Corporate GovernanceA Fairy Tale

-By Robert A.G. Monks

Once upon a time…A group of people began a new field of activism to try and make corporations more productive for owners and more responsive to society’s needs.

Many good things came out as a result of the corporate governance and shareholder activism but there were also some unintended consequences….

…by perpetuating the illusion that shareholders have the power to influence or change the corporation.

Shareholder Activism came to legitimize corporate/CEO power

There is, furthermore, little evidence of abuse that cannot be corrected by shareholders “through the procedures of corporate democracy.”

--Justice Kennedy, Citizens United decision

Myth

CEO pay and power has increased notwithstanding our work on corporate governance

Truth

We have “apparent governance” which, in a way, is more dangerous because it leads us to believe we have a system in place to prevent corporate and management abuses – and that owners have control of their investment.

Words like nominate, elect, and vote are used for a process that virtually always results in the election of individuals whose names are on the proxy card, printed and distributed at shareholder expense, but selected entirely by the incumbents.

Truth

Similarly, words and phrases like trustee and fiduciary obligation are promiscuously used to describe the functional responsibility of the CEO and board members when their pervasive conflicts of interest are manifest. It is almost as if we dumbly recite the words in denial of the certainty that they will have no effect.

Truth

Shareholder Activism is a Minefield of Misconceptions

• Shareholders have little access to proxy ballots

• Shareholder resolutions are extremely costly

• Process of getting a resolution by the SEC is arbitrary and political

• Shareholder activism is wracked with conflicts of interest

The moral of this story is…

The solution must come from owners.

It’s the only way to control corporations and make them into the institutions we want them to be.

And, to do this we must…

1. Owners must take control & they must “have skin in the game.”

2. Corporations must have a legal domicile and abide by the laws and taxation of that country.

3. We must develop a global system of integrated accounting so that corporations stop having incentive to pursue societally destructive practices, and shareholders and customers stop being enablers of conduct that they personally deplore.

It’s the only way – we must take these steps

…if we are to avoid what Adolph Berle called, “the corresponding danger of a corporate oligarchy coupled with the probability of an era of corporate plundering.”

It’s up to us

The End