Robert A. G. Monks, Corporate Governance Activist, Wins Frankel Fiduciary Prize

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NEWS RELEASE
 
Sunday, July 21, 2013
 
Robert A. G. Monks, Corporate Governance Activist,
Wins Frankel Fiduciary Prize
 
“A life in the arena, fighting to make the market a fairer
and safer place for the American shareholder.”
 
Washington DC – July 21, 2013 – The Institute for the Fiduciary Standard today announced that Robert A. G. Monks is the first winner of the Frankel Fiduciary Prize.
 
“Bob Monks has been an outspoken advocate and prolific author on corporate governance, transparency and democracy. At the heart of much of his work has been restoring management accountability to shareholders, the ultimate owners,” noted Knut A Rostad, president of the Institute for the Fiduciary Standard.      
 
Robert A. G. Monks was appointed a founding trustee of the Federal Employee Retirement System by President Reagan, and also served in the Department of Labor, as Administrator of the Office of Pension and Welfare Benefit programs. He also was a founder of Institutional Shareholder Services, and co-founded The Corporate Library (now Governance Metrics International.) Monks found the Hermes Lens Fund, and has served as a director of twelve publicly traded companies.
 
Monks has authored or co-authored eight books, published more than a hundred papers, and, with Nell Minow, published five editions of CORPORATE GOVERNANCE. He was the recipient of the Award for Outstanding Financial Executive from the Financial Management Association in 2007. The New York Times profiled Monks earlier this month. http://www.nytimes.com/2013/07/07/business/mutfund/robert-ag-monks-crusading-against-corporate-excess.html
 
The Frankel Fiduciary Prize has been established to acknowledge individuals who have made significant contributions to the preservation and advancement of fiduciary principles in public life. The prize is named for Professor Tamar Frankel, the Michaels Faculty Research Scholar at the Boston University School of Law.
 
The Frankel Fiduciary Prize Selection Committee members are:
 
Brooksley E. Born, Retired Partner, Arnold & Porter LLP
John C. Coffee Jr., Committee Chairman, Adolf A. Berle Professor of Law, Columbia Law School
Deborah A. DeMott, David F. Cavers Professor of Law, Duke Law
Andrew K. Golden, President, Princeton University Investment Company
Knut A. Rostad, President, Institute for the Fiduciary Standard
 
 
John C. Coffee, Committee Chairman, noted: “"Bob Monks is the perfect choice to inaugurate what we hope will be a long tradition of recognizing those persons who over a career have worked to protect and safeguard the position of the investor. While also a prolific writer and theorist of corporate governance, he has lived a life in the arena, fighting battle after battle to make the market a fairer and safer place for the American shareholder. Whether or not it realizes it, the proactive hedge fund of today is following in his pioneering footsteps.”
 
The Institute will hold a forum in Washington in the fall where Monks will receive the prize. 
 
For more information, contact Knut A Rostad at 703-821-6616 x 429, or 301-509-6468 (cell).     
 
The Institute for the Fiduciary Standard it is a non-profit formed in Virginia to benefit investors and society by advancing fiduciary principles through research, education and advocacy. For more information: www.thefiduciaryinstitute.org.
 
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Endorsing Eliot Spitzer

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I am endorsing Eliot Spitzer for Comptroller of the City of New York. The prospect of Spitzer back in government service is really exciting. Through his leadership of the several city employee pension funds, the Comptroller can be – in the tradition of Harrison Goldin, among others – one of the most important forces for responsible corporate conduct in the world.

Look, we all know Spitzer’s history but mistakes like that don’t mean the man isn’t a good public servant. History is full of public servants with private peccadilloes and we shouldn’t deprive ourselves of good government service because the politician has personal issues. We need his intellect, his tenacity and his ability to affect change. I am grateful for his willingness to serve; I endorse his candidacy unreservedly.

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The Political is Commercial: Washington's Revolving Door

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The political is commercial — it's a play on the seventies slogan, "the personal is political."  But it's true and it came to mind recently as I read Eleanor Bloxham's article about SEC Chair Mary Jo White and Washington's "revolving door." To put it simply: government jobs are worth something to law firms and corporations and so employees are dispatched to Washington for a year or two to further entrench the company or firm in government workings.  When a lawyer or executive leaves their job for a year or two to take a government position, they expect it to be beneficial for both themselves and their company.  It seems unlikely they worry about whether it's beneficial to the public.

