American values were recognized as at risk in 1932 when Adolf Berle and Gardiner Means argued that with dispersed shareholders, ownership has been separated from their control. (The Modern Corporation and Private Property) Ironically, concentration of equities under the umbrella of three or four indexed funds presents an opportunity to end that divide and make companies better reflect American values by being more accountable to their beneficial owners. Accomplishing that goal depends on transparent governance, such as proxy voting, and fostering real dialogue on the issues faced by corporations and investors. As I have argued, real-time disclosure of proxy votes could drive these huge funds to compete with each other based on not only profits and costs but their governance efforts, as reflected in proxy voting records. Continue Reading →
Reviews of books and significant research papers.
David Webber was interviewed by Doug Chia recently. I previously reviewed Webber’s book elsewhere, Working-Class Shareholder: Review Essay, which included links to several interviews. However, Doug Chia’s interview of David Weber is exceptionally good, worth viewing. Douglas (Doug) Chia is executive director of the Governance Center for The Conference Board. Continue Reading →
Shareholder Collaboration is a new ECGI working paper by Jill Fisch and Simone M. Sepe. Fisch is one of my favorite researchers, being insightful and less predictable than many of those in the primary academic hubs of corporate governance (Harvard, Stanford, and Delaware). In Shareholder Collaboration, the authors discuss the growing importance of a collaborative model, in contrast to models based on management power or shareholder power. (download paper in pdf) Continue Reading →
For far too long, labor and its progressive sympathizers have sought to transform the market from outside the market: from courts, from legislatures, from regulators, from street protests, from strikes. These tools are important. But ultimately, it is not possible to transform the market from the outside. It must be transformed from within. (xiv)
A Nation of Small Shareholders: Marketing Wall Street after World War II (Studies in Industry and Society) by Janice M. Traflet (link to buy) explains how an ad campaign began to transform American finance. With all the current focus on Main Street investors, A Nation of Small Shareholders could be revisited and transformed to include more Americans in a dynamic capitalism that embraces the values of American citizens. Continue Reading →
Earning It: Introductory Notes
Joann Lublin gave the opening keynote at the recent Corporate Directors Forum 2018 in San Diego. She spoke largely about her new book, Earning It: Hard-Won Lessons from Trailblazing Women at the Top of the Business World. This year the Forum had an overall theme, “How Culture Impacts the Boardroom and Beyond.” Corporate culture is the hot topic, especially after the NACD Blue Ribbon Commission Report on Culture as a Corporate Asset, and within that umbrella topic nothing is more timely than women and diversity. Continue Reading →
Standing Voting Instructions: Empowering the Excluded Retail Investor by Jill E Fisch just could be the most important article on corporate governance this year… if it is widely read and acted on. Download at ecgi, Penn Law or SSRN. The above photo is from Small Investors Support the Boards. But Few of Them Vote, The New York Times. Unfortunately, most will not bother to read the article. What follows is both and summary of main points and my commentary. Hopefully, this post will lead to reading the research and adding your voice to those petitioning the SEC to facilitate standing voting instructions. Continue Reading →
The final victory over Carthage in the Punic Wars led to rising economic inequality, dislocation of traditional ways of life, increasing political polarization, the breakdown of unspoken rules of political conduct, the privatization of the military, rampant corruption, endemic social and ethnic prejudice, battles over citizenship and voting rights, ongoing military quagmires, the introduction of violence as a political tool, and a set of elites so obsessed with their own privileges that they refused to reform the system in time to save it.
Duncan makes no references to our current administration but the parallels are obvious… at least to me. Seven years ago the wealth of 388 billionaires equaled the wealth of the poorest half of humanity. Now it only takes five billionaires. Large companies like Snap, Facebook and Alphabet are virtual dictatorships and they can have a huge influence over our elections and governments. Continue Reading →
The Ascendancy of Finance (link) by Joseph Vogl, explains the dramatic transfer of power to the financial sector that occurred over centuries but accelerated during the recent financial crisis. Traditionally, markets limited state power and were, in turn, restrained by the nation states. As Vogel notes, “In this theoretical myth, spaces of freedom are weighed against concerns of security…” Finance, once a mediator of capital, now threatens to rule both industry and politics.
Ascendancy of Finance: Not an Easy Read
One sentence from the book, which cogently explains where we are with respect to the ascendancy of finance, also provides a good example of the book’s density, aggravated by long complex sentences.
From 2008, in connection with the recent financial and economic crisis, an emergency politics has formed whose quality and character demonstrate a number of basic features: exceptional situations that require extraordinary instruments and measures; negotiations that take place behind closed doors, that are determined by the rhythm of the financial markets, and that clash with the lengthiness of formal procedures, an urgency that forces decisions to fall firmly in favor of the common good; and the informality of powerful executive bodies that might be described as hastily convened ‘committees of public safety.’
