiams, sako JAV pareigūnai, kurie atsisakė identifikuoti šalį.

 

 Žvalgybos duomenys, kad Maskva, galbūt, planuoja teikti karinę paramą Jemene, ir JAV Centrinės vadovybės vadovo generolo Eriko Kurilla perspėjimai iškėlė klausimą, ar Baltieji rūmai daro pakankamai, kad sustabdytų atakas kritinėje šalyje prie vandens kelių.

 

 Administracijos pareigūnas sakė, kad Centrinės vadovybės buvo paprašyta parengti platesnį galimų taikinių, įskaitant konkrečius kovotojus, sąrašą galimiems smūgiams.

 

 Tačiau kai kurie JAV pareigūnai teigia, kad jau buvo galima nuveikti daugiau, kad būtų geriau apsaugota komercinė laivyba, įskaitant smogimą didesnėms ginklų saugykloms, taikymąsi į husių lyderius ir taikinius, kurių potencialių aukų skaičius yra šiek tiek didesnis.

 

 Maskvos sprendimas apginkluoti husius reikštų jos konfrontacijos su Vašingtonu eskalaciją, kuri daugiausia lėmė konfliktą Ukrainoje. Maskva jau sukėlė didelį susirūpinimą tarp JAV pareigūnų, sustiprindama ryšius su Šiaurės Korėja ir Iranu bei užsitikrinusi Kinijos pagalbą, stiprinant Rusijos gynybos pramonę.

 

 Kai kurie analitikai mano, kad rusai gali grasinti išsiųsti priešlaivines raketas, siekdami atgrasyti administraciją nuo papildomų veiksmų, padedančių Kijevui, pavyzdžiui, leisti Ukrainos pajėgoms panaudoti JAV tiekiamą armijos taktinių raketų sistemą arba ATACMS prieš aerodromus Rusijos teritorijoje.

 

 Kurilla savo laiške Ostinui paragino sustiprinti „visos vyriausybės“ pastangas prieš husius, naudojant ekonominį, diplomatinį ir potencialiai stipresnį karinį spaudimą, siekiant atgrasyti nuo atakų prieš laivus Raudonojoje jūroje ir siaurame sąsiauryje, vadinamame Bab el-Mandeb, prie Jemeno krantų, pranešė pareigūnai.

 

 Mažiausiai 30 laivų buvo apgadinti, du nuskendo.

 

 „Daugelis žmonių manė, kad atmintinės tonas šiek tiek šokiruoja“, – sakė gynybos pareigūnas. Jame iš esmės buvo sakoma, kad „JAV karo tarnybos nariai mirs, jei ir toliau eisime šiuo keliu“.

 

 Baltieji rūmai įgaliojo kariuomenę smogti husių raketoms ir bepiločiams orlaiviams, kurie netrukus bus paleisti, ir imtis kitų ribotų veiksmų, įskaitant septynias planuojamas karines operacijas.

 

 Antrasis gynybos pareigūnas, gynęs dabartinę politiką, sakė, kad JAV ir jos partneriai sunaikino „didelę dalį husių pajėgumų“, įskaitant šimtus raketų ir paleidimo įrenginių, šimtus atakos bepiločių orlaivių, dešimtis ginklų ir įrangos saugyklų, daugybę komandų. ir valdymo taikinius, oro gynybos sistemas, radarus ir kelis sraigtasparnius.

 

 Tačiau kai kurie Centrinės vadovybės pareigūnai teigia, kad jų pajėgos nesugebėjo sutrukdyti husiams reguliariai grasinti komercinei laivybai regione, nes jie neturėjo leidimo vykdyti platesnio spektro smūgius.

 

 Husių išpuoliai ir toliau trukdė laivybai, JAV ir jos sąjungininkės buvo surištos, o tai sužlugdė dešimtmečius trukusią karinio jūrų laivyno misiją išlaikyti atvirus svarbius jūrų kelius.

 

 „Jei liepsite kariuomenei atkurti laivybos laisvę, o paskui liepsite joms būti tik gynyboje, tai neveiks“, – sakė vienas JAV pareigūnas. „Visa tai susiję su laivų apsauga, nepažeidžiant pagrindinės priežasties“.

 

 Husiai turi įvairų ginklų, skirtų atakuoti laivus, arsenalą, įskaitant atakuojančius dronus, balistines raketas, sparnuotąsias raketas ir nepilotuojamus laivus. Buvo pateikta daug bepiločių orlaivių ir raketų iš Irano arba pradėta naudoti Teherano tiekiamas technologijas.

 

 Tačiau galimybė, kad Jemeno sukilėliai gali gauti pažangių Rusijos raketų, kelia naują pavojų.

