Dr.Wisser

New Public Management and Principals’ Roles in Organizational Governance: What Can a Corporate Issue Tell us About Public Sector Management?

Hindy Lauer Schachter

Published online: 26 July 2013 # Springer Science+Business Media New York 2013

Abstract The article analyzes debates between institutional investors and corporate management as a way of investigating accountability issues in organizations with dispersed principals. By exploring issues at stake in entrepreneurial management in any organization with multiple owner/principals, the narrative adds to the critique of public-sector entrepreneurial management from an unusual vantage point.

Keywords New public management . Organizational governance . Proxy access .

Accountability

This article offers a critique of public sector entrepreneurial management by analyzing how the debate over proxy access, a corporate governance issue, relates to questions of accountability and control that interest any organization with multiple dispersed princi- pals. The article uses a private sector issue—the debate over whether shareholders should have the right to place their director nominees on a company’s proxy card—as a way of critiquing a change in the meaning of public sector accountability inherent in New Public Management’s (NPM) call for less politics and more entrepreneurship in public sector management. Analysis of proxy access battles after the 2008 economic downturn sheds new light on accountability issues at stake in entrepreneurial manage- ment in any organization with multiple dispersed owners/principals, whether they be citizens or shareholders. While many public administration writers have used business management trends to suggest proper public sector behavior, this piece on proxy access may well be the first article to look at how shareholder campaigns facilitate understand- ing the participation needs of citizens.

At least since the start of the twentieth century, public and private sector relationships have proved important public administration topics. Progressive era writers often pushed governments to enlarge public sector responsibilities. In the 1970s, political scientist Graham Allison (1987, 525) concluded that “the notion that there is any

Public Organiz Rev (2014) 14:517–531 DOI 10.1007/s11115-013-0242-y

H. L. Schachter (*) New Jersey Institute of Technology, Newark, NJ 07102, USA e-mail: [email protected]

significant body of private management practices…that can be transferred directly to public management tasks in a way that produces significant improvements is wrong.” But starting in the early 1990s, New Public Management advocated that private practice could be a model for government. As Du Gay (2000, 94) notes, NPM “seemed unable to imagine that business management and public administration could not easily be made to be identical in every respect.”

NPM promoted two ways to transfer business practices to governmental functions. One path of change involved shifting which sector handled a given function. Proponents asked: Which tasks currently conceptualized and implemented by gov- ernment agencies should remain public responsibilities? Which should non-profit organizations implement? Here, Osborne and Gaebler (1992) gave the by now oft- quoted response that public administrators should steer rather than row, meaning that governments should transfer much programmatic implementation to the private sector which would handle it more efficiently. This prescription fostered proposals for privatization, load shedding, and contracting. (For an analysis of this literature see Brown et al. 2006).

The second path entailed changing the way that the public sector handled its own responsibilities. Every organization with multiple owners or principals needs some system for converting constituent preferences into decisions. In designing such systems, each organization strikes some balance between giving unfettered authority to an executive office and requiring that executive to use various procedures designed to maximize accountability to owners. NPM proponents decried the public sector’s balance. For them too much concentration on accountability allowed the stifling hand of politics to forestall managerial innovation.

For NPM a problem with politics was that it fostered decision making through bargaining rather than performance measurement (Townley et al. 2003; Osborne and Hutchinson 2004). Osborne and Gaebler (1992, 140) portrayed managers as objective experts while “politics focuses on perceptions and ideology not performance.” The underlying NPM assumption was that an objective policy making expertise existed outside knowledge of constituency preferences. Jurisdictions thrived when “bureau- crats are able to counter political hot air with hard facts” (Alter 1995, 141). NPM deemphasized due process in the name of promoting entrepreneuralism (Suleiman 2003; Du Gay 2000). For people with this mindset legislatures seemed a nuisance to managerial innovation (Moe 1994).

