If I were to predict the issue of the 1980s, I would say it will be the whole issue of power and ownership and how it might be used and by whom," former Securities and Exchange Commission chairman Harold Williams said recently.
What Williams was talking about is where corporate accountability may be headed -- whether in the future shareholders, including unions, will rise up and demand a hand in running the corporations they own, a development that could have radical consequences for both corporate and public policy.
In 10 years, major changes have been wrought in the name of corporate accountability. Boards of directors have become somewhat more independent and active. And, with a few exceptions, there is general agreement that corporations should be held to a standard other than profitability. But the basic issue of who runs U.S. business -- and who sets business' public agenda -- has yet to be fully treated.
The question now is whether it will be. For one thing, there may not be much interest in the issue. "The public doesn't really have a personal interest in corporate accountability," retiring Du Pont chairman Irving Shapiro said in a recent interview with Directorship magazine, a publication that deals with the role of corporate directors. "That's an issue created by political people and law school professors, basically . . . I don't think anything suggests that the public cares."
Corporate accountability was a big table-pounding issue in the late 1960s and early 1970s, a notion that enjoyed a certain amount of liberal chic and media attention. Shareholder suits, disclosures about corporate wrong-doing and growing interest in the issue by the SEC elevated it to a new level of seriousness among corporations themselves, much mumbled about it in lofty conferences.
In the view of some, the climate is no longer right for moves to increase corporate accountability or shareholder participation in corporate governance. "The only time you get corporate accountability is when the economy is up," said Ralph Nader. With attention now riveted on survival, unions, management and shareholders are less engaged by such issues, he said.
In the view of others, the generally modest reforms already made -- waking up boards of directors who previously had dozed through meetings -- have taken the issue as far as it needs to go.
An opinion still widely held by some corporate officials and others is that shareholders don't care how or by whom a corporation is run as long as it makes money.
"My personal view is that [the SEC's corporate governance] program is not in the best interests of shareholders or investors, whose interests are primarily economic," said former SEC commissioner Roberta Karmel in a recent speech avidly applauded by corporate officials.
"Except possibly for employe-shareholders, shareholders of large public corporations are investors and they do not buy stock to exercise a political franchise as stockholders or citizens."
But there is another view, shared by Williams and others, that there may be room for more significant change.
"I can't tell you with any confidence that shareholders really care," but opening ways for them to exercise their rights of ownership if they wish to is worth a try, Williams said.
"The years of the 1970s were a little bit of playing at all this stuff," said attorney Philip W. Moore, who once headed Campaign GM, which sought to raise the issue of corporate accountability through proxy fights. Now Moore advises United Auto Workers president Douglas Fraser about how to comport himself on the board of directors of Chrysler.
"The 1980s are going to see more use of shareholder advocacy and union representation on boards," said Moore. This time, he said, the fights won't be around substantive issues as much as getting a piece of the decision-making process.
The changes made in the name of corporate accountability in recent years have been principally aimed at changing the nature of the board of directors, making it a more independent, inquiring and useful body. There have been wideaspread changes in form in the late 1970s, but the pace seems to be slowing.
Although many corporations had begun revamping their boards on their own, major changes came after 1977, when the SEC began to make noise about corporate governance -- an area many business figures and some former commissioners consider a bit outside the agency's mandate. The SEC required changes in corporate proxy forms to give shareholders more information about prospective directors, such as outlining their financial and personal ties to management, and telling shareholders whether the company has an audit, nominating or compensation committee.
Later the SEC adopted rules that allow shareholders broader exercise of their votes by allowing them to vote on director nominees individually and allowing them to vote on some but not all issues.
Williams became a proselytizer for independent directors, as well. Part of the impetus for independent directors was the not-surprising observation that boards made up of or picked by management often didn't take a very critical look at what management was doing.
In addition to broadening boards to include directors who are not captives of management -- which also has been a way to increase the numbers of blacks and women on boards -- changes in corporate governance have included moves to establish a network of committees to deal with particular issues.
Audit committees, which have been required by the SEC as part of enforcement actions in some cases, are supposed to make sure that someone keeps a reasonably skeptical eye on the company's finances. About 85 percent of the firms whose 1980 proxy statements the SEC reviewed reported having audit committees.
Corporations also have adopted policy committees that deal with social issues and sometimes strategic planning as well. "Public policy and social issues are no longer adjuncts to business planning and management. They are in the mainstream of it," said General Electric chairman Reginald Jones, writing in a Commerce Department report on corporate social performance.
Those changes came about relatively easily, at least in comparison to what may be ahead. "The SEC has taken the easier bites in the things they have done in two years of rule-making, regardless of the protests," said Abe Nad, who publishes Directorship. "The SEC has not really gotten to the vitals yet."
The pessimistic view is that corporate management was happy enough to confirm to initial changes because doing so got critics off management's back without making a real difference. "We're at the point now where having an audit committee is quite common," said Williams. "The real question is how effective they are."
A big issue now is the nominating committee. In theory, a nominating committee can help identify potential candidates for directorships other than those proposed by management. One question about the committees is to what extent they should solicit ideas from shareholders.
The nominating committee issue begins to shift the emphasis away from how best to manage corporations toward the question of who manages them and how directly involved shareholders become.
The stockholder-owners of U.S. businesses generally have remained passive, letting management do what it wants. As institutional ownership of stock and the practice of stock being held for its owners by brokers have grown, shareholders have become further removed from control of the corporations they own.
"The basic question is power -- who votes the shares?" said commissioner Stephen Friedman. Institutional stock owners and brokers tend to vote with management, he and others have noted.
A question growing out of the issue of increasing institutional ownership is the role unions will play in corporate governance. Several things are at work. One is growing stock ownership by union members given stock options in lieu of higher pay or other benefits. Another is union pension fund ownership of stock. In the last year, the AFL-CIO has begun to suggest that pension funds may want to adopt social as well as financial objectives in their investment strategy.
Part of what will raise the issue of who owns U.S. businesses is the "increasing desire of unions to replace lost political power" by exercising power in other areas, said Williams.
If unions or other shareholders push for a larger voice in corporate governance and walk in the doors that the SEC and corporations themselves have begun to open, it could mean major changes in how corporations address public policy.
For one thing, said Williams, the question of how management uses the company's resources for political ends will undergo more scrutiny. "We've seen enormous growth in corporate political action committees in terms of numbers and dollars and political clout," he said. "There are some who find that upsetting. That is an issue that will be coming up and it will be coming up continually."
There is concern in some quarters that the business-oriented new administration will be less concerned about corporate accountability, and that government pressure -- which under Williams has consisted mainly of jawboning -- will be lifted. "That might cause some to think concern over corporate accountablity is a thing of the past, but it isn't," he said.
"The issue is how business, which plays such an enormous role, discharges its social and business responsibility and how accountable it is," Williams said. "That's an issue the public will dictate over time."