Treasury to Take Hands-Off Approach as Shareholder

The Treasury Department intends to take a hands-off approach in exercising its rights as a shareholder in the numerous companies that have received taxpayer funded bailouts.

Although the Treasury holds large stakes in banks, car companies, and insurers, it intends to limit its involvement to “approving board members and major transactions,” Bloomberg News reported.

The decision is in keeping with the Obama administration’s repeatedly stated disinterest in managing the businesses that exchanged stock and other instruments for part of the $700 billion Troubled Asset Relief Program.

Critics of the program have feared that the government would use its leverage to micromanage large concerns such as General Motors Corp. and the American International Group Inc. Unlike some other countries that maintain government-owned industries or sovereign wealth funds, the United States has a long tradition of non-governmental involvement in business decision-making.

Nevertheless, Treasury has already come under criticism for imposing strict rules on executive compensation and dividend payments for bailed-out companies. An increasing number of large banks have since moved to leave the program in order to avoid government interference in their day-to-day operations.

The Treasury will formally announce its shareholder policy soon, Bloomberg reported, but officials have said that in most cases it will track its previously announced policy regarding its 34 percent share in Citigroup Inc.

The government has said it will only vote its interest in Citigroup in “the election or removal of directors, approval of mergers or consolidation, the sale of ’substantially all’ of the assets, dissolution, the issuance of securities or amendments to the bank’s charter or bylaws,” Bloomberg reported.

In the case of less critical or more controversial proxy matters such as environmental responsibility or unionization, the Treasury will “mirror” the votes of other shareholders and distribute them proportionately so as not to effect the outcome. This approach is sometimes used by brokers for large institutional investors who do not wish to get deeply involved in corporate governance.

Read more….