NPM’s critics responded that government needs rule of laws formulated by democratically elected legislators. As Moe and Gilmour (1995, 138) phrased it, “The purpose of agency management is to implement the laws passed by Congress as elected representatives of the people.” If a particular law impedes agency func- tioning, Congress might want to repeal it, but agency executives should neither ignore statutes nor enforce them sporadically (Moe 1994). Thus, critics countered NPM’s approach to accountability by stressing a fundamental difference between business and government agencies which needed to uphold legislative mandates. A number of articles in Administrative Theory and Praxis argue, for example, that the core of the argument against NPM is the need to maintain the “publicness” of public adminis- tration discourse (e.g., Stivers 2000).

Yet, despite these criticisms of NPM, Osborne and Gaebler’s work had strong American federal traction during the tenures of presidents Clinton and George W.

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Bush; their prescriptions spearheaded the approach of President Clinton’s National Performance Review, an initiative designed to make agencies work better and cost less (US Executive Office of the President 1993). Local governments of the period also embraced load shedding and marketization strategies (Zavattaro 2010). (Of course, the early 2000s also contained setbacks to the privatization agenda. After the September 11, 2001 attacks, the federal government transferred airport security from for-profit firms to the Transportation Security Agency; corporate scandals precipitated by CEOs at Tyco, Enron and World Com led to greater federal regulation of private firms through the Sarbanes Oxley Act.)

The financial crisis of 2008–2009 upended some bedrock NPM assumptions. In its wake, the federal government became more assertive about accepting new functions. Legislators sought to give public administrators more rather than fewer responsibilities assuming that governments must take on new functions to protect the financial system. With this rationale, the government entered new terrain to improve business operations (Moulton and Wise 2010). Khademian (2009, 595) calls the loans and investments of the George W. Bush and Barack Obama presi- dencies “dramatic and unprecedented.” At the same time the federal government became more concerned with circumscribing private executive independence by augmenting board of director controls.

In the post-2008 climate, it is easy to wonder why few major authors in the 1990s questioned whether the NPM’s entrepreneurial business management model actually worked for business or whether the private sector, itself, would have benefited from a more political framework. Moe and Gilmour (1995, 138) noted that “compliant boards of directors…can in no way be compared to the supervision provided agency management by Congress,” but they did not examine whether those compliant boards were doing their own companies any favors. NPM presented the entrepre- neurial model as a fait accompli in the business world and public administration analysts, by and large, accepted this estimate. The acceptance, however, came precisely at a time when the conventional chief executive officer (CEO) entrepre- neurial model was coming under attack in favor of greater reliance on board control of high-level managers.

NPM asked government to accept an accountability model whose flaws were becoming increasingly controversial in its own domain. By the time Osborne and Gaebler wrote Reinventing Government the business management literature had discussed problems with lax board control for years. Corporate governance specialists had asked questions on who governs in the owner’s interest—questions that in theory are not that different from public sector questions of who governs in the citizen’s interest. (See, for example, Monks and Minow 2008.) For the past 20 years, the trend has been to try to assemble corporate boards of directors who would take a more active role monitoring CEOs.

Recent corporate debates have also focused on giving shareholders a bigger say in developing director slates—a move which increases the political nature of corporate governance. For political decision making is a potential modus vivendi for any organization that moves away from decision making by expert fiat. It incorporates decision making where multiple participants have the right to voice dissatisfaction and act to change organizational policies rather than simply the economic right of organizational exit (Hirschman 1970).

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Its signature is people who represent different interests coming together to share points of view and make decisions responsive to their constituencies. In the public sector, legislatures represent citizens. In private firms, boards of directors should represent the interests of shareholders although some commentators consider that they should also represent the interests of other stakeholders such as customers and employees (Waddock 2008) . At the end of the day, the question of citizen partici- pation in policy making and the question of investor participation in corporate governance converge over a concern with the fundamental issue of owner control and the need to minimize principal/agent differences. This convergence occurs despite there being many differences between investors and citizens including the greater ease of the exit option for shareholders

Although proxy access is a corporate management issue, its study could interest public administrators simply as an example of how interest groups—in this case, institutional investors and business associations—try to affect regulatory changes and how massive environmental shifts—including the 2008 fiscal crisis—change the landscape in which such groups maneuver. Such a case study would show how various groups interact with regulators, legislators, and courts in pursuit of policy continuance or change in the financial regulatory arena, a policy subfield rarely explored in the public administration literature.

