HOMESTEAD: Fwd: FW: It's time to kill off corporate plutocracy

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

Dear List

I am forwarding a message from an Australian list member who is an adviser 
to a Minister in our largest State government of NSW controlled by the 
Australian Labor Party (ALP).  It raises the issue that the COG mission of 
democratising wealth may have little effect, or even negative consequences 
of alienation, if control is not also democratised with ownership.

Tim Mitchell's message contains my Op. Ed contribution as published 
yesterday in our national financial newspaper, The Australian Financial 
Review (AFR).  The Opinion page editor requested that I provide a piece to 
note the first time in the history of Australia, and I expect the world, 
when corporate governance has become an election issue.  The ALP has been 
accused of having insufficient policies for the Federal election due later 
this year but issued policies on corporate governance last week as listed 
at http://www.alp.org.au/policy/pdpcorpgov280301.html

The working title of my contribution was "The politics of governance" but 
the editor chose a much more provocative and focused title of "IT'S TIME TO 
KILL OFF CORPORATE PLUTOCRACY".  My contribution was also slightly cut so I 
have pasted in below my original text:


>                     THE POLITICS OF GOVERNANCE
>
>                                Shann Turnbull*
>
>Adoption of the ALP corporate governance policies announced last week 
>would not have avoided the need for the current investigations into the 
>NRMA Insurance Group Limited and HIH.  Fundamental reform is required.
>
>However, the ALP policies are important as they make corporate governance 
>an election issue for the first time.  This should not be a surprise.
>
>NRMA Insurances has over a million a shareholders who vote for 
>politicians.  A majority of Australian voters now participate in the 
>ownership of listed corporations but are denied ways to control corporate 
>misbehaviour or enhance business performance.  Little wonder people feel 
>alienated.  NRMA and of other influential company directors are seen as 
>self-serving elites protected by connections with political parties.  This 
>feeds support for minor parties.
>
>Especially as the Coalition and the ALP rejected a solution put forward in 
>Parliament by the Democrats.  The Democrats wanted to provide little 
>Aussie battlers with a watchdog board for every listed company to protect 
>their shareholdings by disciplining self-serving corporate elites.  The 
>watchdogs being elected on a democratic basis of one-vote per investor 
>rather than the plutocratic basis used for directors of one vote per share.
>
>The exclusive reliance on plutocracy is highly risky as demonstrated by 
>major companies like HIH, GIO, AMP, and BHP loosing billions of dollars of 
>shareholders wealth.  Plutocratic governance is inconsistent with 
>democracy and the establishment of checks and balances to avoid the 
>concentration of power that can corrupt executives, directors and 
>corporate performance.
>
>The reason why the ALP policies cannot be effective is that disclosing 
>executive pay is not a sufficient condition for controlling corporate 
>excesses.  Disclosure is useless unless there are people with the will and 
>power to act.  This is unlikely in a closed shop plutocracy.
>
>Market forces to control excessive pay; self-dealing and reckless 
>risk-taking cannot emerge unless there are also markets for corporate 
>power and influence.  The ALP and the government say they want 
>institutional shareholders to be more active as shareholders but this is 
>unlikely to be effective in a closed shop with the insiders controlling 
>the processes of accountability.
>
>Reliance on non-executives directors to protect investors is 
>dangerous.  The description of non-executives as "independent" is even 
>more dangerous and could be judged as "misleading and deceptive conduct" 
>under the law.  It exposes those that use the term to be sued by investors 
>who relied on the independence of directors to protect their investment.
>
>Government sponsored corporations like the Commonwealth Bank and Telstra 
>have constitutions that allow directors to control shareholder meetings 
>and so how directors are elected, account for themselves and get 
>paid.  This is unethical.  Yet the law permits this for all corporations 
>and members of the Institute of Directors are not required to act 
>ethically.  AusAID is exporting these unethical practices!
>
>The Coalition, ALP and their advisers, like many governments around the 
>world, have become captive to lawyers and economists in their ineffective 
>efforts to improve corporate governance.  The problem is that lawyers and 
>economists are not educated in cybernetics, the science of 
>governance.  One of the fundamental laws of information and control 
>science is that complexity cannot be regulated centrally.  This law is 
>illustrated by the failure of socialism.  Also by the inability of 
>government regulators to prevent the failure of HIH.
>
>People forget that the reason for having business laws is to protect their 
>various stakeholders.  However, the diversity and complexity of 
>stakeholder interests makes it impossible for any government to directly 
>protect them through regulation.  An indirect approach is required of 
>providing power to stakeholders to protect themselves.  This promotes 
>self-governance and the privatisation of regulation by people with the 
>relevant inside knowledge and will to act to protect and promote their 
>stake.  Stakeholders are in a position to provide an early warning system 
>on corporate disasters for directors, shareholders and regulators.
>
>Instead of introducing more and more detailed and ineffective prescriptive 
>laws, government should only act indirectly by requiring corporate 
>constitutions to makes adequate provision for the rights, duties and 
>powers of its stakeholders.  This would include investors who need simple 
>and effective means to protect themselves without resorting to the law or 
>government regulators.
>
>It is only by harnessing the complex knowledge and self-interest of 
>diverse stakeholders and their agents that government can have a chance of 
>controlling corporations in the simplest, efficient, and most effective 
>way while also providing business with competitive advantages.  This 
>approach would greatly increase diverse citizen involvement in business, 
>give it political legitimacy, enrich democracy and deny protest votes 
>going to minor parties.
>
>                                 oooOOOooo
>                                 750/04022001
>
>*Shann Turnbull pioneered the teaching of corporate governance in 1975 and 
>the science of corporate governance in his PhD thesis.


