July 25, 2001
Book Review: The New Global Investors
by Doug Wheat
Robert Monks calls on institutional investors to exercise their rights as shareowners and hold
senior managers accountable for company performance and practices.
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In The New Global Investors: How Shareowners Can Unlock Sustainable Prosperity Worldwide,
author Robert A. G. Monks views the capacity of CEO's to pay themselves as much as they wish as a
call to institutional investors to become more responsible shareowners. Monks uses personal
experience, history, and modern examples to explain why corporations are important wealth creators
in our economy and why the corporate managers need to be scrutinized by shareowners. In the book,
Monks repeatedly illustrates his broad understanding of, and high standards for, corporate
responsibility. This understanding has made him one of the world's most respected advocates for
shareowner rights.
Looking back through history, Monks claims that the English were
the first to discover that "wealth generation requires a sharing of power and role between
government and commerce." Some governments tried to dominate commerce with pitiful results. King
James, Queen Elizabeth's successor, began a new chapter in economic history by creating and
licensing independent corporations with limited liability. These corporations had rights conferred
to them by the state and simultaneously were obligated to carry out commercial activities with a
"public purpose" - a dual expectation.
Fast forwarding to modern corporate governance, we
learn from the author that there is a convergence of what is known as portfolio investing and what
is known direct investment. Portfolio investing traditionally has been a term for diversified
holdings, reflecting ownership without power. Direct investing implies a long-term relationship
between the investor and the enterprise, with a corresponding influence over the management of the
company.
Enter the Global Investors, a term coined by Monks, that have the ability and
responsibility to influence the management of companies. These new investors are private and
public pension funds, foundations, universities, and other institutional investors. As reported in
the book, pension funds in the US had more than $3.8 trillion in assets in 1998 and worldwide
pension funds owned more than 15 percent of largest international companies. While these investors
are often considered portfolio investors, their size and concentration of power have created a new
class of investors with the muscle to engage management similar to direct investors of the past.
They have the means to challenge senior managers at corporations, unlike other organizations such
as boards of directors and the government.
The Global Investors have themselves a vested
interest in the long-term health of society including economic growth, livable wages, and a clean
environment. First, they have a long-term focus of 20 or 30 years or more. Second, they are often
index investors, with a stake in the general economy rather than a small handful of individual
companies or industries. Finally, they have the ability to do what is right.
Indeed, the
call of the Global Investors will not be new for people who have read Monk's other books, including
The Emperor's Nightingale, his most famous work. He is supremely focused on the concentration of
corporate power and the accountability of these entities to shareowners and society. Monks sees the
phenomenon of runaway CEO pay as the ultimate symbol that executives act at their own will and use
their power to confer wealth on themselves. "This corruption at the core is a cancer to the
legitimacy of the corporation," says Monks.
Monks pulls bits and pieces of his argument
from so many sources and from every conceivable angle that at times it can be challenging to keep
them straight. But the message of The New Global Investors is clear. Shareowners, and in particular institutional
shareowners, are in a position to demand accountability of corporate leaders. Our world will be
wealthier and more sustainable when they do so.
Buy this book at Amazon.com
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