June 30, 2008
Bob Monks: ExxonMobil Exemplifies Corpocracy
by Bill Baue and Francesca Rheannon
SocialFunds writers Bill Baue and Francesca Rheannon interview corporate governance advocate Bob
Monks about his shareholder activism at ExxonMobil and his new book, Corpocracy.
The ExxonMobil annual shareholder meeting this year carried high expectations from shareholder
activists, who filed almost 20 resolutions on climate change, greenhouse gas emissions reductions
targets, renewable energy policy, political contributions transparency, and sexual orientation
nondiscrimination, among other issues. Members of the Rockefeller family, descending from the
founder of the Standard Oil monopoly that splintered into Exxon and Mobil, attended the meeting to
support four different shareholder resolutions on corporate governance and climate change. Of these
four, the resolution supported by most Rockefellers asked the company to split the CEO and Board
Monks has filed this resolution at ExxonMobil since the early 2000s. Despite the support of
the Rockefellers, the resolution received just under 40 percent support, a shade less than it
received last year. Monks' struggle to hold ExxonMobil accountable exemplifies the broader
struggle to hold corporations accountable described in his new book, Corpocracy. Monks is
co-founder of Institutional
Shareholder Services, The
Corporate Library, Lens Governance
Advisors, and a former Labor Department official in the Reagan Administration.
SocialFunds writers Bill Baue and Francesca Rheannon recently chatted with Monks from his home
Bill Baue: Bob, you introduce your book using the 2003 ExxonMobil shareholder
meeting to exemplify the dynamic of what you define as ďcorpocracy.Ē Now you just returned from the
2008 ExxonMobil shareholder meeting. In what ways does ExxonMobil still illustrate your concept of
corpocracy and, how do you define that term?
Bob Monks: Coming back from Dallas, I sat
down and I began to write, ďShareholder Democracy, R-I-PĒ which is inscribed on tombstones for
Requiescat in Pace, or ďRest in Peace.Ē Unhappily, the bold experiment that came out of the
1930s and some very idealistic people who tried to repair some of the damage of the Depression has
now been thoroughly thwarted by people like Exxon, who view shareholder involvement as being at
best a tax and at worst a crime.
Rather than the blatant adversity that we had in the
earlier meetings, theyíve now refined it to the point of making it just irrelevant. So you no
longer have a dialogue back and forth. They have it choreographed so each person who has a
resolution speaks, and then at the end of the time the chair recognizes anybody they want to speak
on any subject. So pretty soon you get the idea that this is not an interchange of ideas, this is
not a dialogue. This is simply a recitation. Everybody has their set lines, they recite them, and
they sit down, and the meeting is over, and thatís all until 2009.
So it really is in
behalf of Exxon a real denial of the basic concept of corporate governance Ė namely, that the
directors work for the owners and the CEO is picked by the directors. In the case of Exxon, quite
clearly, the CEO picks the directors, who are simply there as a parsley in the fish. And the
shareholders essentially are tolerated but donít materially interface with the functioning of the
I think the difference between democracy and corpocracy is that corpocracy takes
this pattern of CEO control that I outline in my book, and moves it to the various governmental
levels through lobbyists, through gifts to political campaign, and through the movement of public
policy dialogue, to the language of economics. And it begins to have almost every kind of public
policy decision made as a matter of a cost/benefit ratio. And if youíre talking cost/benefit
ratios, thatís the language of corporations. If youíre talking, is it the right thing to do? Is it
a long term interest of society? Thatís more of a holistic point of view. And what corpocracy says
is that the dominance of the values of the corporate system have infested our body politic, and we
really are administering government for the benefit of the corporation -- and that this is a wide
departure from what the country was basically founded on.
BB: Bob, you seem to suggest in
the book that capitalism could work in concert with democracy were it not for the
development of corpocracy. Can you explain how corporate democracy might work hand-in-hand with
political democracy in a way where capitalism would actually be beneficial?
BM: First of
all, the people who run corporations are just like everybody else. There are good people and bad
people and most of them are good. They donít have a personal investment in doing harmful things.
The problems comes in the language of accountability. And we are told until weíre sick to death
that what matters is the bottom line. Well, who defines what the bottom line is?
out that the bottom line is defined according to accounting principles that are misfounded and lead
to the wrong conclusions. In several respects they are really very harmful. Companies like Exxon
are allowed to present financial reports without any indication of the cost of their functioning on
a society. For example, TruCost, a UK-based
environmental research firm that Iím substantially invested in and that I advise, has estimated
that the cost of Exxonís carbon emissions every year is $10 billion. At the moment, that $10
billion cost is borne entirely by society -- in terms of a diminished quality of living, in terms
of global warming.
In order to have a corporation function in a way that is consonant
with democracy, the accounting system ought to allocate that $10 billion in some way that elected
officials, who are the only people to whom we cede sovereignty, have considered to be appropriate.
Should it be fifty-fifty between a company and society? Should it be seventy-five/twenty-five? It
should be something.
