Bob Monks: Son of a Preacher man, scourge of the 'corpocracy'
Bob Monks, the original investor activist, still wants to bring change
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Tuesday 06 November 2012
One of the great ironies of the US presidential election, declares Bob Monks, is that the Republican hopeful, Mitt Romney, has made so much money from private equity – a business which destroys human values, has deepened the divide between rich and poor and is ultimately subsidised by the government.
"And why does Romney want so much money, anyway?" he asks quietly. "The irony is that Mr Perfect has presided over an activity that is not only socially useless but genuinely harmful. These private equity men rip out the equity of a company, load it up with debt and pay themselves special dividends and huge fees for their services. Companies then go bankrupt, and the government steps in to bail out the pensions of the people who lose their jobs. It's the Wall Street process."
It's not just Mr Romney – said to be worth $250m (£157m) – and private equity that Mr Monks is gunning for, but the bits of Wall Street's money-making process that he considers either corrupt or poorly managed. It's a pursuit that has given him missionary-cum- guerrilla status as America's most influential governance guru, but which has also led some to describe him as a "traitor to his class", which is also the title of a biography of him. He's a Republican, albeit a RINO – a Republican In Name Only. To him, it's the capitalists who are the traitors as they have given up on responsible capitalism; instead they have become the "corpocracy" – the title of one of his many books.
Mr Monks more or less invented shareholder activism after working as a corporate attorney, a venture capitalist and a businessman. He even ran a bank for a while, one that was sold to Sandy Weill, the legendary banker who stitched together Citigroup and who now supports breaking up the big banks. So does Mr Monks. "The culture is too different," he says. "Trust banking is as dull as ditchwater while investment banking is about taking risk, and where people are paid excessively to do so. You can't put them together; it's common sense."
Concerned by what he had seen in business, Mr Monks co-founded Institutional Shareholder Services – ISS – in 1985 to wage proxy warfare on companies that were not behaving as they should. Since then he's taken on hundreds of companies – his bid for the board of Sears was the one that put him on the dissident radar. His claim is that powerful chief executives have awarded themselves bloated salaries and bonuses, and in the process, captured the companies that employ them and emasculated the shareholders. How they did it, even he can't quite figure out. But those same CEOs went on to capture the politicians, creating a new "corpocracy" class that has squeezed out the middle-classes as well as the poor.
Indeed, he blames the collapse of Lehman Brothers and Bear Stearns on the Securities and Exchange Commission because it allowed itself to be captured by the banks that set their own gearing ratio. 'The SEC not only got tired, but also got quite corrupt. George W Bush appointed a chairman of the SEC who basically dismantled it." Capture is a word he uses a lot, and is the title of his next book due to be self-published soon on Kindle. "Haven't got time to wait around for publishers," he says.
His answer is to once again connect owners – the shareholders – with the companies they own. But if investors are to do so, and to make decent returns, they need to be smarter: " They need new ways to measure value-destroying corporate behaviours because most of the old financial models are no longer relevant. Extra-financial research – looking at all aspects of a company – can help root out what's going on."
For example, GMI Ratings, the fourth activist group he has founded, downgraded BP before Deepwater Horizon; AIG before the financial crisis; News Corp before the phone-hacking scandal; and Olympus before Michael Woodford blew the whistle, among others.
Mr Monks is in London on one of his regular trips: his ties are close. We arrange to meet in the lobby of the Mayfair apartment he rents when over here, and you can't miss him – he cuts a big, imposing figure, six foot six tall, and the blue sneakers he's wearing with his grey suit add even more height. No wonder he's been so adept at upsetting corporate America. He's also got age on his side: "I'll be 80 in 13 months' time, next December." Precisely.
The son of a Bostonian preacher, Mr Monks has something of the pulpit about him. He had a wealthy east coast upbringing: after Harvard, he came to Cambridge for his PhD but gave up academia after his tutor suggested he had too much energy for ivory towers. Some of that energy went into rowing, and he was on the right side when Cambridge won the boat race in 1955. He is godfather to Jesse Norman, the Conservative MP known for his "compassionate conservatism" whose father became a great friend at Cambridge. He is also the deputy chairman of Hermes Asset Management after being invited to join by the late Alastair Ross Goobey, the pioneering shareholder activist.
"You have a good history of activism here; and companies are much better run because you have stronger, more independent boards," he says. But he wishes that the "great and good" shareholders – the likes of the Wellcome Trust, the Church of England and Cambridge University – were more engaged. "These institutions are societal leaders and they should be leading the debate."
Reform is his solution: "The situation today in the US is similar to 100 years ago when business and politics were also cosy. Roosevelt was forced to break up some of the big monopolies and vested interests – we need that sort of shake-out today."
The global picture is equally gloomy, he says. "Inequalities are rising in the West. The US fiscal deficit is enormous and will have to be tackled. People are nervous and it's not surprising that the Occupy movement has taken off as the political system is decaying."
Just how bad does he think things are? Could there be revolution? "That's something I think about too. My wife – she predicts trouble from cyber warfare – and I live on the east coast and we can see the sea from our home. Often we wonder whether we may just have to run for it."
Yet there's hope too, mainly from the women he calls the prophets. "There's a wasp of a girl – Elizabeth Warren – she was on TARP [the Troubled Asset Relief Programme] and watch out for her." Ms Warren is now running for the Senate as a Democrat. His two other Cassandras are Brooksley Born, the former head of the Commodities & Futures Trading Commission, who warned Congress about the build-up of OTC derivatives; and another ex-regulator, Sheila Bair, now on the Systemic Risk Council. "These are bright women who understand that what has happened is not only failure of law but a failure in the will to enforce it. That's because the system has been captured."
On the eve of the election Mr Monks predicts that President Obama will win again. He backed him last time – leading the Maine group of Republicans for Obama – and reckons his healthcare reforms are considerable when you weigh up the powerful lobbies he was fighting against: the insurers, the pharma industry, the hospitals and doctors. "It's doleful, isn't it, that the Republican party and a country the size of the US can only come up with a candidate like Romney."
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