he most common questions I get are "who are you?" and "why do you maintain a site on corporate governance?" This introduction doesn't specifically answer those questions but it is meant as a sketchy form of biographic disclosure. Hopefully, it will better enable readers to evaluate the statements I make elsewhere in discussions and in constructing the general framework of the Corporate Governance site. I have no clear vision of where this adventure in cyberspace will take us. However, I do have some sense that knowledge evolves through sharing. In this essay I relate a few personal experiences and thoughts which led me from studies in the sociology of knowledge and organizational theory to the field of corporate governance. Most of us have had certain "peak" experiences we carry with us for life. One of mine came in my eighth grade cultural geography class. I tried to correct our teacher by informing our class that Canada, not China, was physically the second largest country in the world. After being paddled for insubordination, the principal told me that it didn't matter what the reference books said. In my teacher's class China was larger than Canada because in class the teacher was always right. As Berger and Luckman later put it in The Social Construction of Reality: A Treatise in the Sociology of Knowledge, "he who has the bigger stick has the better chance of imposing his definitions of reality." Perhaps my principal had a vision of society defined by extreme relativism. Perhaps in his world there was no real truth, only arbitrary world views which some impose on others. Within such a framework fascism, communism, capitalism, racism, and other "isms" represent merely culturally-bound truths. The mind as the mirror of nature is replaced by a postmodern form of nihilism based in disconnected narcissism. The "stick" imposing reality is often measured in money. Back when I was in eighth grade, the average CEO earned 15-20 times what their average employees earned. Monks and Minow report that by 1987-89 the differential had grown to 157 times. It is now up to 212 times as high in the largest 30 firms. The prospect of a divided world looms large. In eighth grade I began to grasp that neither the self nor the world outside the self exist as simply pregiven. Knowledge exists in a context; backgrounds have history. Early in my career as an auditor I noticed that our team was much more productive than units more closely directed by management. True, we had a new a powerful technology to help us, computers. But it wasn't just the equipment; we collaborated more. EDP auditing was a new field which brought together traditional auditing skills with those of computer programing and management analysis. We were given much more latitude to pursue any reasonable line of inquiry. Therefore, when I studied organizational research and theory I was not surprised when the studies were almost unanimous in finding that genuine employee participation in the workplace, especially when combined with the incentives inherent in ownership, resulted in a much more productive, and effective workforce than traditional hierarchies. My masters thesis tied theories on the evolution of consciousness and the sociology of knowledge to the evolution of organizational structures. I argued that slight modifications in civil service rules could facilitate the use of self-managed teams. This would lead to increased worker satisfaction and productivity since such an organizational structure would encourage all workers to become "knowledge workers." My proposal drew interest at conferences of the American Society for Public Administration and the American Sociological Association. I began corresponding with practitioners in the field who were transforming the workplace from pseudo-participation to more genuinely democratic forms of governance. While on a grant with the National Institutes for Mental Health, I studied the attempted transition to one form of a more democratic model of corporate governance at Rath Meatpacking in Waterloo Iowa. Employees, under the leadership of their union president, Lyle Taylor, bought an old three story packing plant that had passed its technological prime decades before. Rath was helped by a team of academic advisors and Kate Squire, a dedicated Cornell University student who trained employees and management in quality circles and other participatory learning methods. Working together, they saved their own jobs, and those of others who did business with Rath, for several years. Although they eventually went bankrupt, it was clear to me that a more democratic form of corporate governance had proved its value. There were many reasons why Rath went down but the new way of working wasn't one of them. When I came back to California I directed the State's Cooperative Development Program, working to make cooperatives more efficient and their boards more effective. Later, I served on the boards of financial and food cooperatives at the retail and wholesale level, as well as on the boards of national and local organizations which facilitate the sharing of educational and training resources among cooperative businesses. I was never a purist in the cooperative "movement" and could see many problems in the movement. Cooperatives frequently lack the ability to raise the capital or to sustain the entrepreneurial spirit needed to compete with other corporate forms. Their initial creativity is often drained when dedicated key players turn their efforts elsewhere and those remaining adopt insular tendencies. I also saw that cooperative boards could be just as undemocratic as the boards of large corporations with diverse shareholders. My own credit union, for example, defeated an activist group of members (shareholders) by running a contest. Everyone who gave their proxy to management was eligible to win a free trip to Hawaii. Needless to say, the dissident group did not win. Although this tactic was illegal, none of the credit union's thousands of members (including the dissident group) felt it was worth the trouble of going to court over. I constantly explored new forms of corporate governance, seeking the ideal mix which would incorporate all the features which enhanced knowledge, wealth