There is a fundamental difference between the perspective and the view point of a public official and that of an official in a private company.  And it is just right that they should be different.  The difficulty we now face is that they been merged and the controlling consideration is what is in the interest of the private sector company.  The government language and perspective is now dominated by corporate interests. 

It's worth noting that this is the silent sister issue to corporate political spending.  Even if we solved that issue by overturning Citizens United or some other method, corporate influence would still be a pervasive and destructive issue in Washington.

All of this brought to mind two anecdotes from my time as a government official in Washington and I share them on this video. 

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Discussing the book on Reuters TV

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I was interviewed for Reuters TV when I was in New York last week.  I had the chance to talk with Rob Cox and explain the theory behind Citizens DisUnited.  It really was an excellent interview and I think he was able to draw out some good explanations behind the book.  Whether you've read the book or not watch this because it is one of the best short introductions to the book.

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Privatization: Letting Foxes in the Henhouse

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Recently I read Rachel Maddow’s book, Drift: The Unmooring of American Military Power (2012). I’m a bit late to this party, perhaps, but the book brought some issues into sharp focus for me. In particular, this issue of privatizing services – in the case of Maddow’s book it’s military services – that were once performed by our government. Now we pay for them. (Note: I wrote more on Maddow's book here)

In the Iraq War we saw the explosive growth of contract workers used for military and political purposes. The Washington Post wrote in 2006 that there were 100,000 private contractors in Iraq. But even before that we were moving in this direction. Maddow tells us that in,

1992, the US Department of Defense did a few hundred million dollars worth of business with companies like Brown & Root Services Corporation, which was owned by Halliburton with Dick Cheney as CEO. By the time President Clinton left office, the Department of Defense had formalized more than three thousand contracts valued at around $300 billion. The Pentagon wasn’t even able to state definitively how many private workers were on the military’s payroll through these contracts – estimates ranged from 125,000 people up to 600,000. (p. 174)

The Iraq War gave us a chance to see the process in a “real war” and it seems certain that we’ll see more wars and “conflicts” and “interventions” run this way. It’s a political win-win situation. No draft – because certainly politicians are good enough historians to have learned that lesson. And public willingness to support the war may have waned far sooner if young Americans from Main Street had been subject to a draft.

So, the brunt was borne by the consultants — about whom it has been pointed out were paid to take that risk — and there wasn’t any political hazard in it for the “deciders” in Washington. We have privatized violence.

And then there is the private prison industry lobbying like mad against the decriminalization of narcotics because quite sensibly they understand that if you decriminalize narcotics you won’t need as many jails, and that’s bad for business. A 2011 report by the Justice Policy Institute details the amounts of money spent by for-profit prison companies and,

While private prison companies may try to present themselves as just meeting existing‚ demand‛ for prison beds and responding to current ‚market‛ conditions, in fact they have worked hard over the past decade to create markets for their product. As revenues of private prison companies have grown over the past decade, the companies have had more resources with which to build political power, and they have used this power to promote policies that lead to higher rates of incarceration. (Gaming the System: How the Political Strategies of Private Prison Companies Promote Ineffective Incarceration Policies, p. 2)

And there’s the difference: government provides these services to meet a public need while corporations provides these services to make money. And the drive to make more and more money is ever-increasing. Either there has to be more demand for the service or they have to charge more for it.

Is there a clearer illustration of just how offensive privatization of key government services can be?

In a properly regulated democracy there ought to be certain functions that are operated by the government and the populace participates in – by voting, by first-hand participation and by paying taxes. But the accelerated pace at which we’ve been privatizing government services has redefined our democracy. Citizens can ignore the uglier parts of our system, politicians can avoid sticky situations and corporations can get rich as what used to be government responsibilities are subcontracted out to private parties. It is noteworthy that the private parties are a few companies who are owned by and run by people with political connections – it’s no mistake that these services have been privatized and it’s no nebulous military-industrial complex. It was the concerted efforts to expand corporate enterprise into government services.

And, we must have learned by now that corporations are not in this for the public good. If they were they wouldn’t be stashing money in tax havens, creating synthetic derivatives, pouring money into politics and stripping regulations that affect safety and the environment. The education and safety of American citizens shouldn’t be subject to the whims of corporations and the salaries of CEOs. We’re letting the fox into the henhouse.