The example of carbon emissions is simply the most dramatic of the
externalities. There are many others of them. And a lot of work is being done by people to try and
raise consciousness about non-balance-sheet corporate statistics. And I donít know how far weíre
getting. Weíre asking the right question. We havenít yet begun to get good answers.
Francesca Rheannon: Thatís very interesting what you just said: ďWe donít know how far weíre
getting.Ē I wonder how far you can actually take that? I mean letís say for the sake of argument
that companies did follow what some call the triple bottom line. In other words, that they took
into account some of these externalities, they took into account people, profits and planet. Which
one trumps the others when it comes to a conflict in the benefit to both? In other words, if itís
going to erode profits to serve the people and the planet, are people and the planet going to trump
profits in this case? Is there a model of capitalism that could allow that?
BM: If you
have a general accounting system that is followed by all companies, the reluctance that companies
have to moderate plainly harmful conduct largely is eliminated, because as long as the competitors
have to do the same thing that they do people who are not evil people have no objection to running
their companies in a way that is societally congenial. And so the important thing is a set of
accounting standards that are applicable to all companies and that are enforced in which case the
redefinition of profits really doesnít cost any company anything. It simply redefines the dynamics
pursuant to which they operate.
FR: Because you leveled the playing field.
Yes -- it makes it equal for everybody.
BB: Now that is something that weíre certainly in
some ways heading towards with things like the Global Reporting Initiative gaining steam. But in your
book, you also point out a countervailing force: that the Business Roundtable, the industry association of
CEOs, does its utmost to obfuscate and oppose any sort of playing field leveling. So what do you
see as a realistic promise of being able to level the playing field given the powers that be of the
Business Roundtable and others?
BM: Iím a card-carrying Republican. I used to be the
Chairman of the Republican Party in Massachusetts years ago, and Iíve been the Chairman of the
Republican Party in Maine. So Iím speaking as someone who is a product of the capitalist system
and someone who has benefited from it and believes in it.
A problem has been in the last
eight years that the political administration of the country has very much been the Business
Roundtable. And to an extent that is not often pointed out, the President has seen fit to turn the
country over to the Business Roundtableís priorities. And this takes place in the EPA. It takes
place in the SEC. And so based on what youíve seen in the last eight years, thereís almost no basis
to conclude optimistically about the ability of government to set standards that will be holistic.
I think there is likelihood of change of political priorities in the fall. And itís hard
to tell how far that will go. In the past -- for example, 1932 when there was a major change of
this kind, and after the change in political administration, there was a huge change in how
government interacted with business. So at the moment, all people like me can do is to take solace
in the notion that if theyíre patient and if theyíre somewhat wise, it may be that weíll have a
chance to make some decent proposals in the new year.
FR: But it sounds like you are
depending on government to be able to do what government has traditionally done, and that is level
the playing field through regulation. Yet in your book, you really put it into the lap of
shareholders, saying they are the ones who can take power. So could you talk a little bit about
what it is that shareholders can do? What is it that government can do? And then what is it that
the public can do -- that is, say, communities themselves and other stakeholders who may not be
represented very well by government?
BM: Iíve probably misspoken because if government is
ever thought of as the answer, youíve asked the wrong question. What I think a government
can do, and probably the only thing that government should do, is to set standards.
FR: Not regulation?
BM: No, not regulation. The government is a very poor
regulator. And in the corporate sphere, itís virtually counter productive. It may sound cynical,
but Iíve been involved with this for a long time, and basically, corporations hire better lawyers
than the government. There arenít any laws that are self-executing.
I remember when I got
out of law school, which is exactly fifty years ago, the smartest guy in my class went to work for
the best law firm in the country, which has been in Washington D.C. And I saw him five years later
and I asked what heíd done, and he said, ďIíve just had a huge success -- I managed to convince the
Federal Trade Commission that my client could make peanut butter that had no peanuts in it.Ē
Well, thatís what happens. The ablest people of the country go to work for people who hire them
to argue things that are plainly defeating of the intent of the law if they can somehow manage to
bring them within the letter of the law.
FR: But isnít that because our democracy doesnít
work? Because it is the corporations, as you write in your book Corpocracy, that have
hijacked the government? Are you saying that corporations can be self-regulating? That they will be
able to regulate themselves better than if the government sets some standards?
Iíve been trying to suggest is that the political pattern that the founding fathers had is quite
well applicable to the corporate sector and that is, to set up countervailing points of power. And
currently, power is exercised almost uniquely by the executive branch, by the CEO. And what Iím
talk about for shareholders is that they should have countervailing power. And after all, the
shareholders in todayís world are a wonderful proxy for the country as a whole. There are about a
hundred and fifty million Americans who own beneficial shares of common stock in American
companies. The concern by trustees for people is a long-term concern because in many cases theyíre
administering employee benefit plans and the employees are going to work for a number of years
before they retire and they want to retire into a clean world.
