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Article Translation:
Pioneer of Corporate Governance
In 1991 Bob Monks entered into a
phase of maximizing shareholder rights as an investor himself. Monks bought 100 shares of US retail
giant, Sears, Roebuck & Co., and then decided to run for the Board of
Directors. Monks argues, “the
language of the law always says the shareholders elect the Board, but it’s
untrue. The CEO appoints people to
the Board and they print a ballot but all you’re really doing is participating
in a farce.” “I wanted to ask the
critical question: who is the Board of Directors?” Monks explains.
It is
not that Monks wanted to play the part of Don Quixote and wage a battle
against all large corporations. Having
been a lawyer, a top executive of a financial firm, and taken part in pension
fund policy at the US Department of Labor, Monks had simply out-surpassed the
standard level of experience of an individual investor. When choosing his target company, he made
a list of candidates and after having analyzed each one in detail, he decided
on Sears, a company that had forayed into the finance industry and was
performing poorly.
Also,
because he had managed ISS, a consulting company for institutional investors,
he had a pipeline to major US pension funds.
Ultimately, though he did not win the vote at the Sears shareholders’
meeting in May of 1991, Monks shocked the people involved by gathering more
than 10% of their votes. “It was
entirely a victory,” Monks says.
“American law says if you are a shareholder you have a right to run
for the Board. So I ran for the Board
just to illustrate for everybody how absurd it was that there was no way that
even someone like myself, who has been chairman of a bank and run a federal
agency, could not be on the Board of a corporation.”
The
following year, at the 1992 Sears shareholders’ meeting, he began a movement
supporting shareholders’ proposals demanding restructuring. In May of that year, Monks put out a
full-page ad in the Wall Street Journal.
Under an illustration of the silhouettes of the Directors of Sears,
“Non-Performing Assets” is written in bold letters, sharply criticizing the
Board. Monks’ activities raised
increased awareness among Sears investors, ultimately resulting in a
restructuring of management.
The same
year in 1992, Monks founded LENS, a fund that invests in troubled
corporations and then increases their value by aggressively reforming
management as a shareholder. Monks
explains, “it was clear that you had to have proof that activism was not just
people with a lot of high minded social ideas, but that activism was
something that added to value.” In
the eight years since its founding to 2000, LENS has invested in 25 US corporations. The fund’s performance greatly
outperformed the S&P 500 index.
In the
midst of this great performance, Monks decided last year to sell his
ownership of LENS and withdraw from its management. “My objective wasn’t to make money. My objective was to prove this one point that an activist
shareholder could outperform passive management. And when I had proven the point, I was free for other places
where there was a need to advance the governance agenda,” he says.
Currently
Monks is writing for a corporate governance information website that he
established, as well as shifting his attention more and more to Europe. Along with the large British pension fund,
Hermes, Monks is working to create a fund similar to LENS in Europe.
The
period of the 80’s and 90’s during Monks’ activism as a proponent of
corporate governance, coincided with the long-term bull market in the
US. Monks argues, “the sense that
American governance was good had a lot to do with making this an attractive
place for people outside of the US to invest.” But at the same time Monks warns, “in the US we have not been
successful in placing a reasonable limit on CEO pay, and that is evidence
that we have much more work to do.”
“In the
US all the work is being done by the public pension funds like CalPERS and
TIAA-CREF. The private pension funds
do nothing,” Monks laments. “Company
pension funds have an inhibition against being active because they don’t want
to upset the chief executives of other companies. It’s disgraceful, it’s shameful, and the government permits
this conflict of interest to exist.”
Monks
was planning to invest in a Japanese fund last summer, but decided against
it. “I haven’t had any opportunity to
expand operations in Japan,” Monks says of the present situation. In Japan where corporate governance lags
far behind, we eagerly await the manifestation of a Japanese version of Bob
Monks.
[New York, Tetsuji Santazono] |