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A Stacked Deck: JPMorgan Shareholder Fight

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In my business, it seems you only win the ones that don’t count. In my case:
  • Sears pulled out all the stops to keep me off the board;  
  • After winning a 40% precatory vote to separate the CEO and Chairman at Exxon two years running, support fell to 30% when we changed it to a mandatory amendment.
 
The Jamie Dimon situation at JPMorgan has been so public that it must be clear to everyone by now that a process that allows the company to keep track of the voting results while denying the same right to challengers is not meant to be fair. Dimon & company “threw everything they had” at shareholder efforts to separate the CEO and chairman positions and, according to today’s Global Proxy Watch newsletter ""this included at least $5 million. 
 
Company directors fall in line to defeat measures like this because they don’t want shareholder success to spread to their own companies.
 
The cards are stacked against most stock owners. With the exception of the Carl Icahns and people like him –billionaires who can afford the otherwise crippling legal and administrative costs, the current state of shareholder democracy is a nullity.
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Loopholes, Islands and Havens

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Tax avoidance is hot news – and especially because American tech darling Apple was called before a Senate subcommittee to explain why they paid such very low taxes in this country despite earning billions in revenue. 
 
Today we hear of world leaders calling for international tax laws to deal with the issues of tax avoidance, tax havens, offshore treasure islands and the like. And while this would seem like good news, it just shows the capacity of the multinational corporations to dominate the agenda and resource allocation of nation states. Corporations get out in front of the laws – creating products and situations for which we do not yet have regulation. What we then have is a wild-west situation with cowboy corporations pushing into to lawless areas until governments catch on.
 
We have been focusing on the lack of accountability to domestic government institutions but the situation is much more extreme when one turns international. No, this is not the beginning of international corporate law. When the dust clears, we may see weak agreement among the multinational drone corporations to voluntarily restrict their own activities – but we know how well that works. And, if they were truly going to act nice of their own accord why do they have entire legal and tax departments seeking out loopholes and havens in the first place? Maybe this is a first effort at wrangling these wayward corporations on the tax haven issue but the asymmetry of power between the corporation and the nation-state is stark. 
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Corporations Are Not People: A book to inspire a movement

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Jeffrey Clements’ book, Corporations Are Not People, is an indispensable source of information and analysis on the present state of corporate power in America. What is particularly valuable is the cogent analysis of such a contradictory and dysfunctional conclusion.  It’s an indispensible source of the who/what/when in the Citizens United timeline. 
 
Corporations Are Not People also spells out a way this can be solved. It’s a courageous book because what he’s recommending is not easy. But then, this is not something that is beyond the power of human beings to accomplish – we can amend the Constitution. It’s very, very daunting but his focus on this (and if you’ve followed his work at all you know his dedication to this effort) and his willingness to devote so much of his intellectual energy and time is very moving. 
 
From the very beginning, Jeff Clements knew what Citizens United would mean for our country. He submitted an Amicus Brief in the case and spoke widely before most of the public caught onto the issue.  He hasn’t stopped and this book is an important resource. Read this book if you’re interested in overturning/fixing/amending the issues in Citizens United.
 
It is the kind of book that all successful movements have to have as their bible.
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Human Behavior vs. Corporate Behavior

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A few years ago — around the time of the 2010 Citizens United decision — I was thinking about "corporate citizenship" and corporate "speech."  These ideas don't make sense to me.  Corporations are a legal construct — something made by humans — and yet we've given them human rights, as it were. 

Then I started to compare human behavior to corporate behavior.  Though I'm no expert in human behavior, I'm pretty knowledgeable about corporate behavior.  Corporate behavior is determined by the goal of profit maximization while it seems to me that human behavior is unlimited and dependent upon experience and situation.  Humans have feelings and desires.  Corporations do not.  With these thoughts in mind, I began to make lists of typical behaviors in regards to ethics, accountability and modes of functioning.

I find myself coming back to these lists often — they may not be perfect indicators of all human behavior but they seem pretty solid regarding corporations.  These "corporate citizens" we've created underlie so much of my current thinking.  Who are they speaking for when they speak?  Who benefits when they lobbying government?  Who is helped when they contribute to political campaigns? And most importantly — if they are citizens in their own right, then to whom are corporations accountable?

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