What will be the impact of active shareholders? A practical recipe for constructive change

Long Range Planning

Volumn 32, Issue 1, 1999, Pages 20-27

  Monks, Robert A G ^a  

^a NONE

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EID: 0039130913     PISSN: 00246301     EISSN: None     Source Type: Journal    
DOI: 10.1016/S0024-6301(98)00121-6     Document Type: Article

References (26)

1. James Willard Hurst, The Legitimacy of the Business Corporation in the Law of the United State 1780-1970. U.Va.Press (1970) p. 88.
2. Jeff Gates, The Ownership Solution - Toward a Shared Capitalism for the 21st Century, Addison Wesley (1998), p. 35. "Senator Russell Long, Chairman of the Senate Finance Committee at the time, assumed me that these huge accumulations of capital [pension funds] were neither foreseen nor intended."
3. Accountability must be clear and simple. There cannot be effective accountability to different classes of shareholder. The nature of pension fund beneficiaries as spelled out below most nearly approximates that of society as a whole. There can be no question of running corporations for the short-term benefit of arbitrageurs.
4. Milton Friedman, Capitalism & Freedom, University of Chicago Press (1962) p. 133.
5. Jeffrey Goldberg, Big Tobacco Won't Quit, The New York Times magazine, June 21 (1998) p. 36. et seq.
6. Big Tobacco Wins One, The Economist. June 20 (1998) p. 32.
7. Nicotine Fix, Common Cause Corporate Welfare Project - The Hidden Story of Soft Money, Corporate Welfare and the 1997 Budget & Tax Deal (1997), p. 30-31.
8. Steve Campbell, Washington Watch, Maine Sunday Telegram, 21/6/98.
9. Goldberg, op. cit. supra.
10. Jeffrey Taylor and Phil Kuntz, Despite Polls, GOP Doesn't Fear Voted Heat on Tobacco. Wall Street Journal, 25/6/98, p. A24.
11. Goldberg, op. cit. supra.
12. Richard Kluger, Ashes to Ashes - America's Hundred-Year War, the Public Health, and the Unabashed Triumph of Philip Morris (Knopf, 1996), p. 618.
13. The commitment may be minimal but the dollars and sense impact on the beneficiaries may be very large. Former New Jersey pension fund Chief Investment Officer Roland Machold estimated the costs of South African Divestiture at over one half a billion dollars.
14. Honorable Richard Blumenthal, Attorney General of the State of Connecticut, speaking at the 25th Anniversary of IRRC in Washington D.C., Spring 1997 (Internet).
15. Bellotti vs Bank of Boston, Buckley, and so forth.
16. Korten, op. cit. supra.
17. Robert A.G. Monks, The Emperor's Nightingale (1998), p. 172.
18. David Korten, The Responsibility of the Business to the Whole, posted on the Internet, 19/6/98-"To ask the corporation to be responsible in some way to a broader set of stakeholders for meeting a variety of often vague and fragmented standards is to deny its nature as an institution designed to pursue a single clearly defined objective for a single interest constituency. It essentially means asking the corporate CEO to be responsible for making value choices on behalf of the corporation's shareholders, customers, and the society beyond profit maximization. Even if the law and the corporate board were to grant a CEO such discretion, what reason do we have to expect she will exercise it to the larger benefit of larger society. To whom and through what mechanisms is a corporate CEO accountable for the exercise of this discretion?"
19. Jacques Bughin and Thomas E. Copeland, The Virtuous Cycle of Shareholder Value Creation. The McKinsey Quarterly, 2, (1997) 156, 167.
20. An outstanding exception in the United Kingdom is the leadership of Hermes CEO Alastair Ross-Goobey in successfully challenging the excessive length of "rolling contracts".
21. SWIB - State of Wisconsin Investment Board.
22. Performance can be quantified with reference to the industrial average as a whole or particular industry sub segments.
23. How bad is bad? This will be impossible to answer to everyone's satisfaction, but it might be useful to think of total return to shareholders over several periods of time - The Wall Street Journal does an annual edition showing returns over 1, 3, 5 and 10 years - and say that drastic underperformance is assumed to be the bottom decile or even quintile.
24. I am relying on the fact that institutional investors in the U.S. (top 100 companies) and U.K. own collectively over 60% of the total outstanding stock. There are public records as to who are these owners; there are competitive proxy advisory services that allow for cost/effective decisions on ownership alternatives. The important new ground is to place on each institution the obligation of working with their fellow shareholders in drastic situations. This happens often, naturally, in both the U.S. and the U.K.
25. In demonstrating how conduct was in aid of "beneficiaries'" interests, it will be essential - when appropriate - to explain the other business relationships with the focus companies and how those commercial interests were effectively subordinated.
26. Before concluding that this is unfair and places too great a burden, one should understand that money managers and consultants are among the most highly paid classes of worker in the world and that includes movie stars, football players and talk show hosts. You should see a rather splendid film WAG THE DOG, if for no other reason than to appreciate its Beverly Hills location with is the $52 million house of Wilshire Associates principal Dennis Tito. Ned Johnson, the inheritor and builder of Fidelity, is thought to be worth in excess of $5 billion. If you wonder why institutional investors have failed so utterly in their indispensable role as monitors of corporate conduct where managers have conflicting interests - quintessentially in the area of setting their own pay - it is well to remember that level of compensation is really not a subject that lies well in their mouths.