Bob Monks calls on ICGN to set up 'muscular' shareholder activism body
Future of democratic capitalism under threat, says governance guru.
Bob Monks, the influential corporate governance thinker, is calling on the International Corporate Governance Network (ICGN), one of the world’s largest investor lobby groups representing institutional assets of US$12trn, to look at creating a national or international organization of shareholders with the “muscle” to influence government policy and reinvigorate corporate governance as a major part of institutional investor fiduciary duty. In a keynote address to the ICGN’s annual conference in Paris tomorrow (September 13), Monks, Principal and founder of LENS Governance Advisors and a founder of ISS, the proxy voting giant, says institutional investors’ “inability” and “unwillingness” to monitor and require accountability of corporate management is a principal cause of the continuing financial crisis. In a lengthy appraisal of the consequences of this lack of corporate oversight, Monks suggests that one is the continuation of financial slumps that would threaten the sustainability of the traditional real return on equity investments of “6% plus or minus per annum.” But he adds his belief that the system of democratic capitalism is itself under threat. Challenges included globalization, which he said had exacerbated the problems of holding corporations to account, as well as a perception of shareholder activism as short-termist and a lack of laws and regulations. He says: “The only effective enforcer of corporate governance standards is ownership,” adding: “Quite simply, you are under attack. Universalacceptance of a role for shareholders in corporate governance cannot be taken for granted.” Monks notes: “There can be no effective corporate governance until major institutions become involved. This will not happen until and unless there is a formal legal policy that shareholder activism is in the public interest and is the national policy.” Monks said the kind of program proposed for ICGN would require a combination of education and political lobbying backed by professional staff, legal representation and full financial support from investors.
Monks said long-term institutional investors were not currently active shareholders for several reasons, including a lack of legal imperative, a miscalculation of economic benefit, and conflicts of interest with financial services groups. However, he says that “conservative” and “business dominated” groups such as the U.S. Chamber of Commerce are filling the vacuum. He points to the challenge by the US Business Roundtable of the SEC’s implementation of the Dodd-Frank bill’s for shareholder access to the nominating ballot for directors at corporate AGMs. Monks said ICGN’s role could be to legally challenge trust law globally, which he said had become compromised and moribund: “The shame of the present situation is that the fundamental law of trusts is unenforced and is treated as merely a verbal inconvenience.”
Link to speech