Tuesday, January 10, 2012

Democracy works when citizens are involved

Our system of government requires citizen involvement in order to work and unfortunately, this is where things have broken down. As citizens – and as owners or consumers, voters, constituents, etc. – we have ignored our responsibilities. We’ve left it to others to “represent” us and in doing that we’ve given them the power to make decisions – crucial policy-making, world-changing and legal decisions that affect us all every day. We are disenfranchised in the political and in the ownership process. This is the real and frustrating truth. But as futile as it sometimes seems and as hard as it may seem, we must now take that power back.

There are many levels on which we must address the corporate capture of our government: as voters, as consumers in the marketplace, as citizens with a voice. My particular area of interest is corporate ownership. I have been beating the drum of responsible ownership for over thirty years. In 2002, I began an op-ed for Forbes with this riddle:

    “What do an abandoned child, a stray dog and a derelict automobile have in common  with the modern U.S. corporation? They all need someone to be responsible for them. They have no owners.” (Forbes, 2-11-02)

Ten years later, the analogy still applies. Corporations need involved owners. Democracy needs involved citizens. Without them, our form of democratic capitalism ceases to work. No institution can carry out its objectives without the intelligent involvement of its participants. Look, I’m a capitalist. I believe in capitalism but only as a system that enriches the lives of people. Corporations are not people and should not have a power over society; should not burden society.

But a ray of hope emerged this past year: Occupy Wall Street. People voicing their dissent, coming together to exercise the rights and responsibilities that make our system work. Did it change the world or even the country? No, but it’s a place to start – a crack in the wall. I hope we’ll see more of that in 2012. I’ll continue to push for responsible and accountable ownership and you push in whatever way that makes sense to you. With pressure on all sides, we can begin to take back our power as citizens and as owners.

January 10, 2012  |  7 comments  | 

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Posted by ARi on Apr 12, 2012 at 7:41 AM
In a small country like Finland, politicians and big business agree on everything.

In Finland the editor of Suomen Kuvalehti magazine Martti Backman lost his job in 1995, because his magazine revealed the fusion of two powerful banks (KOP and SYP) prematurely, before the banks wanted it to happen.

I am from Finland. I have read many things from internet sites only, of which TV and newspapers don't tell. Actually censorship in the mainstream media makes my country a plutocracy (not democracy), ruled by the political and economic elite.


Posted by James McRitchie on Jan 11, 2012 at 2:32 PM
I like Bob's basic idea of the need to increase participation. Those who participate in decision-making in one sphere are much more likely to participate in other spheres as they recognize a few people working together can be a lot more productive by taking on issues than by sniping from the sidelines.

There is merit in considering special treatment by those who can't sell but one concern I have is that the basic strategy of index funds is to earn more by keeping expenses down. Are such funds really in any position to address corporate governance issues at specific companies? How many index funds have put forth a shareowner proposal?

I would love to see a mutual fund that places a large portion of investments in a modified index, based on something like GMI ratings, and a smaller portion invested in realizing the unrecognized value of companies... in much the way Bob did with his Lens fund... however, with a bit of more participatory flavor by encouraging its investor to use tool ranging from Sharegate.com to boycotts. I think it would also be great if the board of the fund was elected in a more open process like that used by cooperatives such as REI.

Whatever we do to make corporations more responsive to the needs of people, we need to ensure that we push the herd... not just a few companies. That will require changes in law especially to address issues such as Citizens United. Long ago I used to head California's cooperative development program. Co-ops imploded, in part because they lacked structural incentives that sustain entrepreneurship but also because they got too far out in front of competitors in taking moral stances that cost money. You can only pay your employees twice as much as the competition if they are twice as efficient. You can't stop all lobbying efforts if other companies use lobbying to squeeze out the competition.

Very thoughtful post by Bob and I like the comments from both Alex and Jim.
Posted by Alex Todd on Jan 11, 2012 at 12:57 PM

I think you are on the right track with your index fund idea. It is consistent with my recommendations in "Humanist Corporate Governance: A universal model for balancing power and aligning interests" (http://corporategovernancebestpractices.blogspot.com/2011/06/humanist-corporate-governance-universal.html) in which I propose that "Boards become accountable primarily to stockowners who contributed capital to the corporation, but whose rights to sell their stocks are restricted." Index funds are a great example of systematized long-term stockownership that desreve an opt-in mechanism for capital stockowner equivalence.
Posted by Bob Monks on Jan 11, 2012 at 11:56 AM
Jim --

I do not think the general ownership model will work, either. There is such heterogeneity in terms of interest, holding period, nationality, etc that we need focus on a shareholder group suitable to act as proxies for all ownership. In that regard, I am working on an idea to use the 30% now represented by index funds.
Posted by Bob Monks on Jan 11, 2012 at 11:55 AM

One of the most difficult problems is that of “criminal liability” for corporations. As the great man said, they have neither souls to save nor bodies to incarcerate. Ultimately, we may have to become more intrusive about the chartering right
Posted by Jim Patterson on Jan 10, 2012 at 11:59 PM
I agree with your main point, but the problem is by what means should the responsibility be exercised. I don't believe the voting/democracy model will do it. We need to find a structural solution which contains both knowledge on the input side and teeth on the other side.I would still favor a "balance of power solution. Some form of checks and balances, " A competition of ideas if you will. Board reform, separation of chairman-CEO etc help but don't resolve the issue adequately. Great problem, but I don't think we are much beyong Berle & Means...
Posted by Alex Todd on Jan 10, 2012 at 8:20 PM
Even if corporations were people (as they are in law), individuals or groups of people should never have power over society.

I believe society should have varying levels of control over all people, including corporations. However, it is illegal for people to own other people, so we need to abandon the notion of treating corporations as property, owned by shareholder (which they are not in law).

Instead, corporations should be held accountable to various groups in society, including different types of shareholders in varying degrees, but not exclusively to shareholders, or any other stakeholder group.

We need a new accountability framework for corporations.
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