The aim of this article, however, is not simply to present such a case study. The purpose rather is to use the proxy access debate to shed additional light on the complexities of organizational accountability arrangements and to implicitly contrast these complexities with the naive deferential approach to business present in so much of the NPM literature. The essay sheds new light on what entrepreneurial manage- ment means for principal/agent relations in the corporate sector and hence offers new light on what it would mean for such relations in the public sector. At first glance, citizens-at-large and institutional investors—a group primarily consisting of hedge funds and pension funds—may seem very different entities particularly in terms of having members who share a common agenda. While differences in elite status and income are clear, this discussion focuses on similarities between the needs citizens and shareholders have to participate in policy making in the organi- zations that should serve their interests. It suggests the usefulness of a political governance model to secure participation in both instances as a way of minimizing principal/agent differences.

I focus on institutional investors as a critical case in delineating problems of principal control of organizations. If any group of principals should be able to articulate their interests to managers, it would seem to be the relatively elite institutional investors. If they experience principal/agent problems, such difficulties are likely to be at least as great if not greater for more diverse, less elite principals such as citizens.

The analysis requires extensive examination of internal corporate governance rules which is not a subject public administration literature often features. The analysis explores how these rules affect accountability and examines how some corporate governance rules have changed in the last decade. Information on changes in private sector rules is essential for helping readers understand how different actors perceive the accountability implications of specific shifts. The narrative shows how different agendas triumph or fall as the political and economic environment changes.

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Plan of Action

Information on proxy access battles comes from analysis of documents including newspaper articles, blogs of financial sector actors and academics interested in proxy access, court cases, letters to the Securities and Exchange Commission, and articles in the corporate law and business management literatures. I read widely in the field taking care to analyze documents written both by people for and against increased shareholder access. This meant I read material generated by institutional investors and their representatives as well as material generated by those authors representing the views of corporate executives.

The documents I read show the contested nature of entrepreneurial management on its own private sector home ground. By so doing they challenge public administration scholars to delve more deeply into the corporate management literature before recommending a particular business model to government agencies.

The narrative has five sections dealing respectively with corporate governance, proxy access, proxy access contests. analysis, and conclusions. The first three sections focus on private sector managerial accountability issues. The opening section briefly reviews some basic corporate governance issues of interest to institutional shareholders; the second and third sections focus on proxy access. The aim of this part of the narrative is to present information on corporate governance—particularly relating to proxy access—that can help public administration scholars better under- stand the problems entrepreneurial management would present in the public sector. The impetus is to tie the issues raised during the proxy access contests to a major management question that concerns public, voluntary, and business sectors: how can disparate anonymous owners increase their control of large organizations? The fourth and fifth sections relate the private-sector material to government agency issues, offering analysis and conclusions, respectively.

Corporate Governance

Corporate governance comprises the rules and processes through which businesses operate. While NPM extolled private firm governance patterns as models of excel- lence, the business management literature contains plentiful debates on corporate governance problems. Berle (1931) was one of the first scholars to note that in large corporations, owners do not govern. Because of the collective action problems in assembling dispersed investors for action and because they bear no special respon- sibility as owners for corporate actions, they cede the right to control their property to management.

State statutes create corporations. Under state laws, shareholders elect a corporate board of directors as the firm’s governing body to oversee management in the stockholder’s best interest (Griffin 2011). As management, however, has better access to information than the board, a classic principal/agent problem emerges where CEOs may get directors to “divert resources through excessive pay, self dealing, or other means” (Bebchuk 2005, 850) . For a given organization the question becomes: In actuality, do boards control management in the owner’s interest or do shrewd CEO agents really control or at least manipulate their boards?

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Shareholders acquire rights from various sources including federal law, Security and Exchange Commission (SEC) regulations, state law passed by the jurisdiction in which a particular company incorporates, and individual company policy. In the past 20 years, institutional investors such as the Teacher’s Insurance Annuity Association- College Retirement Equities Fund (TIAA-CREF) and the California Public Employees Retirement System (Calpers) have pressed at various levels for practices to strengthen board ability to monitor executives. These practices include but are not limited to:

1) A majority of board members and the board chair should be independent rather than company insiders who may be dependent on current management.

