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Restoring Trust(s)

Robert A. G. Monks

      . . . is the world's most prominent -- some say feared -- shareholder activist. He is founder and Principal of LENS Inc., an investment fund which poorly performing companies and uses active shareholder participation to turn them around. He founded the leading corporate governance firm, has served on the board of a dozen publicly held companies, was head of The Boston Trust and has served in the federal government. With Nell Minow, he coauthored Watching the Watchers and Power and Accountability. The Emperor's Nightingale was published in 1998.

Excerpts3:49 secs

      Corporations are probably the noblest experiment we've ever managed, contends Robert A.G. Monks. But sadly, Adam Smith's "agency problem" has come to life -- the interests of the people who run corporations are no longer the interests of the corporations' owners. At the same time, those very owners -- the shareholders -- are too often happy to have the benefits of ownership while failing to exercise their responsibilities. That's too bad, according to Monks, because companies are worth more when their owners are involved. Activism is cost-effective.

      Monks is admired - and feared - as one of the world's most prominent shareholder activists. He co-founded and is a Principal of an investment fund that targets poorly performing companies and, with active shareholder participation, turns them around. He is also the great-grandson of a founder of both General Electric and AT&T. He understands being a shareholder.

      In a free society, Monks believes power requires responsibility. And power exercised in a free society by non-elected people is a contradiction in terms. That's a problem, since power today resides in corporations, not in government. So corporations must force accountability upon themselves, Monks contends.

      When CEOs can hide stock options from the bottom line and Big Tobacco can manipulate public policy with a single $30M ad campaign, Monks believes it's time to acknowledge that the Market is a theoretical concept which is skewed, impoverished, coerced, misinformed and manipulated by corporate managers to their own ends. He's confident shareholder activism and large institutional investors can help. The United States, Holland, Canada, the United Kingdom, and Australia all have funded pensions which add up to $10trillion. But before they can be effective, those in positions of trust must resolve conflicts which mistakenly have them placing the interest of corporations ahead of the interests of trust beneficiaries.

      Monks finds fertile possibilities in thinking of corporations as complex adaptive systems. Move beyond the language of power. Update outdated financial statements to reflect what is now important -- creativity, energy, the capacity of people to innovate. Address today's intolerable discrepancies between winners and losers before it is too late. He is heartened by the emerging power of female energy in the business world. Women have proven themselves competent surrogate men and are now poised to move beyond that linear way of thinking to a more holistic mindset which can humanize corporations.

      Monks urges that we hold Corporations to a minimum standard. He proposes the Engel Triad: Corporations must 1) obey the law, 2) disclose fully the impact of their functioning in society and 3) have a restrained impact on government. Since Monks is confident long-term capital will define national strength in the 21st century the way nuclear weapons did in the 20th and navies did in the 19th, there's no time like the present.

[This Program was recorded September 9, 1998, in Cape Elizabeth, Maine, US.]

Conversation 1

Bob Monks tells Paula Gordon and Bill Russell how the definitions of national strength have moved from the 19th century concentration on naval forces to the 20th century's focus on nuclear weapons, concluding that access to investment capital will mark national strength in the 21st century. He explains the roots of that shift, showing how investable capital is energy.

Conversation 1 RealAudio3:37

Conversation 2

Mr. Monks shows how accounting practices today are misleading because they fail to reflect creativity, energy, and people's capacity to innovate. He offers his view of corporations as complex adaptive systems offering an alternative to today's language of business which obsesses on power. Monks rescues Adam Smith from current misrepresentations of Smith's ideas. Monks deplores the terrible price of today's economic system -- as rich people. He urges us to listen to the (metaphorical) sound of the bell tolling, calling us to accountability. Democracy, he assures us, requires responsibility of those who have power and stockholders in today's companies have disconnected their rightful responsibility from their ownership.

Conversation 1 RealAudio3:37

Conversation 3

In a free society, Robert Monks believes, substantial power exercised by non-elected people is a contradiction in terms. Corporations are now in that position. Hence they must force themselves to be accountable. Monks gives disturbing examples of our elected officials' great disadvantage in dealing with corporate power. He uses the tobacco industry as a sobering example. He charges that The Market -- a theoretical concept -- is skewed, impoverished, coerced, misinformed and often manipulated. Keeping executive stock options off companies' earnings statements is one example. He shows how Adam Smith's greatest fear has come to pass -- the interests of the people running corporations are no longer connected to the corporations' owners.

Conversation 1 RealAudio3:37

Conversation 4

Monks describes his interest in the work of the Santa Fe Institute. He offers three rules for corporations and explains the implications of each: 1) Corporations must obey the law. 2) Corporations must disclose fully the impact of their functioning in society. 3)Corporations must have a restrained impact on government. The tendency of economics and corporate power to be the dominant theme in public life must be resisted in a free society, he contends. He shares his conviction that a company is worth more when its owners are involved, that people can make more money by being activists.

Conversation 1 RealAudio3:37

Conversation 5

America's founding fathers did not have "Uncle GE," "Ma Bell" and "Aunt Microsoft" in mind when they guaranteed us freedom of speech and the right to vote, Monks argues. He shows how corporations are the real recipients of welfare in the federal budget with corporations now commanding a disproportionate share of the national wealth, in America and in the world. He challenges institutional shareholders to demand accountability. He decries the fact that as trusts have "scaled up" over time, we've lost the idea that the exclusive concern of the trustee should be for the benefit of the beneficiary of the trust. He points to trustees who are deeply conflicted in their trust responsibilities.

Conversation 1 RealAudio3:37

Conversation 6

Monks sees the liberation of female energy as one of the most exciting things that has happened in America in the last 30 years. He gives examples of how women are now in a position to move beyond being surrogate men. He describes the differences he sees between men and women, hopeful that women's more holistic approach (as opposed to men being more linear) will humanize corporations. He explains why he believes corporations are "probably the noblest experiment we have ever managed."

Conversation 1 RealAudio3:37



Bob Monks graciously welcomed us into his home in beautiful Cape Elizabeth, Maine, just hours before he was scheduled to depart on an extended trip abroad. We deeply appreciate both his willingness to explore new ideas and his cordial welcome. That he is a great-grandson to one of the founders of both General Electric and AT&T makes him a noteworthy spokesperson for corporate accountability.

Barbara Sleasman, Mr. Monks' able assistant at LENS, was extraordinarily helpful in assuring the success of our program, while also confronting serious family challenges. We thank her.

Peter Hale, Senior Publicist at Perseus Books, was central to bringing us together with Mr. Monks when the challenge of schedules looked insurmountable. We admire Peter's flexibility and his commitment to his authors.

Related Links:

The Emperor's Nightingale, is published by Addison-Wesley, a member of the Perseus Book Group.

Our second conversation with Mr. Monks, recorded in October 2007 is available here.

Among the organizations Mr. Monks has helped create are:  LENS
, Hermes Asset Management, and The Corporate Library.

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