building capacity, flexibility and other positive features; at the same time I tried to sift out the negative features of each system. I studied the Mondragon worker cooperatives, hybrid worker/consumer cooperatives, Yugoslavia's self-management structures, Germany's codetermination, the Japanese keiretsu, joint labor/management committees, profit sharing plans, and Kelso's employee stock ownership plans (ESOPs), among others. While working on a second graduate degree at Boston College, I became acquainted with the work of others who were also informed by these models, such as Corey Rosen and Joseph Blasi. Rosen and Blasi were conducting path breaking studies showing that employee ownership, when combined with participation, led to increased productivity, quality and profit. They built on some early successes, such as the Chrysler bailout and restructuring. But, although their work in employee ownership was transformative and much more inclusive than my own with cooperatives, I was not satisfied that theirs would be my own future direction. I turned my attention to CalPERS (I ran for the board in 1986 but lost to William Crist) and the Council of Institutional Investors, who under the initiative of Jesse Unruh, were beginning to influence corporate governance reforms on a broader scale from their base as fiduciaries. Owners of capital were beginning to assert their right to hold management accountable. Several other trends also seemed to converge on the field of corporate governance. Learning theory demonstrated the value of participation and collaboration. Economic studies began to show that the knowledge employees bring to the firm is increasingly a more important factor in wealth creation than the amount of capital available for investment. The downfall of communist oligarchies meant experiments in new forms of corporate governance would be emerging around the globe. These, and other trends, pointed to the importance of corporate governance in deciphering and influencing society. My mentor in the sociology of knowledge, Peter Berger, writes often of the need to empower mediating structures such as the family, neighborhood, church and voluntary associations. He sees these institutions as the prime defenders of human dignity against what Max Weber described as the "iron cage" of government bureaucracy. Our families, neighborhoods, religious organizations and voluntary associations are near and dear to our hearts. I agree with Berger; they should be strengthened. However, after spending ten years as a government lobbyist in Sacramento, it is obvious to me that corporations are also prone to the "iron cage" syndrome. Empowerment of the individual in community needs to also take place within the corporation since corporations have become our primary sources of everyday knowledge and power. As Monks and Minow have noted, with the slight exaggeration suitable for book covers, "Corporations determine far more than any other institution the air we breathe, the quality of the water we drink, even where we live. Yet they are not accountable to anyone." Most of us will spend a high proportion of our "productive" lives inside government, corporate or nonprofit bureaucracies. If the iron cages these bureaucracies often impose on our lives is to be broken, if knowledge is to transcend and include rather than repress, governance needs to become more participatory and accountable. Accountability however, shouldn't be something mainly imposed from the outside; it must be built into the governance structures of the organizations themselves. The end result of organizations which cultivate the human capacity will be a higher level of wealth creation, both in the narrow and broad sense of that term. Mark Roe and John Pound have recently traced the political forces which shaped our current corporate governance structures. Roe reviewed the evolution of laws constraining institutional investors. He describes how populist movements shaped the Glass-Steagall Act of 1933 and the Bank Holding Company Act of 1956, as well as placed similar restraints on mutual funds and insurance companies. Although these measures addressed our fear of concentrated wealth, the restrictions placed on institutional investors had unforeseen consequences. They artificially strengthened a developing system which gave rise to the warnings of Berle and Means; capital intensive technology and dispersed stockholders lead to corporate governance structures favoring concentrated management control. Roe demonstrates that such structures are neither pregiven nor inevitable; he calls for more variation, allowing competition between organizational forms of corporate governance. John Pound sees a paradigm shift in corporate governance and likens it to changes in the political sphere. We are moving from an era of hostile takeovers toward a more representative democracy where large institutional investors, such as TIA-CREF, CalPERS, and the New York State Retirement System, could increasingly hold CEOs accountable. The LENS fund, Corporate Partners and other "relationship" investment advisors hope to facilitate such a shift towards greater shareholder democracy by providing expert advise to fund trustees. Increased enforcement of fiduciary responsibilities may be another route to bringing science into the boardroom. Who will hold corporate CEOs and boards of directors accountable? It is clear that the primary responsibility for discharging that role currently lies with the fiduciaries of institutional investors who now hold 60% of the market in their trust. Unfortunately, the more that institutional investors rely on the assumption that someone else is responsible for participating in corporate governance and not them, the more likely political solutions will be imposed. As Mark Roe has pointed out, government imposed solutions often have unintended consequences. My hope is that the Corporate Governance site will provide fertile ground for debate on the direction of these important matters. Back to the top with the Corporate Governance NETwork! Contact: corpgov@usa.net All material on the Corporate Governance site is copyright ©1995-1996 by Corporate Governance and James McRitchie except where otherwise indicated. All rights reserved.