BOOKS: Robert Monk’s “Citizens Dis-United” — an articulate argument for change from a one-time Wall Street insider
From his perch on the coast of Maine, an octogenerian steeped in the ways of Wall Street investing and governance is fighting a battle for change. In his book, Citizens DisUnited: Passive Investors, Drone CEOs and the Corporate Capture of the American Dream, Robert A.G. Monks offers a “call to arms” to American citizens to defend our capitalist democracy.
By documenting corporate capture and describing the prevalence of managerial opportunism, Monks delivers a striking critique to the modern corporations and their shareholders. Monks, who is a co-founder of the corporate governance proxy firm Institutional Shareholder Services and an alumnus of Harvard, also carefully documents the ways in which boards of directors and CEOs retain absolute control over the companies they run.
With help from Delaware court interpretations, which Monks believes are tainted by an interest in retaining board-insulating statutes, CEOs have defended their power over the corporate ballot in the face of repeated advances by activist shareholders. After all, why would CEOs grant shareholders a channel through which their own pay and job security could be disrupted? Consequently, and perhaps predictably, CEOs grant lavish pay not only to themselves but also t0 their board of directors.
As the owners of corporations, shareholders lack sufficiently strong tools with which to discourage or reverse managerial misconduct or address concerns associated with flawed corporate governance structures. However, the power of owners to exert control over corporations is strengthening in some ways, as Monks describes.
For example, Monks notes the prevalence of staggered boards in public American corporations. Staggered board provisions allow only some portion of the board—usually one-third—to be up for election each year.In practice, for shareholders, staggered boards limit potential changes in board representation. For example, a dissident shareholder could not replace the entire board of directors if the company’s board was staggered. The restrictive effects of staggered boards on shareholder influence are intensified by the tendency of board nominees to come from the choosing of management rather than from shareholders.
In this sense, CEOs are able to systematically re-populate the board of directors with people who will serve the interests of the CEO—further undermining the influence and interests of shareholders. However, staggered boards have been on the decline especially in large American corporations.
Perhaps stirred by corporate scandals at Enron, WorldCom, and others, shareholders, policymakers, and the U.S. Securities and Exchange Commission have been active in strengthening the ability of shareholders to influence corporate decision-making. In addition, and more recently, academics such as Harvard Law School’s Lucian Bebchuk (See: “The Long-Term Effcts of Hedge Fund Activism”) have advocated for the right of shareholders to modify the corporate governance arrangements of corporations. Shareholders have also taken aim at the structure of the corporate ballot, the makeup of the board, and the ability of shareholders to amend corporate bylaw in order to help shareholders exert control over the companies they ostensibly own.
Monks work is captivating, comprehensive, and indispensable to the current “shareholder democracy” movement. His books is available here.