In commenting on the introduction of the Shareholder Bill of Rights by Senator Charles Schumer (D-NY), noted economist Larry Kudlow stated, "This is nothing more than union command and control of the economy."

How right he is.

For over 100 years, corporate governance in the United States has been regulated by the states. This has led to diverse corporate structures that have served the economy well and employed countless numbers of workers. Shareholders provide capital, boards of directors provide oversight and management runs the business.

Under this system, all of the parties involved must work together to increase the value of the company. If the relationship works well, everyone wins. If not, a shareholder can sell their shares, or where allowed by state law, replace management or board members. These laws vary by state thereby allowing corporate governance to be tailored fitting the stakeholder’s needs.

"Reform" efforts are not about improving the corporate governance of poorly run companies, rather, it is to liberalize rules so that activist investors can avoid costly proxy fights and elect their own directors instead. Activist special interest investors, including some unions, have sought to use the proxy voting system as leverage to advance other agendas under the guise of improving corporate performance. But, in fact, their efforts do not have that result. The recent Navigant Consulting study, released by the U.S. Chamber of Commerce, found no evidence that the 166 shareholder proposals key-voted by the AFL-CIO improved stock prices over the short or long-term. The last time I checked, the purpose of investing is to increase the value of your investment.

If directors and management have to spend their time fighting special interest agendas and complying with burdensome federally-mandated corporate structures, they cannot manage a company. Sales will be lost, profits disappear, and jobs destroyed. One has to wonder about a pension fund that wants to play politics rather than increase retirement benefits for its members.

Indeed, the existing system has been working well and reforms have occurred in a steady and diverse way. Our state-law based system has been a laboratory for experimenting with different approaches to corporate governance that have suited the challenges individual companies face. This system has evolved through a dialogue between management, directors, and shareholders, all without mandates from Washington.

Passage of measures such as the Schumer Shareholder Bill of Rights will create a body of federal corporate law that will eliminate the state driven model that has existed since the start of the modern public corporation. A Washington centric one-size-fits-all approach will destroy the variety that has allowed the American economy to thrive and be the most successful in world history.

History has proven the command and control economies do not work. The use of appropriate management and judgment by individual companies has more collective beneficial impact than mandates from Washington ever will. Let’s not have to re-learn bad lessons from history.