The best known “Committee of Public Safety” was created in 1793 as a de facto executive government in France during the Reign of Terror stage of the French Revolution. Are we there yet?
The CEO Pay Machine: How it Trashes America and How to Stop it (Amazon) by Steven Clifford should be mandatory reading for all compensation committees and those who vote proxies for large funds. The book is easily read and understood by the layperson. It also includes the fact-based evidence needed to convince fiduciaries that voting against most executive pay packages is one of the first steps to restoring shareholder value, company sustainability and the very foundations of American democracy.
Why combine CEO and chair positions or pay executives with options when both practices lead to poor results? We don’t except “everyone else does it” as an excuse for harmful behavior from our teenagers; why should we accept it as a reason from compensation consultants and the former CEOs sitting on most corporate boards? Clifford also outlines possible remedies but nothing will be done unless we shift public opinion. If widely read and discussed, The CEO Pay Machine could be central to change. Continue Reading →
Peter Georgescu’s Capitalists Arise!: End Economic Inequality, Grow the Middle Class, Heal the Nation correctly identifies short-termism and a focus on stock price as a problem contributing to growing wealth inequality. His solutions depend on enlightened managers and boards to transform how America does business by taking all stakeholders into account, not just shareholders. I say, don’t count on enlightened self-interest by those now in control. They are unlikely to overturn the system that benefits them.
Transformation is not likely to come from those in power, even if it would be to the advantage of all. Transformation must be demanded from below. Any transformation system that purports to consider all stakeholders must effectively redistribute power. We cannot depend on benevolent dictatorships like Facebook’s Mark Zuckerberg or Alphabet’s Sergey Brin and Larry Page to act as if all stakeholders matter. To get where Georgescu correctly wants to go, there must be a real shift in power. Continue Reading →
According to Susan Neiman, the most important distinction in the world is the difference between what is and what ought to be. Recognizing that distinction is central to the process of growing up. (Why Grow Up?: Subversive Thoughts for an Infantile Age)
You need not be Peter Pan to feel uneasy about the prospect of becoming adult. Indeed, it’s easy to argue that Peter Pan, most drastically imitated by Michael Jackson, is an emblem of our times. Being grown-up is widely considered to be a matter of renouncing your hopes and dreams, accepting the limits of the reality you are given, and resigning yourself to a life that will be less adventurous, worthwhile and significant than you supposed when you began it.
Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies is about big data and takes a big time commitment to read. Scale is neither poetry or a novel. It is primarily information and speculation. 450 pages could have been distilled to 45. That said, this slog of a read should get anyone thinking with fresh insights. Below are my reflections on small portions of this tome by Geoffrey West, a senior fellow at Los Alamos National Laboratory and a distinguished professor at the Santa Fe Institute.
Highly complex systems have their origin in very simple rules governing the interaction between their individual constituents.
Yes, Darwin still applies in the modern world.
In biology, network dynamics constrains the pace of life to decrease systematically with increasing size following the ¼ power scaling laws. In contrast, the dynamics of social networks underlying wealth creation and innovation leads to the opposite behavior, namely, the systematically increasing pace of life as city size increases: diseases spread faster, businesses are born and die more often, commerce is transacted more rapidly, and people even walk faster, all following the approximate 15 percent rule.
How will the Internet impact these generalizations? Perhaps the pace of globally connected small towns like Boulder or Davis outpace more the more isolated Pyongyang? Being interconnected may be more important than size. As he repeatedly points out in Scale, correlation is not causation. Continue Reading →
This could be the most important book you will read in 2017, For more than twenty years, I have been posting to corpgov.net, thinking I should write a book. The closest I got was The Individual’s Role in Driving Corporate Governance, a chapter in The Handbook of Board Governance. Now it is too late. Andrew Behar has stolen my thunder with The Shareholder Action Guide: Unleash Your Hidden Powers to Hold Corporations Accountable. Behar tells better stories and takes a more practical approach than I probably would have. He even has one of my favorite cartoons right before the Contents page.
My task now is to help him get more readers, so they can join in our good work. Buy the book at Amazon.com.
Want to make misbehaving corporations mend their ways? You can! Behar tells you how in this guide for good corporate citizenship. I teach an occasional seminar at a local university, hoping to inspire mostly retirees to use their investments as a tool to make corporations accountable. Behar covers much the same ground I do but in great detail, beginning with a few examples of bad corporate behavior and a brief explanation of corporate power.
