Bob Monks is that most dangerous of revolutionaries: he does not want to overthrow the system, he wants it to live up to its stated aims and methods. In his new book, Corpocracy, he brings a lifetime of experience as an investor and shareholder activist to a trenchant depiction of how this age of CEO excess came about.
While others have noted that CEO compensation has created an unparalleled class of mega-wealthy individuals, the usual complainants are the axed workers or the retirees whose pensions have evaporated. But Monks points out that shareholders have also been looted. His thesis is that big company CEOs have collectively suborned the law and regulatory regimes to achieve their ends. ‘Out-of-control CEO compensation is the symptom, the smoking gun, but corpocracy and the discontinuity it has created with our political traditions is the real disease, the ultimate reality,’ writes the man who has spent decades trying to put checks and balances against ‘imperial’ corporate power.
Monks quotes Alan Greenspan, who says the ‘CEO-dominant paradigm’ will continue unless ‘large, primarily institutional, shareholders … exert far more control over corporate affairs than they appear to be willing to exercise.’
While Monks berates shareholders for their reluctance to act as owners, he also excoriates the courts and the regulatory agencies for allowing CEOs to thwart initiatives such as those allowing shareholders to nominate directors. He scorns as ‘hokum’ the push for independent directors, pointing out that in the absence of shareholder nomination, CEOs invariably choose the board – just as they pick the compensation committee.
Monks puts much of the blame on the climate of legal and social opinion created by the former Supreme Court Justice Lewis Powell, in tandem with the Business Roundtable, which he characterizes as a cross between a cabal and a craft union for CEOs.
Sound paranoid? The Business Roundtable’s approach to RiskMetrics to avert discussion of Henry McKinnell’s $198 mn remuneration package from plummeting Pfizer gives plenty of reason for Monks to feel so. He contrasts that sum with Jeff Immelt’s $3 mn payout from GE the same year.
Monks sees the current fad for private equity as a way for the legal owners of enterprises to ‘toss the bums out’, ‘rein in outlandish pay schemes’ and ‘force the CFO to play fair with the books.’ But the purpose of private equity is to realize the hidden wealth in a firm, which ultimately implies a public valuation only the stock markets can provide, so a solution remains elusive.
How will things change? Monks suggests that investors will go to other countries where shareholder rights are better protected, but his main hope is for a change of heart. He hopes the government and courts will put some truth in the pious fiction that shareholders own the companies in which they have an interest, and that institutions such as Harvard University and the Bill & Melinda Gates Foundation will see that ‘doing good and doing well gives ethics the sinew and legs it needs.’