2) Directors should have their own information pipeline, generally an internal auditor who reports directly to them; they should not have to receive information from the CEO.

3. Management should understand which decisions need and which do not need board approval, i.e., the CEO should understand limits on his or her unilateral entrepreneurship.

4. Shareholders should have a direct mechanism to communicate concerns to the board. (Lipman and Lipman 2006).

The trend in the past decade has been for firms to accept these reforms. The push for independent directors, for example, has been quite successful. In the 1960s, most directors were insiders; today a majority are independent (Bhagat and Black 2002). The New York Stock Exchange, the American Stock Exchange and NASDAQ require listed companies to have a majority of independent directors. The federal Accounting Industry Reform Act of 2002, often known as the Sarbanes Oxley Act, requires the same status for members of a board’s audit committee (Roche 2009). The shift from insider to independent directors highlights the importance key stakeholders—particularly institu- tional investors—give to creating a board that can monitor executives. The move to independent directors suggests shareholders discount the insider advantage of greater knowledge about the firm in favor of facilitating greater board control (Baysinger and Hoskisson 1990). While early empirical studies did not show that long term financial performance improves if a company has more independent directors (Bhagat and Black 2002), some recent studies note a relationship between independent directors and a number of positive indicators including lower incidence of fraud (Bebchuk and Weisbach 2010).

In other words, the actual early twenty-first century corporate governance trajec- tory directly countered NPM advice to public agencies. New private sector rules encouraged greater supervision of CEOs and other senior managers rather than trying to maximize executive discretion.

Proxy Access

Elections are the key process linking shareholders and the board of directors. But corporate elections are hardly democratic contests. The most obvious difference is the lack of competition in the corporate arena. The most common current procedure is for

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a nominating committee of independent directors to choose the slate shareholders are asked to elect when the company mails proxy materials to them. This process ensures the current incumbents nominate their own successors, a privilege that may mean—and often does mean—incumbents nominate themselves. Self-perpetuating boards are common.

Once the nominating committee produces a slate, the corporation at its expense sends the shareholders the candidate list as part of a proxy solicitation. Under Securities and Exchange Commission rules at the start of 2010, shareholders did not have a right of proxy access, that is a right to add their own candidates to the slate. When shareholders wanted to nominate candidates, they had to bear the cost of communicating the names to other owners. Because of the high cost such action entails, the SEC rule meant that in actuality in most circumstances shareholders had no say in nominations; they simply had a right to vote up or down the single slate the incumbents distributed to them (Johnson et al. 1996). An empirical examination of contested corporate elections showed about only 14 per year between 1996 and 2005 (Bebchuk 2007)

Both proponents and opponents of proxy access have articulated the issue as a conflict over whether to make a slate through expertise or the politics of shareholder activism. Institutional investors favor a national rule requiring access. The Council of Institutional Investors (2010) argues that this policy will invigorate elections and make boards more responsive to shareholders. An executive of CtW Investment Group calls proxy access “a new and powerful tool that can be used by shareholder activists to improve underperforming boards” (Lublin 2010, B1).

Business associations such as the U. S. Chamber of Commerce and the Business Roundtable resist allowing shareholders to include their candidates in the proxy material. They assume a committee of experts can best choose qualified directors in the firm’s interest while groups of shareholders would choose candidates without understanding the whole picture (Bebchuk 2003). Some opponents of proxy access argue that shareholders have neither the time nor the skills to make these choices; most are passive and will not work to get the information to vote wisely . They predict a decline in corporate decision making if ill informed shareholders replace “a fully- informed board” as decision makers (Mirvis et al. 2007, 45) As an opponent of proxy access explained “proxy access turns corporate board elections from a process designed to ensure that each board has a good mix of skills and experience into a popularity contest where the long-term interests of the stockholders become second- ary to political agendas”(Bainbridge 2010). The assumption here is that a small group of experts know shareholder interests better than the shareholders themselves. The experts do not have to interact with shareholders and defend their decisions in a one share/one vote contest. One essay arguing against proxy access defends its point of view by saying explicitly that a corporation is not a New England town meeting (Mirvis et al. 2007). Another opponent compared proxy access to the referenda, initiatives, and recall introduced to political life in the Progressive era but untenable in corporate life (Olson 2007). To opponents of proxy access it is the “centralization of fiat that makes the modern corporation work” (Bainbridge 2006, 1741). The call to limit shareholder participation based on the need for expertise is similar to calls to limit citizen participa- tion in policy development based on their lack of technical knowledge.

