Directors of Citigroup Inc., Merrill Lynch Co. and other major financial corporations should face tough re-elections as well as scrutiny by shareholders for their roles in the subprime credit crisis and the subsequent plunge in their companies market values.
A timely new book by Robert A.G. Monks helps to put the current state of corporate governance in perspective.
Corpocracy, newly published by John Wiley & Sons Inc., Hoboken, N.J., is focused on efforts of reform to pry loose entrenched practices of managements and boards that undermine shareholder interests, especially shareholder value.
As its subtitle reveals, the book centers on how CEOs and the Business Roundtable hijacked the worlds greatest wealth machine and how to get it back.
Mr. Monks makes a passionate plea to end the dominance of chief executive officers and to empower shareholders.
We live in the Age of the Imperial Corporation, maybe the only clear winner of the Cold War, he writes.
How can the corporate beast be tamed?
Im convinced that the large institutional funds need to lead the way, he writes. They have the clout to make themselves heard in the world that reports nothing so much as raw power. The pension funds especially have an obligation to take the long view in their investment strategies. For them, sustainable wealth creation is the issue.
How did imperial CEOs and boards controlled by them overrun shareholders and their interests?
Mr. Monks recounts a brief history of judicial decisions in favor of corporations that he contends weakened shareholder governance.
He makes excessive pay of CEOs a focal point of the power of CEOs.
The Business Roundtable, comprised of CEOs of major corporations, comes under particular criticism from Mr. Monks for its complicity in advancing CEO interests to the detriment of shareholders. He recounts the BRTs successful efforts to quash a proposal in the early 1990s to expense stock options and in this decade to give shareholders access to corporate proxy material to allow shareholders to nominate directors.
Mr. Monks, a longtime corporate governance activist, founded Institutional Shareholder Services, which became the most influential corporate governance research firm (and was acquired by RiskMetrics Group Inc. last year). He has the knowledge and experience and commands the authority to address corporate and shareholder issues. His book deserves to be read. However, one weakness is that Mr. Monks should have given recognition to the strides that investors, led by activist pension funds, have made in corporate governance reform, and their role, too, in sometimes delaying it.
In the early options expensing proposal, the Council of Institutional Investors opposed reform, although in recent years CII helped push companies to adopt it though shareholder proposals and ultimately a new rule adopted by the Financial Accounting Standards Board.
Mr. Monks is right to be disheartened at the defeat of shareholders on access. But not all shareholder activists believe access is the holy grail of corporate governance. Whats more, out of the defeat of access arose the push to require a majority vote to elect directors, now the policy of many corporations.
On pay, the SEC last year began requiring new disclosure of executive compensation, heightening awareness of excesses, while say-on-pay giving shareholders a nonbinding vote on executive pay has gained traction.
Mr. Monks might also have noted the success of shareholders in sweeping out underperforming CEOs and the declining tenure of CEOs as well as the role of securities litigation in forcing reform.
Even Mr. Monks would be happy about these developments. Much of the advances would never have occurred without the leadership of Mr. Monks and activists like him.