RI Interview: Governance veteran Robert Monks on his ‘disgust’ for the corporate capture of the SEC

The first of a two-part interview in which the governance pioneer airs his criticism of the SEC

Robert Monks graduated from Harvard in the 1950s. Following university, he became a partner in a law firm in Boston and, at the same time as receiving a substantial inheritance, made a second fortune running a fossil fuel company, CH Sprague & Co., which he sold in 1970. A lifelong Republican, he ran for a US Senate seat in Maine, his home, unsuccessfully, in the early 70s and again in the early 80s; though he has not voted for a Republican for 20 years, he told RI.

In the late 70s he became chairman of the bank, Boston Safe Deposit & Trust Co. Then he got a job regulating pension funds under the Employee Retirement Income Security Act (ERISA) at the US Department of Labor as Administrator of the Office of Pension and Welfare Benefit Programs. Here he set forward regulations that would eventually require pension fund trustees to vote their proxies solely for the benefit of recipients.

Bob MonksMonks’ founding of Institutional Shareholder Services (ISS) in 1985 was, in part, to help pension funds do what they had rarely done, vote proxies. With Nell Minow, Monks has written many books on governance, including Corporate Governance, now in its fifth edition. After moving on from ISS, Monks formed Lens Investment Services, an activist investor whose battle to change management at Waste Management has become an icon of governance activists. Following Lens, he set up The Corporate Library with Minow, which was subsequently sold to MSCI. Currently, Monks is chairman and founder of ValueEdge Advisors.

As an opener, RI asked first what governance development he most wanted and least expected when he first started Lens: “Any kind of public description of the compensation of the top executives,” was his immediate reply. Referring only to the least expected, he added: “Also, the horrible reality of the SEC being a co-optable and co-opted agency, which has gotten worse, and that’s too bad.”

Asked what he meant about the SEC, Monks replied: “We’ve been filing a resolution at Exxon to separate the chairman and CEO for about 30 years now, and 40% is about the level we get to, at which point they discover they have to cheat so we never get any more than that. But 40%’s quite a lot. When we began it was every other year that the SEC would throw the resolution out. The same words, precisely the same words [in the resolution]; and they would get more and more expensive lawyers until we finally got one skillful enough that they haven’t thrown us off since. That was the pattern. The SEC was a real obstructer in those days, now it’s subtler.”

That was far from the last word on the SEC, however. RI asked if he thought there had been a definite change since the latest SEC chair Jay Clayton was appointed. “Yes, and it’s a shame. I used to be a partner in a big law firm and there really was a sense of honour among lawyers. People wouldn’t take cases because they didn’t want to advocate something that was totally fraudulent. The senior partner (Arthur Dean) of Sullivan & Cromwell (chair Clayton’s former firm) would never have done what Clayton has done.

When he [Clayton] was appointed, I thought to myself, ‘We’re getting someone who’s not a stranger to the Business Roundtable as chairman of the SEC. That’s nothing new.’ But I did think, ‘Thank God they’ve got a guy who’s a professional from a really fine law firm.’ But then I see what he’s doing and I’m horrified. It’s just disgusting.”

"The SEC was a real obstructer in those days, now it’s subtler."

And what about the Commission’s latest proposal on rolling back the rights of shareholders to place proposals on companies’ proxies, RI asked, which was like lighting a flame under Monks.

“Then to have someone come in and begin to complain about the burden of proxies on corporate management. The only burden they had was in companies like Exxon who wanted the SEC to say that black was white and to do that cost them some legal fees.”

Stepping back, he added: “The changes proposed to shareholder resolutions and regulating proxy firms is just a subset of what I said earlier. That particular action is the smoking gun that has achieved a level of something that is so bad that it really shouldn’t be able to be ignored by anybody. But you’d be wrong, because we don’t do things that way anymore. We have a position, and it’s part of the authorised ideology, and therefore we can predict the results.”

Then Monks went on to say what many would like to, but either don’t have the authority, or the chutzpah: “It’s shameless, I don’t know whether to laugh or cry. 

There isn’t a single ounce of integrity in this [shareholder resolution] proposal. There’s no public wrong that they are addressing, no evidence of any kind, not a single example of a proxy proposal ‘wrongly’ recommended or voted, there’s no harm; it’s simply a statement of the corporate capture of the SEC, the pernicious impact of Citizens United and dark money, and of the governance situation in today’s world.”

"I used to really like the SEC, which is why I’m so angry."

Reverting to his first answer in the interview, Monks sees one of his old bête noirs, CEO pay, as the driving force behind even this SEC action. “What prompted the multi-million dollar dark money campaign for this massive and completely unsupported rulemaking was the only thing the business community cared about – CEO pay and any threat that CEO pay would be accountable to shareholders. Even the mildest of advisory [Say on Pay] votes with fewer than 4% failing to get majority support, would evoke the most expensive legal response imaginable. That’s why they keep saying how expensive it is. But there has never been one ounce of proof of the expense of companies having to deal with shareholder resolutions or of a single recommendation from the proxy advisory firms that was anything but for the interest of beneficial holders. There’s no significant cost to companies, and none of the material submitted has documented any. All they have to do is put it out [in their proxy statements] and give their opinion on it. And the result is only advisory anyway.”

He went on: “I used to really like the SEC, which is why I’m so angry. It was always held up in law school as being the example of this marvelous new addition to government, which was to have experts in a particular field be ‘independent but subsidiary branch agencies’ so you would get competency and bi-partisan objectivity into government. For about 25 to 30 years, the SEC was just that. When I got out of law school, first class people wanted to go and work for the SEC and were proud of the experience.”

RI asked if Monks thought that the current Commission’s seemingly ‘corporate craven’ behaviour was a result of the extreme partisanship in today’s US politics.

“It’s not a result of today’s partisanship,” he rebuffed, “it happened a long time ago. It started with Bill Clinton’s famous triangulation which stopped the Democratic Party from being the party of protecting the workers and the farmers and the poor to become the party of Wall Street along with the Republicans. Even Barack Obama decided to stay with Wall Street. The pattern of change from one party to another, which characterized our country since the Civil War, has gone; we’ve had about forty years of solid Wall Street control.”

For the second part of the article, please click here.