Tuesday, April 06, 2010

Mae Kuykendall on No Confidence Voting and the Governance of Enterprises

Mae Kuykendall, Professor of Law at Michigan State University College of Law, will be guest blogging on an American academic law blog, the Conglomerate.  Professor Kuykendall is always worth reading, and her recent post, on aspects of the now potentially usefully transposable and relatively ancient device of no confidence voting, provides some substantial food for thought.  See Mae Kuykendall, Votes of No Confidence and Majority Voting for Directors, The Conglomerate, April 5, 2010.

She explains:
There are two primary reactions to involvement in a no confidence vote (discussed here) directed against a leader.  One is to never speak of it.  The other is to speak of it too much.  A better approach might be to follow the adage, "Never let a crisis go to waste," and undertake to raise the veil of mystery about an underanalyzed phenomenon, without dwelling on local details.  That would take a long time, since gathering information about the general phenomenon requires pulling a few people out of the sound-proofed structures they've built around their knowledge of a given case.  
Distaste for the vote of no confidence is fairly common.  In a university or nonprofit organization, fans of the corporate form cite the pleasant and predictable pattern of  authority, said to prevail in the corporation, as a better path.  The view partly rests on the notion of role differentiation, with a form near perfection in the corporation.  Workers work, managers manage, directors direct, and shareholders buy and sell shares.  If workers try to run the place by throwing out managers, they won't have time to work.  Workers should not interfere with managerial strategies developed to compete in the market; hence, university faculties should not have much power at all to govern, and certainly no credible say in dismissing a leader.  Further, if you like neatness, the corporate example is good at sweeping away ambiguity. Votes of no confidence lack a clear basis in the positive law of organizations (they are not in the bylaws) and they lack an assured result.  They are forms of moral suasion that partially mimic formal mechanics for constituting and dismissing a structure of authority.  Too messy for the corporate world, and thus too messy, period.
Let's think about the neatness of market discipline.  It seems easy enough to say that there is no such thing in the corporation as the vote of no confidence. Where employees are concerned, that's true enough.  The only cousin of the no confidence vote in corporate for-profit employment is the whistle blower.  Whistle blowing is not at all the same animal.  The key difference is that the whistle blower has nominal formal protection in statutes, but almost always winds up as the victim of an organization-imposed social death.  By contrast, when votes of no confidence succeed, an internal group achieves cohesion against a leader, who becomes a mirror image, at the top of the hierarchy, of the forlorn whistle blower.  Each--the whistle blower and the rejected leader--defies group opinion too openly and eventually pays.  So, employees in corporations simply do not do votes of no confidence.  Workers do not banish the CEO.  That part of the neatness story is true.
Until recently, that would seem to close the discussion about the neat lines of authority in the corporation.  But there are developments.  The development in the neat world of the corporation is the movement to require majority votes in election of directors.  A common form, which shows up in Senator Dodd's financial reform bill, requires that, in uncontested elections, a director must receive a majority of votes cast or else tender his/her resignation.  The board may reject the resignation but must disclose reasons for rejecting it.  The vote, as is said of votes of no confidence, does not create an automatic removal.  Rather, it places a burden on the board to act on the basis of supportable reasons, not merely assertion of formal authority.  A little messiness comes to the corporation. 

The messiness is altered through the adoption by corporations of procedures, but pressure on the board to dismiss directors who had run uncontested emerged as "just vote no" campaigns.  So the majority vote movement arose from improvisation by shareholder groups with a limited role in the formalistic organizational governance.  
Id.  Mass democracy as a legitimating mechanics of institutional organization continues to grow in strength.  The implications of mass democracy movements in public and economic enterprises find s expression in increasingly more interesting ways. Old hierarchical relationships are tested and at times inverted in a drive to preserve forms of institutional coherence and remap the division of control among critical institutional stakeholders.  That has been as true for corporations, as it has been for  the apparatus of states and the governments of civil society actors.    The growing ease with which governance techniques form the public sector can be transposed to the private sector and vice versa in this regard evidence the continuing weakening of what remains of conceptual walls between these formerly more precisely distinct forms of governance enterprises.  

Yet it does more than that.  Just beneath the surface, as Professor Kuykendall suggests, lurks the whistle blower.  A symbol of governance power, a technique suggested as a foundation for the monitoring and enforcement of internal corporate norms, is revealed here as a technique with substantially negative consequences.  Systems grounded in the cultivation of the whistle blower, from the Sarbanes-Oxley Act to transnational efforts to extract  disclosure through grievance and other whistle blowing related devices, ought to find in what Professor Kuykendall suggests, a caution. 

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