Drone CEOs and the Corporate Capture of the American Dream

The American dream has been captured by drone corporations.

That’s according to a new book by shareholder activist Robert A.G. Monks.

The book is called — Citizens DisUnited: Passive Investors, Drone CEOs, and the Corporate Capture of the American Dream (Miniver Press, 2013).

What makes a corporation a drone corporation?

“By drone corporation, I mean one in which there is no element of effective ownership to monitor or to restrain the exercise of power by the corporate executive,” Monks told Corporate Crime Reporter in an interview last week.

Most major American corporations are drone corporations.

“I would say that about 60 percent of the biggest ones are,” Monks said. “Companies like General Electric. Exxon. IBM.”

Name some that aren’t drones?

“Microsoft, Berkshire Hathaway, Google, Apple,” Monks says.

The key characteristic of a drone corporation?

“Drones were more likely to externalize liability,” Monks said. “In comparing drone corporations to non-drone corporations, we discovered that the drone corporations were distinctly more likely to externalize liability. They were distinctly more liable to be indicted for criminal activity. And the extent of their criminal fines were significantly larger than those for the non drones.”

“There are now a significant number of drone corporations that use the violation of criminal law and the fines and penalties that result as a sales expense that on balance they have concluded is worthwhile.”

“This is true for companies like Pfizer in the pharmaceutical industry. And it seems to be a policy that British Petroleum has followed. They are prepared as a matter of management policy to conduct themselves in such a way as to violate criminal laws, to accept criminal penalties, and then continue to violate criminal law. That seemed to be substantially more prevalent in drone corporations than in non drone corporations.”

Not that Monks holds out high hopes for corporate criminal liability.

He has been grappling with the subject for a long time.

When he started the proxy advisory firm Institutional Shareholder Services in 1985, Monks was searching for a method to control corporate criminality.

“Everybody would agree that society needs some protection from the method of operation and scope of impact of corporate functioning,” Monks said. “That takes its most extreme form in criminal sanctions.”

“What can a country could do at the extreme to indicate that certain conduct is intolerable? Characterize it as being criminal. Back then, we got a very good lawyer — a man named Bill Weld, who had just left the Attorney General’s office. This was before he became Governor of Massachusetts. And we drafted bylaw provisions that we would make the subject of shareholder resolutions. And we sent drafts of these to the principals of the corporations. And we said, in effect — we sure you will agree that you do not countenance having on your board any individual who has been on a board of a company that has been convicted of criminal activity during the time of his service.”

“We got back a variety of really hostile replies, including a warning from the self-confessed leader of the corporate bar that anybody who did such a thing would be sued.”

“And it became clear that we were way ahead of ourselves. No one was going to agree to restrict the service of directors who had been involved with companies with a criminal record.”

“That’s what started me down the road to the really sad conclusion that the application of the criminal law to corporate activity is a delusion. It is something that is adduced by policy makers to try to quiet people’s anxiety by saying — we are doing something about the adverse effect of corporations — we have made this a crime.”

“But in doing it, they really have been guilty of a far worse crime — that of knowingly deceiving people. The characterization of activity as criminal has not in the least inhibited corporate functioning. So, this is simply a governmental delusion in an effort to create a known wrong conclusion about the effectiveness of corporate restraint by criminal enforcement.”

And what would be a better way to control corporate wrongdoing?

Monks is a believer in shareholder democracy.

Monks believes that owners of corporations should exert control over the corporations they control.

He believes in the quaint notion of corporate democracy.

He believes that shareholder democracy can make our world a better place to live.

But since millions of Americans own shares through mutual funds and index funds, for the most part, they don’t even know what they own.

That’s why Monks says the key to shareholder democracy is for the leaders of twelve of the largest institutions to take action to protect the public from corporate wrongdoing.

In his book, Monks identifies the trustees of the six largest university endowments — MIT, Harvard, Stanford, Princeton, Yale and Texas — and the six largest foundations — the Bill and Melinda Gates Foundation, the Ford Foundation, the J. Paul Getty Trust, the Robert Wood Johnson Foundation, the William and Flora Hewlett Foundation, and the David and Lucile Packard Foundation.

“In the world in which meaningful change actually occurs, those who can make a true and lasting difference—who can lead the charge, who can raise the flag that others follows — are perilously few: not the funds per se, not their hired managers, however handsomely they are rewarded, but the trustees who stand behind them and are both legal owners of the entities and moral owners of their actions. They, the trustees, have ultimate power, and thus they have ultimate responsibility and accountability. They are the tip of the tip of the tip of the spear in defense of truly democratic capitalism.”

But if these trustees won’t raise a finger — which they haven’t — is there a public interest group dedicated to pushing these powerful trusts to do the right thing?

“There is such a group, but it’s not in the United States,” Monks said. “It’s the Greens in Europe, in particularly the Green political party in Germany. They were able to boycott Shell at the time of a serious disagreement about how Shell was going to dispose of some of the drilling rigs they used in the North Sea. And they boycotted Shell to the point that Shell said — whatever you say we must do we’ll do. Shell was beaten into it by consumer pressure.”

“That’s the only example I can think of that has been that dramatic.”

But from a sociological perspective, why hasn’t this been done in the United States?

Not one such group exists in the United States.

That doesn’t make sense.

“It’s a depressing subject,” Monks says. “Ask Ralph Nader. God bless Ralph. He’s still at it. And he doesn’t show any signs of being discouraged. And we are all the better for it.”

“I keep saying to myself — enough people aren’t hurting enough.”

[For the complete transcript of the Interview with Robert Monks, see 27 Corporate Crime Reporter 18(10), May 6, 2013, print edition only.]

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