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Proxy Access Contests

Throughout the first decade of the twenty-first century institutional investors made various moves to increase their proxy access but without much success. Spurring them on was the belief that excessive CEO compensation, manipulated earnings, accounting irregularities and other scandals were all the fault of an absence of shareholder voice (AFSCME Press Room 2002).

The American Federation of State, County and Municipal Employees (AFSCME) Pension Fund tried to add to numerous company proxies a bylaw amendment to give shareholders proxy access if they owned at least 3 % of a company’s stock. One company on AFSCME’s list was American International Group (AIG). When AIG refused to put this motion on the ballot, AFSCME took the firm to court. The technical question at hand was did a bylaw amendment fall under the SEC rule that said shareholders did not have a right to proxy access about election matters. The district court ruled in favor of AIG. The court counted this bylaw amendment as an election matter. When AFSCME appealed, however, the second circuit concluded that the bylaw amendment was not an election matter in the sense of placing a candidate’s name in play and that AIG did have to put it on the ballot [AFSCME Pension Plan v. American International Group 462 F. 3d 121 (2nd cir 2006)]. The SEC then clarified its rule and defined such shareholder bylaw changes as an election matter thus preserving the status quo.

However, after the 2008–2009 financial crisis, the SEC commissioners perceived this issue in a new light. In June 2009, the agency floated the possibility of a new rule called “Facilitating Shareholder Director Nominations” that would mandate proxy access for owners who had at least a 1 to 3 % stake in a company—that is to say the commission floated a rule change that was even more generous to shareholders than the AFSCME’s bylaw amendment. A major proxy solicitation and corporate gover- nance consulting firm described the shift as the pendulum swinging in favor of the shareholders (Altman Group 2010).

Proponents and opponents of the change immediately sent hundreds of comments to the agency (Holzer and Berman 2010). Throughout 2010 institutional investors and business associations lobbied individual legislators and White House advisors. A sense of the shift in political trajectory emerges when we note that some business association comments supported private ordering which is a default situation of no proxy access rule but an ability for shareholders at a given firm to request access at that company (Bebchuk and Hirst 2010). Corporations had opposed that position before 2008 as seen in the AFSCME cases. Their sudden embrace of private ordering suggests they saw a one-size-fits-all proxy access default position in their future. They preferred private ordering to that outcome.

One factor that may help determine a conflict’s outcome is the number of people who get involved (Schattschneider 1960). With increasing numbers of proponents and opponents commenting on the proposed change, the issue finally received political exposure at the legislative level. As Khademian (2002, 524) has noted, when banks failed in the 1980s, “congressional deference to regulatory expertise went out the window.” After the 2008 crisis, a new sense also existed in Congress that business organizations had failed; government would have to change corporate governance patterns to bring greater prosperity to the nation (Moulton and Wise 2010).

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In July 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. While the law did not articulate a proxy access provision, it cleared the way for possible changes in SEC rules by saying that the SEC may grant shareholders proxy access to nominate directors. This provision made it harder for proxy access opponents to argue that the SEC did not have the authority to produce a proxy access rule. Although opponents of strong access wanted Congress to mandate a 5 % ownership cut-off for access (thus eliminating the ability of many institutional investors to use the provision), the statute left it to the agency to decide whether shareholders needed to have any minimum percentage of the company’s stock to avail themselves of the privilege. The law also gave shareholders nonbinding votes on executive pay and golden parachutes.

