In Citizens DisUnited: Passive Investors, Drone CEOs, and the Corporate Capture of the American Dream (Miniver Press, 2013), Robert A.G. Monks sets the tone right off the bat by recalling the time he stood up at an ExxonMobil annual meeting and addressed CEO Lee Raymond as “emperor.” Indeed, Monks has long been a highly vocal gadfly and leading activist when it comes to corporate governance.
Here, he argues that corporate governance is more important than ever because of two relatively recent developments. First, corporations have ascended to levels of unprecedented power in the United States, thanks in large part to legal rulings. The Supreme Court’s decision in the 2010 case Citizens United v. Federal Election Commission, for example, removed virtually all limitations on corporate political spending—a “grotesque decision,” rightly judges Monks. Second, the leaders of the largest and most powerful corporations in the U.S. (ExxonMobil, IBM, and General Electric top the list) have never been less accountable to shareholders. This is because of weak boards and the movement of large ownership positions to passive institutional investors, among other things. The result is “drone corporations,” in which “manager kings” have free rein to pursue their own self-interest. Monks puts more than half of the Fortune 500 among their numbers.
The dangers in such a situation are obvious. Monks offers up a litany of them, including the gutting of the political system, regulatory abuse, tax avoidance, the mistreatment of U.S. workers, obscene CEO compensation packages—and the list goes on.
We’ve heard versions of all these arguments before, and even though I, for one, wholeheartedly agree with Monks, I’m pretty sure that he is largely ignored in C-suites, where the work at hand is the pursuit of competitive advantage, market share, and profit, and not so much the proper limits of executive power. Nevertheless, there is a very interesting study reported in chapter 6 of Citizens DisUnited that might give executives cause to consider the book.
Monks and his colleagues at GMIRatings evaluated the financial results of drone corporations in the Fortune 500 versus Fortune 500 corporations that still have some form of focused ownership—either a single shareholder position of 10 percent or more, one or more founders actively guiding the company, or family interests (usually descendents of founders) on the board. They found that the latter companies—the non-drones—outperformed drones in terms of shareholder return:
“Total shareholder returns for non-drones in 2011, the last year for which full figures are available, was 6.59 percent vs. 4.93 percent for drones, a third greater. Go back to the three years immediately after the financial collapse, 2009–2011 when stock prices were struggling to return to pre-crisis values, and the margin is less but still statistically meaningful: 20 percent. Stretch back to five years, and the total shareholder return for non-drones exceeds that of drones by 23 percent.”
You’ve probably heard the old saying that Mark Twain attributed to Benjamin Disraeli: “There are three kinds of lies: lies, damned lies, and statistics.” Well, I can’t vouch for the validity of Monks’s findings, but anything that appears to hit shareholders in the pocketbook seems worth a closer look by corporate executives and boards.