Continue Reading →
The Responsible Investor Handbook; Mobilizing Workers’ Capital for a Sustainable World by Thomas Croft and Annie Malhotra provides a ‘how-to’ manual for workers and trustees who seek to ensure our money is working us, not against us. Buy the book from Greenlead Publishing or Amazon.
As I write this review, the US SIF Foundation released their 2016 Biennial Report on Sustainable, Responsible and Impact Investing (SRI) Trends. SRI assets now account for $8.72 trillion, or one in five dollars invested under professional management in the United States, according to the report. Continue Reading →
I find his work compelling, at least in part because he shares my interest in understanding the world from the bottom up, instead of top down. Additionally, he focuses attention on “how we know what we think we know,” which takes me back to my studies in the sociology of knowledge. I am less sure about his embrace of systems theory but he deploys that tool well in the context of analyzing firm performance.
Value Creation Thinking: On Capitalism
This may the last installment for my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Members. With the current post, I provide comments on Part 8 of the book, Governance of Different Forms… a kind of catch-all for nonprofits, non-North American firms, startups, small-caps, and family firms… whatever didn’t easily fit in prior parts.
See prior posts on introductory comments and those on Part 1, Part 2, Part 3, Part 4, Part 5, Part 6 and Part 7. As I have indicated before, The Handbook of Board Governance is one of the most popular collections of articles of interest in the field of corporate governance. Look at where it ranks at Amazon today within the entire field (fluctuates daily) and you will note that its scope is arguable much broader than all those ranking above it. At more than 850 pages with 50 authors for less than $50, it has to be a best buy for those looking for practical information and theory in corporate governance today, and for several years going forward. Continue Reading →
I continue my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Member. With the current post, I provide comments on Part 7 of the book, Governance of Sustainability. This is why I got into the field as an NIMH Fellow in the late 1970s studying what forms of corporate governance would be best for corporations AND society. This part of the Handbook is worthy of a separate 100-page book by itself, probably with broader appeal to the general public. Continue Reading →
Torres-Spelliscy’s Corporate Citizen? An Argument for the Separation of Corporation and State, analyzes the trail of legal cases that led to the 2010 Supreme Court decision in Citizens United, as corporations won rights originally reserved for citizens. Not only are they winning the rights of real persons, but they are avoiding the responsibilities of citizenship… like paying taxes.
Before reading the book, I vaguely knew one of the first key decisions stemmed from the Fourteenth Amendment to the U.S. Constitution, which says,
[n]o state shall… deprive any person of life, liberty or property without due process of law, not deny to any person… the equal protection of the laws.
I continue my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Member. With the current post, I provide comments on Part 6 of the book, Governance of Information Technology. See prior introductory comments and those on Part 1, Part 2, Part 3, Part 4 and Part 5. As I have indicated before, The Handbook of Board Governance will soon be the most popular collection of articles of current interest in the field of corporate governance, if it isn’t already. Rank 8 at Amazon within the entire field (fluctuates daily). Continue Reading →
I continue my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Member. With the current post, I provide comments on Part 5 of the book, The Unsolved Governance Problem: Performance Measurement and Executive Pay. Talk to any of your acquaintances outside the corporate governance industrial complex and they will all have an opinion regarding CEO pay. This is a part of the book everyone can relate to.
See prior introductory comments and those on Part 1, Part 2, Part 3 and Part 4. As I have indicated before, The Handbook of Board Governance will soon be the most popular collection of articles of current interest in the field of corporate governance.” It is already ranked 10 at Amazon (although ranking fluctuates daily, like a thinly traded stock). Continue Reading →
I continue my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Member. With the current post, I provide comments on Part 4 of the book, The Rise of Shareholder Accountability. As a shareholder advocate, this is my favorite part of The Handbook of Board Governance. See prior introductory comments and those on Part 1, Part 2 and Part 3. I suspect The Handbook of Board Governance will soon be the most popular collection of articles of current interest in the field of corporate governance.”
The Handbook of Board Governance: The Happy Myth, Sad Reality
Robert A.G. Monks warns, capitalism without owners will fail. The chapter is a condensed and updated version of Citizens DisUnited: Passive Investors, Drone CEOs, and the Corporate Capture of the American Dream, which I reviewed here. Continue Reading →
I continue my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Member. With the current post, I provide comments on Part 3 of the book, Risk Governance, Assurance and the Duties of Directors. See prior introductory comments and those on Part 1 and Part 2. I suspect the book will soon be the most popular collection of articles of current interest in the field of corporate governance.