On August 25, 2010, the SEC by a three to two vote finalized a new rule allowing investors holding a 3 % stake in a company for at least 3 years to nominate their own board candidates using the company’s ballot. Restrictions included a maximum access to contest up to 25 % of the directors in one election and a 3 year moratorium on extending proxy access to include companies with a capital float of less that $75 million dollars. The SEC also allowed shareholders to place on the ballot proposals for more sweeping or inclusive proxy access in a given company. This permission for private ordering might allow activists to secure lower ownership thresholds in selected companies. The five presidentially appointed SEC commissioners split on a partisan basis with the three Democrats in favor of the rule change and the two Republicans against it.

The new rule did not represent shareholder nirvana. The 3 % ownership provision limited access to the largest investors—such an investment would require stock worth $2.4 billion in Verizon Communication or $28 million in a smaller firm, Leap Wireless International (Holzer and Berman 2010). The 25 % limitation meant that investors cannot scour the board in one fell swoop. In boards with seven or fewer members, it meant that investors can only nominate one director in a given election. As companies generally require two board members to make resolutions (a proposer and a second), a single dissident might not be able to bring about much real change. Yet, as the director of Yale University’s corporate governance center and a former New York City deputy controller noted at an earlier point in the proxy access campaign “For the first time, investors showed—in dramatic fashion—that they can go head to head against the established business lobbies and win” (Davis and Lukomnik 2010).

But that victory did not end proxy-access debate. In late September2010, the Business Roundtable and U.S. Chamber of Commerce sued the SEC for arbitrary and capricious action in promulgating the new rule (Business Roundtable v SEC, D.C. Circ, No. 10-1305, 9/29/10). In October 2010, the SEC responded by staying application of proxy access until the completion of the case. In late July 2011, a three- judge panel of the Washington D.C. based U.S. Circuit Court of Appeals ruled in favor of the business groups saying that the SEC had not adequately analyzed the costs to companies of fighting contested elections (Holzer 2011). The SEC decided not to appeal that ruling.

Institutional investors then returned to try to enact private ordering at individual firms. An early success came at Hewlett Packard which passed a measure to allow stockholders with at least 3 % of the company stock’s to have proxy access (Lublin and Worthen 2012).

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Although the move for proxy access did not win at the federal level, the scramble to get proxy access shows something about the problems dispersed principals have gaining accountability from their agents. While organizational executives routinely claim to run their domains for the benefit of principals, the proxy access contests suggest that serious principal/agent dislocations occur.

Analysis

The question animating the article is how can dispersed principals in any organization control agents. Finding a generic answer to the issue on owner control is a difficult task at least partly because the meaning of the term “owner” varies by context. A proprietor of a sole owned business exemplifies strong ownership. As Smith and Huntsman (1997, 312) note, such people have “individual responsibility for the entire enterprise. They wield unilateral influence and authority within the organization… Proprietors may hire, fire, supervise, define and direct the scope and activities of the enterprise. They need not solicit opinion, seek consensus, or defer to group or democratic decision processes.”

A corporation’s shareholders lack most of these emblems of ownership. Under existing state statutes, boards of directors rather than shareholders can adopt such key business decisions as whether to amend the company’s charter, merge, reincorporate or dissolve the company (Bebchuk 2007); unlike proprietors, shareholders do not hire, fire, or supervise organizational employees. Because of these shareholder/proprietor differ- ences Stout (2007) believes we should consider shareholders owners of stock rather than of the corporation itself. Citizens are even further removed from sole proprietor own- ership attributes. Not only do they lack the ability to make key decisions by themselves or supervise employees, their status gives them no vested economic rights to buy or sell their government—the economic exit right that currently constitutes the shareholder’s most obvious avenue for influencing management’s actions.

Yet despite weaknesses of the owner metaphor, its use yields important insights by directing attention in all these cases to the issue of ultimate control. Which structures and processes maximize the chance that executives will manage in the interest of those people in whose interest they say that they work ? Each sector has to deal with this issue in its own way.

