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As Bob Monks says, “corporate governance has failed and it’s time to move on.” So what’s next? Unleash the Hounds!


[Cross-posted from my main blog, this is a precis of an earlier post, in which I had cross-posted a blog post by Bob Monks. Minor edits.]

As I noted, veteran shareholder activist Robert A.G. Monks has concluded that – in brief (emphasis added):

the people who exercise power for the corporations need to be accountable to somebody. Over the years, it has become clear that they really are not accountable to anybody, and our experiment in self-regulation and minimal oversight has failed. In practice, this has meant that a small group of individual CEOs exercise power over financing elections and lobbying the passage and enforcement of laws. …

Society is a give-and-take proposition but for now, the powerful take much more than they contribute and that is not sustainable.

For me, corporate governance has failed and it’s time to move on.


So what do we do? I’ve already discussed this in a number of posts relating to how the state grant of limited liability to corporate shareholders has released moral hazard on a massive scale, leading to pollution and labor problems, a cycle of pressure for government ‘protection’ and government capture. These problems have been compounded by the “Principal – Agent problem” on which Bob Monks is throwing in the towel, which problem has its roots in limited liability of shareholders and has been exacerbated by the very securities laws that purport to protect shareholders of listed companies.

I left the following response at Bob’s blog (emphasis added):

Posted by TokyoTom on Nov 3, 2011 at 12:32 PM

Bob, the answer is simple:

— Let shareholders of publicly-listed firms alone to figure out how to protect their own interests [sink or swim], and

— Let better managed firms that don’t tap public markets (and thus who have smaller numbers of more sophisticated investors who don’t need the dubious ‘protections’ of Government) eat the lunches of the bigger, more bureaucratic and less profitable public firms. In other words, the existing system can’t be saved, and it is not worth the effort.

What we need is a whole lot more of Schumpeter’s ‘Creative Destruction,’ which we can expect from private firms — which have been growing as Sarbanes-Oxley has helped large firms build barriers by walling off access to capital markets.

One action item that I still see as necessary is to encourage the use of alternative corporate/organization forms where shareholders/owners retain a significant tail of risk. Since it is the moral hazard and risk-shifting made possible by state-granted limited liability status that has also fuelled the growth of the regulatory state, states can also experiment with dramatically lowering regulations for smaller local firms where shareholders have unlimited liability or must pony up additional capital to pay damages for any torts.



Published Sun, Dec 11 2011 1:29 AM by TokyoTom


  1. TT's Lost in Tokyo

    April 15, 2013 @ 8:54 am


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  2. James McRitchie

    January 28, 2014 @ 1:57 pm


    I can’t believe Bob is really giving up… just frustrated, and who isn’t? What we see are more and more companies, especially in the high tech area, going with dual class shares so that founders can retain control.

  3. TokyoTom

    February 18, 2014 @ 8:09 am


    Thanks for your comment.! James.

    While I suppose it is a positive step from a governance viewpoint for founders to retain control in the case of newly listed firms, that still leaves the mega-drone crony capitalist companies that Bob Monks speaks of, as well as the regulatory burdens that serve as barriers to entry.

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