This piece is part of an On Leadership roundtable on the Occupy Wall Street protests.
“Money is overthrown and abolished by blood.”
Oswald Spengler wrote these words more than a century ago in The Decline of the West. And while the imagery here may be a bit much, there’s something of it in the Occupy Wall Street protests.
This movement profoundly threatens the legitimacy of the system on which corporate power is based, and boards of directors should be concerned.
Corporations are creatures of statute. There is no Common Law of corporations, they are instruments licensed by the state originally in aid of certain public objectives. But few of these objectives are left. With the passage of time, corporate charters have lost any power to keep corporations in check. What is left? Only the pursuit of wealth. As Baron Thurlow reportedly said, “Corporations have no soul to save and no body to incarcerate.” Their charter is in the gift of the public. They have no inherent right to exist.
Amidst the welter of information about executive pay, only one simple conclusion is possible: Pay is not correlated in any way with the value these leaders create for shareholders, society or any other corporate constituency. CEOs largely pay themselves, notwithstanding a raft of misnomers such as “independent compensation committee member” and “independent compensation consultant.” The system imbalances are there for all to see.
Recent protests—Occupy Wall Street, of course, but also the Tea Party movement as it first began—rise out of a profound rage over unfairness in this country. The scale of this unfairness and inequity makes it hard to know where to direct that rage, to know what to do. Occupy Wall Street has the right target; but where their rage will go, nobody today knows. I am certain, though, that any alert board should be instructing their managers to do three things: admit the problem exists, take positive steps to make the corporation function fairly, and consider what other steps would address the concerns of the protests.
Simple? Not quite. But necessary? You bet.
If the present Occupy Wall Street protests do not create an unignorable threat, they certainly raise the prospect of one in the near future. Rage at unfairness is not easily quenched and once started can be hard to curtail. We’ve seen this time and again throughout history. Shareholders may think of themselves as victims of CEO power, as innocent shareholders , but we need only look to the Russian and French Revolutions to see that everyone having anything to do with fallen power, or in this case “guilty corporations”, may be attacked and injured—even if, like shareholders, their only crime is doing nothing.
So what should shareholders do? They must promptly and credibly associate themselves with the protesters complaining against corporate unfairness—and then present themselves as legitimate vehicles for addressing the problem. The autocratic power of CEOs is fundamentally at odds with the sustainable functioning of corporations in a democratic society. Institutional shareholders must move quickly and decisively. They should defend and legitimate their right to own property and to be responsible for corporate conduct.
The day is long past when satisfactory growth in market values, and some regard to corporations’ public and social responsibilities, is enough. If our system of democratic capitalism is to survive, shareholders must be equally concerned with protecting and preserving the system itself. This involves far more than an increased emphasis on “public relations” or “governmental affairs”—two areas in which fiduciary organizations long have invested substantial sums. It’s time for institutional investors to step up and honorably confront the corporate failure to fulfill fiduciary responsibility to beneficiaries and to deal openly with the conflicting interests within their own organizations.
Boards, watch the protests and understand that your dominance of the system cannot continue. And shareholders, vigorously support the protests and use them as a starting point to become active owners, to call boards and CEOs to accountability, and to take responsibility for our system of democratic capitalism.
Robert Monks is the author of Corpocracy and The New Global Investors, and is known for his work as a shareholder activist and writer on corporate governance issues.
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Heather Gautney: What is Occupy Wall Street? The history of leaderless movements
Alaina Love: What Occupy Wall Street demands of our leaders
Robert Monks: Occupy Wall Street and ‘The Decline of the West’