Where is corporate governance headed?
Stephen Davis, Jon Lukomnik and David Pitt-Watson assert a "civil economy" is emerging. They claim corporate executives, investors, politicians, activists and citizens are re-engineering capitalism. These "new capitalists," as they call them, are all seeking to influence the corporate agenda and the economy.
With great vigor, clarity and insightful empirical evidence, these three corporate governance experts present the diverse forces and emerging economic reality reshaping capitalism in their book, "The New Capitalists: How Citizen Investors Are Reshaping the Corporate Agenda," newly published by Harvard Business School Press, Boston.
The authors' use of the term "civil economy" is a smart way to describe the new phenomenon.
Messrs. Davis, Lukomnik and Pitt-Watson identify the business parallel of the "civil society," which is the "vast array of institutions needed to maintain democratic governments accountable to public needs," from a free press and fair judiciary to political parties and involved citizens.
The civil economy involves a similar array of institutions "but trained on business, not politics." It provides a framework for reconciling tensions between business development and accountability, between corporate and social interests, the authors write.
"The successful enterprise is increasingly skilled at cultivating commercial dynamism, but in a context of accountability to shareholders," they write.
Their civil economy should be an integral part of the wonders of the "new economy." Corporate executives and institutional investors speak of the new economic dynamic, driven by high-technology processes and products; the Internet, with its creative communications tools and lightning-fast reactions in the capital and consumer markets; and a knowledge-based work force. But their civil economy is left out of the discussion of the new economy; yet it is essential to making it work.
The authors have the knowledge and experience to analyze problems and trends and propose answers.
Mr. Davis is president of Davis Global Advisors Inc., a consulting firm specializing in corporate governance and publisher of Global Proxy Watch.
Mr. Lukomnik, managing partner of Sinclair Capital LLC, an investment management industry consulting firm, is a former deputy comptroller of New York City, where he helped oversee the investment of $80 billion in retirement assets.
Messrs. Davis and Lukomnik helped co-found GovernanceMetrics International Inc., which rates companies worldwide on corporate governance factors, and the International Corporate Governance Network.
Mr. Pitt-Watson brings perspective from the United Kingdom. He is chair of Hermes Equity Ownership Service, which overlays corporate governance services on clients' equity investments. He is a former chief executive officer of Hermes Focus Asset Management, a shareholder activist fund. Both are part of Hermes Pension Management Ltd., which is owned by the £35 billion ($65.6 billion) BT Pension Scheme.
"The New Capitalists" is a groundbreaking work, a new generation's extension of "The Unseen Revolution: How Pension Fund Socialism Came to America," Peter F. Drucker's revolutionary 1976 book that predicted the influence of pension funds on corporations.
Their book explores, in its almost 300 pages, the complex and sophisticated factors that corporations and investors face as they interact — contentiously or cooperatively — for what should be the common goal of increasing value as efficiently and responsibly as possible.
The timing of the book is perfect. Coming out ahead of the 2007 proxy season, the book by Messrs. Davis, Lukomnik and Pitt-Watson arms executives, investors and others with useful analysis of problems in corporate accountability and other areas, and structures for solving them. But it is a book whose value will last well beyond a single season or set of issues.