 

 „Husiai turi stipriausius kovos su laivyba pajėgumus tarp Irano regioninio įgaliotojo tinklo“, – sakė Demokratijų gynybos fondo vyresnysis bendradarbis Behnamas Benas Taleblu. "Tačiau Rusijos priešlaiviniai ginklai būtų kokybinis šuolis ir padidintų esamą husių jūrų grėsmę." [1]

1. World News: U.S. Tries to Stop Russia From Arming Houthis. Gordon, Michael R; Seligman, Lara. 
Wall Street Journal, Eastern edition; New York, N.Y.. 20 July 2024: A.7.

U.S. Tries to Stop Russia From Arming Houthis: What about the idea to stop throwing stones if you are living in a glass house?

"WASHINGTON -- U.S. intelligence agencies are warning that Russia might arm Houthi militants in Yemen with advanced antiship missiles in retaliation for the Biden administration's support for Ukrainian strikes inside Russia with U.S. weapons.

The new intelligence comes as the top U.S. Middle East commander recently advised in a classified letter to Defense Secretary Lloyd Austin that military operations in the region are failing to deter Houthi attacks on shipping in the Red Sea and that a broader approach is needed, according to U.S. officials.

The White House has launched a confidential push to try to stop Moscow from delivering the missiles to the Iranian-backed Houthis, who have been attacking shipping in the Red Sea for eight months in a show of solidarity with Palestinians in Gaza.

The Houthi threat was highlighted early Friday when an armed drone that the Israeli military said was launched from Yemen struck Tel Aviv, the militant group's first successful targeting of the city since the start of the Gaza war. One person was killed and several were injured by the blast, which hit an apartment near a U.S. diplomatic building, officials said.

The administration's diplomatic effort to head off Moscow's transfer of missiles to Yemen involves using a third country to try to persuade Russian President Vladimir Putin not to join Iran in providing weapons to the Houthis, say U.S. officials, who declined to identify the country.

The combination of intelligence that Moscow might be planning to provide military support in Yemen and the warnings from Gen. Erik Kurilla, the head of U.S. Central Command, has raised the question of whether the White House is doing enough to halt the attacks in the critical waterways.

An administration official said Central Command has been asked to prepare a broader list of potential targets, including specific militants, for possible strikes.

Some U.S. officials say, however, that more could have already been done to better protect the commercial shipping, including hitting larger weapons-storage facilities, targeting Houthi leaders and picking targets with a somewhat higher potential casualty count.

A decision by Moscow to arm the Houthis would mark an escalation in its confrontation with Washington, which has been playing out mostly over the conflict in Ukraine. Moscow has already sparked deep concern among U.S. officials by solidifying ties with North Korea and Iran and securing China's help in strengthening the Russian defense industry.

Some analysts think Russians might be brandishing the threat of sending antiship missiles to discourage the administration from taking additional steps to assist Kyiv, such as authorizing Ukrainian forces to use U.S.-supplied Army Tactical Missile System, or ATACMS, weapons against airfields on Russian territory.

Kurilla called in his letter to Austin for a stepped-up "whole of government" effort against the Houthis, employing economic, diplomatic and potentially stronger military pressure to discourage attacks on ships in the Red Sea and a narrow strait known as Bab el-Mandeb, off Yemen's coast, officials said. 

At least 30 ships have been damaged, and two have sunk.

"Many people found the tone of the memo to be a bit shocking," a defense official said. It said essentially that "U.S. service members will die if we continue going this way."

The White House has authorized the military to conduct strikes against Houthi missiles and drones about to be launched and taken other limited steps, which have included seven planned military operations.

A second defense official who defended the current policy said that the U.S. and its partners have destroyed "a significant amount of Houthi capability," including hundreds of missiles and launchers, hundreds of attack drones, dozens of storage facilities for weapons and equipment, numerous command and control targets, air defense systems, radars and several helicopters.

But some Central Command officials say their forces have been unable to prevent the Houthis from regularly threatening commercial shipping in the region because they haven't had the approval to carry out a broader range of strikes.

The Houthi attacks have continued to disrupt shipping and keep the U.S. and its allies tied down, frustrating the Navy's decades-old mission of keeping open critical sea lanes.

"If you tell the military to re-establish freedom of navigation and then you tell them to only be defensive, it isn't going to work," said one U.S. official. "It is all about protecting ships without affecting the root cause."

The Houthis have a diverse arsenal of weapons to attack ships, including attack drones, ballistic missiles, cruise missiles and unmanned boats. Many of the drones and missiles have been provided by Iran or use technology supplied by Tehran.

But the possibility that the Yemeni rebels might receive advanced Russian missiles presents a new danger.

"The Houthis have the most robust antiship capabilities among Iran's regional proxy network," said Behnam Ben Taleblu, a senior fellow at the Foundation for Defense of Democracies think tank. "But Russian antiship weapons would represent a qualitative leap and add more teeth to the existing Houthi maritime threat."" [1] 

1. World News: U.S. Tries to Stop Russia From Arming Houthis. Gordon, Michael R; Seligman, Lara. 
Wall Street Journal, Eastern edition; New York, N.Y.. 20 July 2024: A.7.