>From: Tim Mitchell <TMitchell@watkins.minister.nsw.gov.au>
>To: Shann Turnbull <sturnbull@mba1963.hbs.edu>
>Subject: FW: It's time to kill off corporate plutocracy
>Date: Tue, 3 Apr 2001 15:28:55 +1000
>X-Mailer: Internet Mail Service (5.5.2653.19)
>
>Shann
>
>Congratulations on an excellent article.
>
>Tim
>
>-----Original Message-----
>From: Mark D'Arney [mailto:Mark.Darney@parliament.nsw.gov.au]
>Sent: Tuesday, 3 April 2001 12:47
>To: Library Requests LIB
>Subject: AFR: It's time to kill off corporate plutocracy
>
>
>It's time to kill off corporate plutocracy
>AFR Apr 3 2001
>http://afr.com/premium/commentopinion/2001/04/03/FFXLFE6J1LC.html
>
>Adoption of the Australian Labor Party's corporate governance policies
>announced last week would not have avoided the need for the current
>investigations into the NRMA Insurance Group Ltd and HIH. But the ALP
>policies are important as they make corporate governance an election issue
>for the first time.
>
>This is hardly surprising. After all, NRMA Insurance has more than 1 million
>shareholders who vote for politicians. A majority of voters now participate
>in the ownership of listed companies but are denied ways to control
>corporate misbehaviour or enhance business performance. Little wonder people
>feel alienated.
>
>Company directors are seen as self-serving elites protected by connections
>with political parties. This feeds support for minor parties, especially as
>the Coalition and the ALP rejected a solution proposed by the Democrats.
>
>The Democrats wanted to set up a watchdog board for every listed company to
>protect small shareholdings by disciplining self-serving corporate elites,
>the watchdogs being elected on a democratic basis of one vote per investor
>rather than the plutocratic basis used for directors of one vote per share.
>
>The reliance on plutocracy is highly risky, as demonstrated by major
>companies like HIH, GIO, AMP and BHP losing billions of dollars of
>shareholders' wealth.
>
>Plutocratic governance is inconsistent with democracy and establishing
>checks and balances to avoid the concentration of power that can corrupt
>executives, directors and corporate performance.
>
>The reason ALP policies cannot be effective is that disclosing executive pay
>is not enough to control corporate excesses. Disclosure is useless unless
>there are people with the will and power to act. This is unlikely in a
>closed-shop plutocracy.
>
>Market forces to control excessive pay, self-dealing and reckless
>risk-taking cannot emerge unless there are also markets for corporate power
>and influence. The ALP and the Federal Government say they want institutions
>to be more active as shareholders. But this is unlikely to be effective in a
>closed shop, with insiders controlling the processes of accountability.
>
>Reliance on non-executive directors to protect investors is dangerous. The
>description of non-executives as "independent" is even more dangerous and
>could be judged as "misleading and deceptive conduct" under the law.
>
>Government-sponsored corporations like Telstra and the Commonwealth Bank
>have constitutions that allow directors to control shareholder meetings and
>so how directors are elected, account for themselves and get paid. This is
>unethical. Yet the law permits this for all corporations, and members of the
>Institute of Directors are not required to act ethically.
>
>The Coalition, ALP and their advisers have become captive to lawyers and
>economists in their ineffective efforts to improve corporate governance.
>
>The problem is that lawyers and economists are not educated in cybernetics,
>the science of governance. A fundamental law of information and control
>science is that complexity cannot be regulated centrally. This law is
>illustrated by the failure of socialism, also by the inability of government
>regulators to prevent the failure of HIH.
>
>People forget that the reason for having business laws is to protect
>stakeholders. But the diversity and complexity of stakeholder interests make
>it impossible for governments to directly protect them through regulation.
>An indirect approach is required of providing power to stakeholders to
>protect themselves.
>
>This promotes self-governance and the privatisation of regulation by people
>with the relevant inside knowledge and the will to act to protect and
>promote their stake. Stakeholders are in a position to provide an early
>warning system on corporate disasters for directors, shareholders and
>regulators.
>
>Instead more and more ineffective prescriptive laws, government should only
>act indirectly by requiring corporate constitutions to make adequate
>provision for the rights, duties and powers of its stakeholders.
>
>This would include investors who need simple and effective means to protect
>themselves without resorting to the law or government regulators.
>
>It's only by harnessing the complex knowledge and self-interest of diverse
>stakeholders and their agents that government can have a chance of
>controlling corporations in the simplest, most efficient and effective way
>while also giving business competitive advantages.
>
>by Shann Turnbull. Shann Turnbull, a share and policy holder in AMP Ltd, was
>chairman of three publicly traded companies.

Shann Turnbull  Ph.D.
P.O. Box 266 Woollahra, Sydney, Australia, 1350
Ph: +612 9328 7466 office; +612 9327 8487 home; Fax: +612 9327 1497;
Life long E-mail: 
sturnbull@mba1963.hbs.edu  Alternate:sturnbull@optusnet.com.au
http://members.optusnet.com.au/~sturnbull/index.html
Papers at: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=26239
with other papers & book at http://cog.kent.edu/library.html