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

[Keith Wilde <kwilde@magi.com>]

Very interesting, direct, and fully consonant with my experience of 35
years watching government regulators progressively emasculated by the
corporate agenda.

A remedial approach which quite complementary to Shann's, in my view, is
"The Loyalty Effect" (Harvard Business School press, 1996) by Frederick
Reichheld.



At 11:49 AM 04/04/2001 +1000, you wrote:
>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
>
>
>
>
>
Keith Wilde
Canada Pension Plan
Ottawa
kwilde@magi.com
613 990-8125 (office)
613 747-6847 (res)