In public administration, elections are the link between citizens and agencies. The reason for control by elected officials is not technical expertise (which all commen- tators cede to managers) but rather the electoral connection to citizen-principals. In a democracy, this connection trumps any expertise management has to offer. For analysts who see citizens as owners of their government, elected official control is a necessary but insufficient condition for citizen empowerment. The need for stronger responsiveness to citizens has led to a focus on how people can influence agency policy making and implementation outside their electoral participation. Some analy- ses stress that decision quality suffers when citizens get involved in technical decisions (e.g., Irvin and Stansbury 2004), but other studies show that community groups have unique information to bear on technical decision making. Quality decisions require citizen involvement (Schachter and Liu 2005). While NPM propo- nents see citizens as customers of government, other analysts have tried to develop

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citizen-owner models that promote ongoing community-administrator interactions and administrator responsiveness.

Two models bear mention to show the diversity of emphasis in such approaches. Updating a Progressive era notion of efficient citizenship, Schachter (1995, 532) proposed an owner model where “[T}he assumption was that citizen-owners had the duty to assume an active responsibility for improving government along with a perfect right to inquire into the affairs of their agents (the public administrators) at any time.” In this model, citizens might fill out scorecards comparing recreation, streets or schools in rich and poor areas and share findings with administrators.

Believing that many citizens would be unable to relate to this proprietorship-based call to action, Smith and Huntsman (1997, 313) aligned citizen-ownership with shareholder values and argued for “citizen-government interaction, in which both parties are proactive and focused on a common goal: creating incremental value for citizens.” Concerned with time limits, citizens in this model are “ motivated to pool their interests and efforts.” While the former model stressed the need for individual citizen action to help the entire community, Smith and Huntsman’s citizens—like a firm’s shareholders—cannot and will not get involved in monitoring every organiza- tional process but may take action they believe will increase personal value. Smith and Huntsman’s research in Newton, Massachusetts identified respondents who raised money to refurbish neighborhood playgrounds because they understood the value to their families of free recreation space.

Given vast disparities in individual citizen skills and resources, each of these models may capture the participation capacities and predilections of different groups. Citizens A and B may approach political interaction through disparate routes because they have received or expect to receive different treatment by political officials and administrators. As the SEC distinguished between larger and smaller shareholders in granting proxy access, so too public administrators may grant access to large groups of advantaged citizens that they deny other potential participants. When the latter citizens see that public agents do not favor their involvement, this can decrease their participation.

When NPM assumed that government could learn from business, key public admin- istration scholars replied that government agencies had a separate standard: fidelity to law and the Constitution. While this argument itself is a game breaker for NPM-style management, it is still interesting to note that sector difference is not the only reason government agencies need control emanating outside their own hierarchies. NPM presented a superficial, idealized version of corporate governance that did not report the principal/agent tensions simmering between institutional investors and executives. One lesson business can teach public administration is that even the most elite, well educated dispersed principals need convenient, low cost forums if they are to participate in organizational policy making. The financial crisis emboldened business stakeholders to push their firms to use more political, owner oriented processes because entrepre- neurial management produced control problems in business.

Executive resistance to the new SEC regulations suggests that attempts to create forums to empower owners spur fight back from managers who gain independence in their absence. Certainly we know that left to themselves few companies extended proxy access rights. To have a chance at fostering change institutional investors needed legislation clarifying SEC authority and then action by the regulatory agency. In much the same fashion, creating enduring forums for citizen participation is likely to require

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legislative institutionalization. The difficult point here is that gaining congressional interest in change requires a group of constituents who request a shift. Such constituent demand is most likely to come when serious problems emerge from the status quo. Widespread economic turmoil enlarged the circle of people who argued that ensconced corporate decision makers needed different information to the point that Congress heard this point of view. Congress is more likely to act on enhancing citizen participation forums in the face of an articulate call from those dissatisfied by the status quo.

Opponents of proxy access once spoke of the fully informed business board. After the demise of Lehman Brothers, the meltdown of General Motors in 2008, the various negative unexpected corporate fiascos of 2008–2009, who speaks of fully-informed boards now? Can any small group of people ever be fully informed in a fast moving universe? As Hood (2010) notes, hierarchist organizations have the advantage of decision capacity but at the expense of possible misplaced trust in putative expertise.