So there is a logic to
empowered owners. And the corporate system in theory provides for empowered owners. Whatís happened
is is that the theory has been defeated by a number of years of excess power of the executives and
the restoration of that, which I say at the end of the book, is relatively straightforward. Itís a
matter of the President calling in about five federal officials into the Roosevelt Room and telling
them to enforce existing laws. You donít need any new laws. You donít need any new taxes.
FR: I came out of the Occupational Health and Safety movement. I was an advocate for workers
having better health and safety. And I think itís really an example there, very akin to what weíre
talking about climate change, when we had the passage of the OSHA Act, which did come out of many stakeholders including
workers, not just shareholders in particular, workers and environmentalists who pushed for the
passage of a regulation. That regulation depended on a number of things. It depended on scientists
who worked for the government and were independent, more or less, in setting the standards. It
depended on enforcers in OSHA being able to inspect companies and to back those inspections up with
fines and sanctions if, if companies violated the standards. And then the government enforcement
was hijacked by the Business Roundtable. And so those things are no longer being put into effect.
But I canít imagine, even if shareholders were pushing for better health and safety, that they
would have the science or the enforcement capacity that government has.
BM: I used to work
in the Labor Department in Washington, so I have some sense of frustration with how difficult it is
for government to translate good intentions into helpful activity. If you stop and think that the
largest shareholder in American companies are employee benefit plans, and by-and-large employee
benefit plans are informed by the concerns of unions. And the ability of this group of shareholders
to articulate a message having to do with the health care and welfare of workers is very real, very
strong. Now, it has not been done, but it could be done. The most articulate and effective
shareholders working today are the public employee retirement systems in California. They have a
very wide ranging agenda. They could press these issues.
What Iím talking about is a
dynamic in which you have owners like that pressing issues. And here we have a huge constituency
for workfare conditions. At that point several things have to happen. You have to have private
sector institutions, youíve got to have government setting standards, youíve got to have at least
some theoretical capacity for government to enforce the standard, although thatís been quite
disappointing in practice, but even if you have to use criminal law, which is a fairly violent act.
For example, how do you get people to operate mines safely? Ultimately, you may have to make a
crime out of out of operating mines unsafely because people die in mines. So government at a
certain point is the last resort. But most of the work has got to be done by the pressure between
informed owners and the managers.
BB: In your book and also in this conversation I hear
you saying two things. One is that many owners are not fulfilling their fiduciary duty. And the
other thing I hear you saying is that the playing field is not conducive to shareowners exerting
their full capacity of power. And I would say the best example of that is the blockage of
shareholders being able to even nominate a director. Could you speak on those two conditions: of
neutered shareholders and a playing field that is completely tilted?
BM: Iím very pleased
if, if someone reading my book has come to those conclusions because that was what I was trying to
suggest is the situation. The smoking gun is the pay of the chief executive. The clearer it is that
people have just abused every imaginable notion of fairness in the pay of CEOs, the higher the CEO
pay goes. People sit and moan about it. And they donít do anything about it. And everybody pretends
as if they couldnít do anything about it. Do you know how much the last CEO of Exxon retired with?
BB: An obscene amount.
BM: $500 million -- itís beyond obscene. You should have
a revolution over that.
BB: Well, Bob, the vote on your resolution -- which seems to me to
be common sense or a no-brainer, where you suggested that the CEO and the board chair role be
separated, a simple separation of the executive and judicial branch -- but that resolution only got
forty percent of the vote, as it did last year. A very high vote, but there is still sixty percent
of owners who donít see that basic logic. So, my final question for you, Bob, is what can be done
right now to shake up, to empower, to create a situation where that sixty percent of fiduciaries to
actually exert the influence they could on corporations towards more responsibility?
What you can do is to put it on the political agenda for the congressional elections. One of the
problems weíve had is, no matter how unfair things are, we have not been successful in getting this
range of issues on the political agenda. If anybody getting elected to office has the sense that
their constituents felt that fairer corporate governance had something to do with why theyíre
getting less return on their investments and why their earnings are being depleted by inflation, if
they had any sense that there was an act that could be taken by the government, I think that it
would become a genuinely politically important issue. If itís a genuinely important political
issu,e we would begin to get enforcement and people would see this as very attractive. They donít
have to have taxes, they donít have to pass new laws. They just have to be conscientious about
enforcing existing laws.
BB: So Bob, what I hear you saying is that our populace doesnít
understand the degree to which the way that corporations are run actually impacts their lives. And
if they understood that and if they took up arms, so to speak, in terms of their voting, to demand
fair corporate governance, to demand that CEO pay be reigned in, that that would go a long way
toward solving the problem of corpocracy in America.
BM: Yes, I do.
You can lis
ten to the complete interview by Corporate Watchdog Radio co-hosts Bill Baue and Francesca
Rheannon with Bob Monks at the Corporate Watchdog Radio website, where you can
subscribe to the CWR podcast or listserve. The show also features a commentary by longtime shareholder activist Steve
Viederman presenting the statement he read at the ExxonMobil meeting introducing the resolution he
filed asking the company to adopt a renewable energy policy.