SAVING CAPITALISM FROM ITSELF

THE NEW GLOBAL INVESTORS:
How Shareholders Can Unlock Sustainable Prosperity Worldwide

By Corporate Governance Pioneer Robert A. G. Monks
To Be Published in June

PORTLAND, ME, May 10, 2001 -- Robert A.G. Monks, in his latest book, proposes a bold solution to the problem of corporate behavior that could be the undoing of capitalism: social irresponsibility. In The New Global Investors: How Shareholders Can Unlock Sustainable Prosperity Worldwide (Capstone Publishing), available in bookstores in June, Monks calls for a new meaning of ownership by the "new global investors"- trustees of mutual funds and pension funds who today control roughly half of publicly traded shares of stock.

Monks, a pioneer of the corporate governance movement known for establishing modern management accountability, asserts that the rise in the equity-based wealth of pension plans puts them in an important historical position. "By exercising their fiduciary duties to increase the wealth of their beneficiaries, they can literally change the world, since so much of the world is theirs," he says.

An ardent capitalist, Republican and corporate director, Monks is also an outspoken critic of the modern corporation's behavior. "Rather than freeing human genius, the modern corporation, in many instances, is holding it captive." The market system, he believes, is the best system yet created to bring prosperity to the many. But it must be fixed from within to save itself and avoid the fate of power centers of the past, such as the church and monarchy, which left society poorer and eventually succumbed to their own surpluses and stagnation. Monks foresees an avoidable collision between the boundless growth of large corporations and the long-term welfare of the populations they serve.

The New Global Investors explains that pension funds have a fiduciary responsibility to provide retirement security for plan participants, and plan trustees are legally responsible to invest in their beneficiaries' best interest. Plan sponsors therefore have a duty to demand that managements of the companies in their portfolios are not only working effectively to maximize profits today, but also acting in a socially and environmentally responsible manner to ensure sustainable value for the future.

Specifically, Monks suggests that the "new global investors" adopt a three-point Global Corporate Constitution requiring the companies they invest in to: 1) fully disclose their impact on society; 2) reveal how much they spend on involvement in the elective, administrative and regulatory public processes; and 3) obey the law, which, due to point 2 has not been improperly influenced by corporate power. These three elements form an interrelated and self-reinforcing basis for corporate accountability.

Active ownership by institutional investors has been demonstrated to result in better stock performance over time, most notably as shown in a June 2000 report by McKinsey & Co. Growing evidence, discussed in Monks' book, builds a strong case that good corporate citizenship adds long-term value. Socially irresponsible behavior will result in externalized costs such as environmental damage and risks to public health. Eventually those costs are reflected in the company's stock price when the market perceives increased risks to future revenue from loss of reputation, lawsuits and fines. Developing changes in accounting, which aim to more accurately reflect intangible assets and liabilities, will make those costs yet more explicit. In short, a poor social or ethical record destroys shareholder value over time.

The New Global Investors sketches a provocative history of investing from the East India Company to Viacom and Microsoft, outlining the anatomy of the modern corporation and identifying where things went wrong. A visionary who has often proven himself to be more than one stroke ahead of a wave, Monks uses history to trace a broader framework around the corporate governance movement of the 90s. He moves the debate beyond traditional questions about managements' accountability to shareholders to focus on the shareholders' responsibility to protect their companies' futures.

Monks is recognized as a world authority on corporate governance. Best known by many for his leadership in landmark proxy battles against companies including Sears Roebuck, Waste Management, and Pioneer Group, Monks has sat on every side of the corporate table: he has been a corporate attorney, a top appointee at the U.S. Department of Labor under President Reagan, CEO of an energy company, Chairman of the Boston Company and Director of ten public companies. He is the founder of Institutional Shareholder Services, the leading corporate governance consulting firm, and founder of Lens Investment Management, the shareholder activism specialist. He is also well known for his governance work in Europe.

Robert A. G. Monks lives in Portland, Maine, and devotes much of his time to traveling across the globe speaking on corporate governance issues. He maintains a Website, www.ragm.com, dedicated to global corporate stewardship. The New Global Investors is Monks's fifth book.

See also: The New Global Investors