By Ciara Torres-Spelliscy
Robert A.G. Monks, a long-time expert on corporate governance, is not known for mincing his words, and his latest book Citizens Disunited pulls no punches. He wants big investors to start using their influence to push back. Writing about corporate political power, Monks warns that “money buys voices, ears, face time, and sit-downs, but it also buys silence.” It is the silence in service of the status quo that he interrogates throughout his short, hard-hitting tome.
While soft celebrity news has found its way onto the CNN news ticker, an underappreciated struggle for the soul of American companies has been under way. In Citizens Disunited, Monks pulls back the curtain to reveal the broad outlines of a battle that has been raging for decades, largely outside of the public’s gaze, between activist investors and the companies that they own.
As Monks, who literally wrote the book on Corporate Governance, sees it, the little guys have largely lost in their attempts to reign in executive compensation, sky high options and managerial perks like the personal use of corporate jets, money for pet projects and campaign funds—all of which are provided at shareholder expense.
As Monks explains, there are many reasons why “corporate democracy” as it is currently practiced is a failure. First, unlike the election for President where voters get to choose between at least two candidates, in board “elections” there is usually only one candidate on the ballot. Second, even board members who fail to get a majority vote can still continue to serve. And finally, shareholder proposals that make it onto the proxy are purely precatory. In other words, the board can ignore the result of the vote. All of these practices tilt the balance of power firmly towards corporate management, and away from shareholders.
Monks drills down to where the legal flaws started… tracing the dubious citation to the 1886 case that established—in a headnote inserted by the court reporter—that corporations are persons for 14th Amendment purposes.
A Republican from Maine, Monks paints a grim picture of the S&P 500 and many of their CEOs, who often lack the care expected of a true fiduciary. But he also methodically indicts those who enable CEOs, such as rubberstamping boards, institutional investors who habitually sit out proxy fights, and a judicial system which mistakenly trusts corporations to self-regulate.
Monks’ jumping off point for examining judicial failure to check corporate power is the Supreme Court’s 2010 folly, Citizens United. In blunt, straightforward, language he lays out some of the problems that have followed from this decision, which allowed corporations to make expenditures in American elections, including the big spending of Super PACs in 2012 and secretive spending by 501(c)(4)s and 501(c)(6)s likely hiding corporate funds.
Monks doesn’t stop his analysis with Citizens United, but rather, he drills down to where the legal flaws started with 1978’s lesser known Bellotti decision (which allowed corporations to spend in ballot measure fights) and its dubious citation to Santa Clara County v. Southern Pacific R. Co. from 1886 (the case that established, in a headnote inserted by the court reporter, that corporations are persons for 14th Amendment purposes).
Monks, who turns eighty this year, is clearly alarmed at the corporate capture of the regulatory system during his lifetime—a system that is supposed to protect consumers from dangerous products, workers from unsafe employment conditions and the environment from toxic waste. The stridency of his tone may turn some readers off. For example, calling certain corporations “drones” may be more distracting than helpful.
For my taste as a campaign finance lawyer, the book could have done with a bit more nuance when it came to distinguishing between money that comes from the corporate treasury and money that comes from the personal accounts of corporate managers. But as a general matter, he covers the complexity of campaign finance—an area that deeply affects Americans but which few Americans deeply understand—in a way that is both accessible and accurate.
Monks calls out the heads of foundations, trusts, and the university endowments of Harvard, Yale, Princeton, Stanford, MIT and the University of Texas, who collectively control approximately $200 billion.
More problematic is his failure to point out the wins that socially conscious investors have racked up—like the sustainability reporting that is now part of U.K. law or the environmental reporting reforms embedded in Dodd-Frank. He also largely skips the successes shareholders have had at top companies in convincing them to be more transparent about their political spending voluntarily and the trend toward majority voting and declassified boards. Leaving out these victories gives the book a gloomy gloss.
Despite being dubbed a “traitor to his class” by one biographer, Monks is trying to get the attention of a particular elite. He unabashedly names the twenty-four people (including Bill Gates) who have the ability to change how corporations behave by wielding their own economic power. Those called out are the heads of foundations, trusts and the university endowments of Harvard, Yale, Princeton, Stanford, MIT and the University of Texas, who collectively control approximately $200 billion. This book is an exhortation to these twenty-four and those similarly situated, such as the men and women who run the nation’s biggest mutual funds and public pensions, to use their power as shareholders to engage with corporations so that companies do better by the environment, their workers, their communities, and the political process.
Monks also offers some positive policy solutions, which all of us, not just these elite twenty-four, can influence. These policy fixes include legislation that is still alive in Congress like the DISCLOSE Act, (H.R. 148), which would bring greater transparency to political spending across the board; the Shareholder Protection Act, (H.R. 1734), which would give shareholders a vote on the size of future corporate political budgets; as well as a constitutional amendment to undo Citizens United.
The book is a description of a broken system at a tipping point. Monks knows after decades of working on the issue of corporate governance that the path to corporate responsibility is a difficult one, but he is exhorting us to use our power as investors and as citizens to slam on the breaks before we really go off a cliff. What lies in the balance, according to Monks, is “responsible liberty and capitalist-based democracy.”
Ciara Torres-Spelliscy is an assistant professor of law at Stetson University College of Law where she teaches corporate governance and election law. She is the author of the forthcoming law review article, “Safeguarding Markets from Pernicious Pay to Play: A Model Explaining Why the SEC Regulates Money in Politics.”