The Handbook of Board Governance: The Rise and (Precipitous, Vertiginous, Disastrous) Fall of the Fiduciary Standard
Nell Minow starts us out in Part III with a brief essay: The Rise and (Precipitous, Vertiginous, Disastrous) Fall of the Fiduciary Standard. Yes, she’s unhappy with a deteriorating fiduciary standard. Most readers will agree. Minow is not only the ‘queen of good corporate governance,’ according to BusinessWeek, but is also known at the Movie Mom. Nowhere else in The Handbook of Board Governance are you likely to find references to superheroes and kryptonite.
I continue my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Member. With the current post, I provide comments on Part 2 of the book, What Makes for a Good Board? See prior introductory comments and those on Part 1. I suspect the book will soon be the most popular collection of articles of current interest in the field of corporate governance.
The Handbook of Board Governance: Director Independence, Competency, and Behavior
Dr. Richard Leblanc‘s chapter focuses on the above three elements that make an effective director. Regulations require independence but not industry expertise; both are important elements. Leblanc cites ways director independence is commonly compromised and how independence ‘of mind’ can be enhanced. He then applies most of the same principles to choosing external advisors. Throughout the chapter he employees useful exhibits that reinforce the text with bullet points, tables, etc. for quick reference. Continue Reading →
When I agreed to contribute a chapter to Richard Leblanc’s book, I knew he was an excellent speaker, blogger and teacher. I also suspected he was a good promoter. How else could he attract over 23,000 members to his Linkedin group, Boards & Advisors? But, I never dreamed I’d see The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Members make the lights of New York’s Times Square across from the Hard Rock Cafe. Now I’m half expecting to see Leblanc on the late night TV circuit, like a candidate for public office reaching out to voters.
Continue Reading →
What they do with your money is central to many issues of citizens around the world. This wonderful new book by Stephen Davis, Jon Lukomnik, David Pitt-Watson helps readers connect the dots. While its focus is on the financial system, its purpose is empowering individual citizen investors and those who would be investors if that system were redesigned to serve us all.
Fixing the system won’t be easy. We can’t count on most of those those benefiting from the system to initiate needed changes but the authors provide a roadmap of how needed reforms can be accomplished. Continue Reading →
Peter Bloom, of the Department of People and Organisations at The Open University in the UK, takes on a very ambitious project in his recently published book, Authoritarian Capitalism in the Age of Globalization. In a strong critique of neoliberalism, Bloom argues that marketization does not inexorably lead to democratization, it more frequently leads to authoritarian capitalism.
Marketization and globalization incentivize governments to pursue coercive forms of politics favoring foreign investors and corporations at the expense of popular opinion and public welfare. Although he focuses on transitional economies such as Singapore, Mexico, China and Russia, I can see how his analysis fits nicely with the rise of Donald Trump in America. Continue Reading →
Shareholder Empowerment: A New Era in Corporate Governance (link) by Maria Goranova and Lori Verstegen Ryan (editors) is the best book on corporate governance I have read in quite some time. No, it does not have all the answers but it does ask many of the right questions. For an academic reader, I found it a surprising page-turner.
Maria Goranova and Lori Verstegen Ryan, the editors, set up the central problem in the introduction. There is growing public outrage over the pay gap of CEOs and average employees. Corporations are no longer reliable providers of job security, healthcare and retirement benefits. Power has been shifting from corporate officers and directors to shareholders. Finance and legal scholars, “who equate the well-being of corporations with the well-being of investors,” have dominated the corporate governance debate. Perhaps the management academy can shed some insight into these issues. Continue Reading →
Received for Review – Corporate Concinnity in the Boardroom: 10 Imperatives to Drive High Performing Companies
“ . . .a really important book about how to maximize the performance of companies and provides rare, clear common sense guidance for Boards of Directors that is worth its weight in gold.” –Hap Klopp, Founder and former CEO, The North Face, author, lecturer, serial entrepreneur
Nothing should be more important than building exceptional, sustainable leadership teams, effective governance platforms, and a strategy to make them work well together. According to her publisher, forward-thinking board members, C-suite executives, family business owners, and investors who are committed to excellence and continuous improvement in governance will be well served by embracing the framework that advisor Nancy Falls outlines in her new book Corporate Concinnity in the Boardroom: 10 Imperatives to Drive High Performing Companies. Continue Reading →
Carl Gershenson – “Protecting Markets from Society: Non-Pecuniary Claims in American Corporate Democracy” forthcoming in Politics & Society looks at the role of the state as ‘market protector.’ Protecting us from inside trading, pump and dump schemes, policing market players? Yes, that may be the primary duty of agencies such as the SEC. However, Gershenson turns our attention to a very important secondary duty – “protecting the market from disruptive challengers so that corporations may operate as if markets were autonomous.”
As we have seen in The Rise and Fall of Homo Economicus: The Myth of the Rational Human and the Chaotic Reality and the Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street, people are not rational robots. Continue Reading →