Democracy - government by the people.Corpocracy - government by the corporation.
Kleptocracy - government by the corporate criminals.
Now there's a three step program Wall Street can relate to.
Brought to you by Robert Monks in his new book - Corpocracy: How CEOs and the Business Roundtable Hijacked the World's Greatest Wealth Machine - and How to Get it Back (Wiley, 2007).
Bob Monks ain't your wide-eyed hippy.
He's New England WASP.
Elite private schools - St. Marks School, Harvard, Harvard Law School.
Plugged into Wall Street at a young age.
Or as he puts it - "I belonged to the meritocracy of the well-born."
For the first forty or so years of his life, Monks was shaped by "unchallenged inherited values."
Then Monks moved to Maine in search of a political career.
He remembers driving past the International Paper Company plants in Livermore Falls, Maine and seeing the Androscoggin River "coated with six feet of foam glistening in the sun."
No one wanted the pollution in the river, but everyone justified it.
Public officials would say - "We know that the foam is poisonous, but the community needs the jobs."
Company officials would say - "We're in a competitive world, and we can't afford expenses that our competitors don't have to pay."
And while the workers and town people could clearly see the threat, they couldn't figure out a way to deal with it.
"Contemplating that foam introduced me to the unintended consequences of corporate functioning on society and led me to question for the first time whether the great corporation was a kind of Frankenstein creature," Monks writes.
Bob Monks loves capitalism.
But hates the capitalists who abuse it.
In other words, Bob Monks ain't no Richard Grossman.
Monks believes in quaint ideas like enforcing the fiduciary duties of pension plan trustees.
While Grossman would dismantle the corporate state, Monks simply wants to enforce the law.
Not that the corporate state takes kindly to the Monks' enforcement program.
After all, as Monks points out, corporate power has become dominant in the United States and CEO power has become dominant within corporations.
Monks confronts the reality that "the institutional investors, comprising a majority of ownership of public companies, have turned their backs on their fiduciary duties and acted to entrench the existing system of power."
And he confronts the reality that "there has been virtually no enforcement at any level of the obligation of these trustees to consider the primacy, indeed the exclusivity, of their beneficiaries' interests."
Monks is a corporate governance activist. That means, he prefers shareholders to management, and active shareholders to passive shareholders.
Because trustees couldn't be expected to inform themselves about the ownership issues for the thousands of companies in their portfolios, Monks helped set up Institutional Shareholder Services to provide cost-effective information and voting services.
Later, he set up a group called LENS to raise what he considered the most important ownership issues. He helped start something called The Corporate Library which measures the actual cost of bad corporate practice. And Trucost - which provides environmental impact information.
In Monks' worldview, it's the failure of big shareholders - the Harvard Foundation and the Bill Gates Foundation, among others - to be active in their oversight of management that has caused "many of the cancers that characterize the unacceptable present form of the corporate state - what I call the corpocracy."
The corpocracy laid the groundwork for the kleptocracy - government by the CEOs who ripped off the shareholders.
"History will look back on the 1990s and the early 2000s as a time when the principal officers of public American corporations transferred from shareholders to themselves approximately $1 trillion - or ten percent of the market value of public exchanges," Monks writes. "This must be the largest peacetime movement of wealth ever recorded, and it was accomplished through stealth that amounted to theft an in a spirit of regulatory permissiveness that certainly rises to the level of criminal neglect. That is the hard and shameful reality of our times. We saw it coming, watched it happen, booked our profits and did nothing about it until far too late. If we fail to learn the lesson from that, we'll only double our shame."
Having spent much of his adult life creating the architecture for corporate governance in America, Monks is harsh in his critique of his own work.
Ninety percent of corporate governance in the US is "an effective nullity," he writes.
"It pains me to write these words, but no other ones are appropriate when I reflect on the tried and true remedy of conferring on shareholders the simple right to call a meeting and to remove directors, and how far away such an eventually is in the United State," he says.
As for controlling skyrocketing CEO pay, he also admits defeat.
"The illusion is that we do have a system of checks and balances that oversees executive compensation and that allows market forces to flow through fairly to the paycheck," he says. "The reality is that CEOs in essence pay themselves and do so in ways that need not be disclosed or approved by anyone."
"The only credible explanation for skyrocketing CEO pay is the competent, motivated, and highly greedy men who most benefit from it," he writes. "God in heaven did not suddenly decide one day that a CEO was worth ten times what he was previously worth. This was not something the stork brought. Stock options didn't come about through one of those blinding moments of revelation such as Saul received on the road to Damascus. This money-grab has been engineered by mortal men - and therefore prone to sin - conspiring to bully the score keepers - accountants and legislators - so that the frequently functional idiots on captive compensation committees and boards could be induced to 'align executive and shareholder interests' through the exercise of super mega grants to those who set the deal in motion in the first place."
And while the CEOs were stealing from the shareholders, they were also organizing to neuter the corporate crime police in Washington.
Monks tells the story of a run-in he had with former Securities and Exchange Commission (SEC) chairman Harvey Pitt.
Pitt was complaining in jest about the significance the SEC had placed on a new requirement contained in the Sarbanes-Oxley legislation that requires CEOs and CFOs to personally certify their companies financial statements.
"Harvey," I told him. "As a director of public companies, I have been certifying financial statements for the last twenty years. What's the big deal?"
Pitt's reply - Bob this time we really mean it.
"But they don't," Monks writes. "The SEC's existence perseveres in an ugly equilibrium of lobbyist control and a cozy pattern of high-ranking staff moving on to positions at Wall Street law firms. The elements of the SEC's failure are inevitable in any system that has corporations as participants - especially the corporation as it has evolved in recent decades. Business interests are today extremely effective at lobbying both the President - the SEC's boss - and Congress, which controls the SEC's budget. This pincher movement has been able to blunt the integrity of the SEC's prosecutorial initiative and compromise even the best of those picked to lead it."
Monks is old school. He believes that only the large holders of corporate equity - the Gates Foundation and the Harvard Foundation - have the power to step up and stick to the greedy CEO class.
"The Gates and the Harvard Foundation can choose to exercise their ownership obligations, or they can conclude that no action is a preferable course, a collective failure that I'm convinced would imperil the greatest wealth producer in history - the business corporation," he writes.
"They have the choice of imposing the language of accountability on the commons on which they have long grazed and grown so wonderfully fat - that is, the common pasture of publicly traded stocks and the corporations that stand behind them," he says. "Or they can continue to exploit this common ground without feeling any correlative obligation to contribute to its upkeep and sustainability, a choice that would in the last analysis be self-destructive."
"There can be no genuine accommodation of corporate power and the public good in a free society until a language of accountability is developed - a language that comprehensively, fairly, and effectively allocates costs and rewards. Laws must be based on information that is as full and accurate as possible. The books can't be cooked. Oversight has to be open and free."
Again pointing the finger at the large institutional investors like Harvard and Gates, he quotes the medieval philosopher Maimonides.
"If not you, who? If not now, when?"
© 2007 Corporate Crime Reporter