PreCalculus

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http//isuffrage.org
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Capitalism Transformed

• Capitalism has been transformed over the last 100
  years. No longer are corporations owned by
  Morgans, Rockefellers and Carnegies ...

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Democracy of Capitalism

Today, corporations are owned by the masses
through

• mutual funds,
• pension plans
• direct stock holdings

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Its Broken ...

• Democracy of Capitalism is broken because
  individuals dont vote the shares they own.

• Rational apathy due to individual holdings being
  too fragmented.
• Institutional ownership prevents individuals from
  voting shares they beneficially own.

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Result Managerial Capitalism

• ... control may be held by the directors or
  titular managers who can employ the proxy
  machinery to become a self-perpetuating body,
  even though as a group they own but a small
  fraction of the stock outstanding.

Berle and Means, 1932
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Solution

• Put individual investors back in charge by
  implementing a non-profit, Global Proxy Exchange.

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Solution

• Unlike an exchange for trading stocks or futures,
  this will allow individuals to secure, transfer,
  aggregate and exercise proxy rights.

This includes proxy rights they hold

• Directly through stocks they own
• Indirectly through mutual funds, pension plans,
  etc.

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Imagine a Woman ...

• If her mutual fund company allowed her to
  transfer her voting rights to anyone she chose,
  how would capitalism be transformed?

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Transfer Proxy Rights to Whom?

• A charity,
• A professional association,
• Her union,
• Her investment club,
• A faith-based organization,
• Her uncle Howard,

• The woman could transfer her rights to

... Anyone willing to accept them.
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Transferring Rights

• The proxy exchange is accessed through a secure
  website.
• The woman has an account already established for
  her by her mutual fund company.
• The fund company has deposited her rights into
  the account.
• With a click of the mouse, she can transfer all
  current and future rights to whomever she
  chooses.

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Different Sets of Screens Offer Various Options

• The exchange website offers various options

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Different Sets of Screens Offer Various Options

• Basic screens allow the woman to transfer all
  her rights to another party.
• Intermediate screens offer other optionssay to
  transfer rights to two or more parties.
• Advanced screens allow her to vote her shares
  herself through the exchange.

Most individual investors will use the basic
screens and transfer all their rights to a single
party.
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Example

• Suppose the woman uses the simple set of screens
  and transfers all her rights to a charity
  involved in childrens issues.

What will the charity do with the rights?
Charity
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What Will the Charity Do?

• The charity is in the same position as the woman

• It has an account on the exchange
• Voting rights are being deposited into it from
  the woman, and from other investors.

Charity
Other Investors
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The Charity has the Same Options as the Woman

• The charity can use the same basic, intermediate
  or advanced screens to
• Transfer the rights on to another party it trusts
• Directly vote the shares itself
• Vote some shares and transfer the rest

Charity
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Proxy Exchange In Action
Woman
Union
VOTE
Shareholder Activist
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Four Categories of Participantsin the Exchange

• Assigners anyoneprimarily financial
  institutions or institutional investorswho
  assigns proxy rights to the exchange
• Beneficiaries the beneficial ownersprimarily
  individual investorson whose behalf those proxy
  rights are assigned to the exchange
• Aggregators anyone willing to accept voting
  rights from beneficiaries or other aggregators
• Voters parties who ultimately make voting
  decisions

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The Categories Overlap Example

• Suppose a woman and her father are both investors
  in a mutual fund.
• The fund assigns its proxy rights to the
  exchange, identifying the woman and her father
  (along with its other investors) as the
  beneficial owners.
• The father transfers his rights to the woman.
• She transfers their combined rights to a charity,
  which votes the shares.

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The Categories Overlap Example

• In this example

• the mutual fund is an assigner
• the father is a beneficiary
• the woman is both a beneficiary and an aggregator
  
• The charity is an aggregator and a voter

The Roles Overlap
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Can Shareholders Appoint Any Proxy They Like?

• Shareholders have a legal right to appoint a
  proxy to vote shares and otherwise act on their
  behalf.
• They can dictate how a proxy is to act, or they
  can leave that decision to the proxy.
• Today, the only viable proxy most individual
  investors can appoint is management.
• The notion that shareholders can select their own
  proxy resembles Henry Fords comment that people
  can buy any color automobile they wantso long as
  it is black.

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Proxy Fights Offer One Alternative

• In rare circumstances, a proxy fight arise in
  which a competing group sends out a mailing to
  shareholders soliciting a grant of proxy rights.
• That situation is akin to offering automobiles
  that are either black or gray.

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A Proxy Exchange Offers Choices

• A proxy exchange will allow shareholders to
  select anyone they like to exercise their voting
  rights.

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Legal Issues

• A proxy exchange can be launchedunder existing
  laws.
• There are no legal or regulatory obstacles in
  the United States.
• Other Common Law jurisdictions are similar.
• From a legal standpoint, a proxy exchange is a
  simple entity.
• To understand why, we have to perceive the proxy
  exchange in a different way

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The Exchange Will Serve As Everyones Proxy

• Legally, the proxy exchange will serve as the
  proxy for everyone.

• It will hold all proxy rights.
• It will exercise those proxy rights according to
  the instructions of beneficiaries.

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The Exchange Will Serve As Everyones Proxy

• If a beneficiary chooses to vote her own shares,
  the exchange will vote the shares according to
  her instructions.
• If she transfers rights to an aggregator, the
  transaction will legally be her instructing the
  exchange to exercise the proxy rights on her
  behalf according to the aggregator's instructions.

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Distinction

• Proxy rights are common law rights.
• They are granted to the exchange by assigners.
• The exchange exercises them according to the
  instructions of beneficiaries.

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Distinction

• Exchange rights are contractual rights.
• They are rights to instruct the exchange on how
  to exercise the underlying proxy rights.
• They are granted to beneficiaries by the exchange
  on the instructions of assigners.
• Exchange rights may be transferred to and among
  aggregators.

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A Proxy Exchange In Action
Assigners
Corporations
Proxy Rights
Decisions
Proxy Exchange
Exchange Rights
Decisions
Beneficiaries
Voters
Exchange Rights
Exchange Rights
Aggregators
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Adam SmithDisliked Corporations
Adam Smith commented on managers of corporations
... being the managers rather of other peoples
money than of their own, it cannot well be
expected, that they should watch over it with the
same anxious vigilance with which the partners of
a private copartnery frequently watch over their
own ...
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Agency Costs

• Agency theory tells us that board members,
  managers, and aggregators will make the personal
  commitment their roles require if they get
  something in return.

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Agency Costs

• Is there any real difference between
• a board member who acts generally for the
  financial benefit of shareholders so he can
  pursue his own agenda of securing perks for
  himself, and
• a board member who acts generally for the
  financial benefit of shareholders so he can
  pursue his own agenda of getting corporate money
  out of politics?

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Competition Among Aggregators

• A proxy exchange will attract numerous
  aggregators who will compete for beneficiaries
  voting rights based on

• Quality their perceived ability to maximize
  shareholder value, and
• Price the perceived magnitude and nature of
  their agency costs.

Investment Advisor
Charity
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A New Market for Corporate Control

• A proxy exchange will be a new market for
  corporate control.

• More efficient and less costly than hostile
  takeovers or traditional proxy fights.
• Will minimize agency costs,
• Maximize shareholder value, and
• Advance social agendas that have broad support
  among shareholders.

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http//isuffrage.org/
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