For at least 30 years social scientists such as Price (1967) and Lindblom (1990) have argued that totally objective policy advice is a myth. Every background socializes people to look at issues in a particular way. Additional voices yield new points of view. Voices outside the hierarchy need accessible avenues to offer new information which might be important for an organization. Principals, in particular, need avenues to have their expectations heard. The proxy access debate shows how important investors consider these avenues in the corporate world. Forums for citizen participation are at least equally important to bring diverse information to public organizations.

Conclusions

Organizational policy setters need many types of knowledge. Proponents of manage- ment hegemony—public or private—use the argument that organizational insiders have better sources of information and more time to research decisions than any other people and thus their decisions are likely to be superior. But unless we argue that organizations should be run for the convenience of managers, a key type of informa- tion needed to make responsive decisions involves owners’ expectations. Whatever their deficits in accessing other data, surely owners are likely to best understand this piece of the puzzle. Thus managers need their participation even in cases where agents are doing all they can to further the principal’s agenda.

In the real world, however, agents do not always work to further the principal’s agendas. Agents can develop their own interests for personal wealth, status or tenure. Proxy access debates are a critical case to show that in such instances simply allowing principals a legal right to monitor and intervene can prove insufficient to protect their interests. The controversies show the importance of convenient and low cost moni- toring and intervention mechanisms even for sophisticated principals. Institutional investors rarely contest elections if they have to solicit votes at their own cost.

Convenience is likely to be at least as important to large groups of citizens monitoring and intervening in public policy development. To mandate public hear- ings or a right to participate in deliberative sessions is a sham step to foster participation unless the meetings are at a convenient time and place. If governments schedule forums at unreasonable times or locales, it is misguided to cite citizen apathy as a necessary reason for low attendance. Few people say that institutional

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investors are apathetic when they do not hold proxy contests on their own dime. The availability of such convenience factors as child care and food at public meetings seem trivial issues until you have a child and no baby sitter on meeting night, or you can only attend the meeting straight from work with no time to stop for nourishment. Halvorsen (2003, 537) spoke highly of a deliberative session in Minnesota sponsored by the U. S. Department of Agriculture Forest Service where participants ate dinner together while discussing policy issues which did “provide a comfortable setting that was an efficient, convenient use of time.” How many agencies structure involvement opportunities to be that convenient? Not many forums are scheduled in that way.

In addition, it is important to remember that institutional investors favor proxy access because they know that such access can alter concrete organizational out- comes; their action must influence the board election if their candidate gets a majority of votes. Often citizens have no idea what will happen if they make a case for or against certain actions at a public hearing or deliberative session. A number of studies suggest that even when agencies solicit citizen input, they do not use the resulting comments to construct policy (e.g., Kettering Foundation 1989; Adams 2004).

In structuring forums, governments need to let citizens know how agencies will use the information offered. They must let citizens see that their involvement can make a difference. After one set of planning sessions, the Florida Department of Transportation, for example, put online all citizen comments. It indicated which suggestions the department used in constructing policy and how these suggestions were used (Komatsusaki and Schachter 2008). Such feedback signals to citizens that participation matters; it can help achieve concrete outcomes.

The proxy access movement is the critical case to spotlight the need for convenient low cost intervention mechanisms to hold agents accountable to principals along with the need for principals to understand how their use of these mechanisms affects change. This need spans private and public sectors. A call for convenience may seem a narrow change banner until we remember how important numbers have been in the quest to change SEC regulations. Congress only became involved as the number of people vocally requesting change grew. Radically change the number of citizens involved in policy development and outcomes will change as well. If political officials want to heighten accountability in governments, one step is to offer citizens convenient partic- ipation forums that have an impact on policy.

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Dr. Hindy Lauer Schachter is a professor of management in the School of Management at New Jersey Institute of Technology. Her research interests include public agency organizational behavior and the role of citizen participation in developing and administering public policies. Besides for many articles in academic journals, she is the author of three books: Reinventing Government or Reinventing Ourselves: The Role of Citizen Owners inMaking a Better Government (State University of New York Press, 1997), Frederick Taylor and the Public Administration Community: A Reevaluation (State University of New York Press, 1989), and Public Agency Communication: Theory and Practice (Nelson Hall, 1983). She co-edited with Kaifeng Yang, The State of Citizen Participation in America (Information Age Publishing, 2012).

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