The Republican tsunami that swept through Congress and state governments in this November's elections shares many of the ideals and objectives and much of the discontent behind the move to improve corporate governance.
The corporate governance movement, in fact, began during the Reagan revolution of the 1980s. This linkage of conservative politics and corporate governance, a convergence of ideas and spirit, although not always of people, deserves an in-depth examination. They share a reliance on empirical research to test ideas and a desire for more accountability and participation. And oddly, they share a few strange bedfellows; after all, public pension fund officials led the corporate governance crusade.
The Reagan administration's faith in a competitive market economy spurred new, more rigorous thinking among academics and institutional investors about corporate management accountability, competitive performance and the role of shareholders. Now, Newt Gingrich, the Speaker of the House-designate, and the other Republicans in Congress, add new vigor and rigor to national governance.
Among other issues, the corporate governance movement has forced closer examination of executive compensation, trying to link management pay with share-price performance. And it has led to proxy rule changes to improve corporate communication with shareholders, including comparisons of shareholder returns with equity benchmarks.
The movement invigorated corporate democracy, adding value through activist proxy voting and shareholder resolutions. The corporate governance movement, in short, sought to replace entrenched, underperforming bureaucracies and a procedural-oriented mentality with an incentive-oriented, entrepreneurial spirit.
The modern conservative political wave seeks similar objectives in government. The new wave ousted a Democratic-led Congress, which lost touch with its shareholders - the voters, refusing even to allow votes on many important issues, such as term limits and spending cuts. The votes against Democratic incumbents and the success of term-limit proposals in many states can be seen as the equivalent of the corporate governance movement's efforts to eliminate management-entrenching devices, like poison pills, or attempts to at least give shareholders the right to vote on their emplacement.
The voters replaced Democratic leaders like Dan Rostenkowski and Thomas S. Foley who, because of their entrenched positions, were out of touch with their constituents. This is similar to the removal of chief executive officers, such as John Akers of IBM Corp., by institutions in the corporate governance movement.
The sweep of neither movement is complete. Some dinosaurs remain: in politics, Edward M. "Ted" Kennedy, and in business, Champion International Corp.'s Andrew C. Sigler. These people will serve as useful reminders of problems of the past and a still dangerous present.
Both movements offer an optimistic future. The movements - the political through lower taxes and the corporate governance through greater returns - seek to provide more capital to finance new ideas to create new businesses and new jobs. This is in contrast to the traditional reaction of many Democrats and out-of-step Republicans to equate higher taxes and even greater reliance on entitlements and government subsidies with somehow raising the level of freedom and performance.
The relationship between the two movements isn't perfect. But the parallels are instructive. Both seek greater accountability, performance, participation, and efficiency. Voters and shareholders seem to want the same thing - better returns for their commitment and investment. Companies that focus their attention on achieving better results for shareholders prosper. The party that focused on better results for the voters won the most recent election. In a larger sense, the movements fuse the best political and economic ideals of democratic capitalism.