Shareholder Activist Robert Monks: Corporate Governance Still Lacking

by: The Manual of Ideas

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Corporate governance is a subject attracting much rhetoric and little change. With governance failures responsible in large part for corporate disasters, new and old, we find Robert Monks' commentary on the subject, and his efforts to change the status quo, a beacon of hope. Shareholder activist and corporate governance advisor Robert Monks recently gave a speech at Harvard Law School about the state of corporate governance. The entire speech was recorded (including the Q&A with students). Please click here to view the video.

We found the following passages from Mr. Monks' speech especially illuminating:

  • Three quarters of registered shareholders are fiduciary institutions.

  • We can no longer blindly accept the received wisdom as to the roles and responsibilities of owners, directors and CEOs. Categories simply do not perform as advertised.

  • It is naïve to think and act as if the current arrangement of power is not satisfactory to many who hold it. Our efforts will be a struggle for reallocation of that power.

  • The core problem has been the disappearance of any practical or legal respect for the fiduciary standards that ensure a beneficiary of the loyal competence of the person responsible for managing his property. We have tolerated conflicts of interest throughout the commercial system with the result of enriching service providers and impoverishing beneficiaries. Worse, this regulatory neglect has placed the conscientious fiduciary at a competitive disadvantage.

  • Is there genuine commitment to an ownership based governance system? [It must be said that no such commitment exists at present.] This commitment will need be made by government. If so:

    • There must be effective enforcement of existing law so as to require fiduciaries to take appropriate action to protect and enhance the value of portfolio securities, and
    • There must be arrangement for financing “activism” either as an appropriate corporate expense or as a designated portion of the investment management fees.
  • Peter Drucker has long raised the question as to whether the current standard of board functioning is so unsatisfactory as to require structural change.

Whenever an institution malfunctions as consistently as boards of directors have in nearly every major fiasco of the last forty or fifty years it is futile to blame men. It is the institution that malfunctions.

In the years subsequent to Drucker’s characterization, the inability of any portion of the governance structure to deal effectively with holding top management to account - the “smoking gun” being executive compensation - compels the conclusion of continuing systemic board failure. If the shareholder cannot hold the CEO accountable for his compensation, he has no right to assume that he exercises effective accountability in any other area.

Disclosure: No positions