Received Wisdom

The American economy is a corporate system, in the sense that control of the economic factors of production and distribution is vested largely in the hands of privately appointed corporate managers. This system is legitimized on three major bases. The first is a belief that the shareholders, as the owners of the corporation, have the ultimate right to control it. The second is a belief that corporate managers are accountable for their performance. The third is a belief that placing control of the factors of production and distribution in the hands of privately appointed corporate managers, who are accountable for their performance and who act in the interest and are subject to the ultimate control of those who own the corporation, achieves a more efficient utilization of economic resources than that achievable under alternative economic systems (Eisenberg, Winter, and McChensey 1989, 1524).

The corporation is an ingenious mechanism enabling government financing of public projects, employment, creation of wanted goods, and the generation of wealth (and, therefore, power) for individuals. Corporate power was initially constrained by charter and legal domicile as to purpose, tenure, and size, but by the beginning of the twentieth century, American corporations were virtually free of any structural limitations. Because they had such massive impact on the society in which they operated, corporations needed to legitimize this power exercised by unelected persons in a democratic society. This was attempted by arguing the utility of what they accomplished—jobs, goods, and wealth. The legitimacy myth is grounded in the fundamental power of the owners and they alone were empowered through principled monitoring to restrain corporate power. James Willard Hurst reflected on the failure of the myth to materialize: “That the general body of stockholders proved in practice unable to use its votes to confer substantive, and not merely formal, legitimacy on the controlling power in large corporations did not show that there was no possible role for the stockholder” (Hurst 1970, 98). By the beginning of the twenty-first century, corporations were effectively free of accountability to anybody. The large, publicly traded, ownerless corporations which we characterize as drones (and discuss in detail below) have turned their energy, power, and money away from value maximization to increasing their control—to the point of capture of the state. The emergence of drones has changed the nature of corporate energy by substituting managerial enrichment and corporate perpetuation for profit maximization. The result is that society has lost the principled involvement of publicly owned wealth-generating entities.

History, like poetry, does not repeat itself, but it does on occasion rhyme. In the thrall of the Great Depression, Adolph Berle and Gardiner Means confronted a situation involving massive corporate abuse and destruction of equity values. Their analysis of the alternatives is almost inexplicable when applied to our present situation. “Choice between strengthening the rights of passive property owners, or leaving a set of uncurbed powers in the hands of control therefore resolves itself into a purely realistic evaluation of different results…We might elect the relative certainty and safety of a trust relationship in favor of a particular group within the corporation, accompanied by a possible diminution of enterprise. Or we may grant the controlling group free rein, with the corresponding danger of a corporate oligarchy coupled with the probability of an era of corporate plundering.” (Berle and Means 1968, 311).

The American corporation does not function in the traditional manner so elegantly described by Mel Eisenberg. The critical components of legitimacy have ceased to exist. Shareholders' ultimate right to control the corporation is aspirational at best, and managers who set their own compensation can hardly be thought as being accountable in any other regard. Management has captured control of the corporation and the corporation has captured control of government (Monks 2007). The genius of the corporation—a societally optimal allocation of economic resources—has been superseded by a system of power echoing almost preternaturally the warnings of President Eisenhower's farewell speech of the dangers of a military/industrial/scientific complex. National resources are allocated according to corporate priorities.² As I have written elsewhere: “America's corporations today enjoy an absolute reign. They and they alone have the power to control the rules under which they function. They have the first say on the allocation of public resources, and they have exempted themselves from nearly all financial obligations to the nation and its people. This is not a prediction of what's to come. This is the present state of affairs, the America we live in right now” (Monks 2013, 7).

Ownership

The meaning of ownership has been stretched beyond recognition and remains, at best, a useful fiction. Ira Millstein coined the term ownership zoo, referring to companies' increasingly diverse ownership. According to Millstein, shareholders of many companies can be collectively described as a zoo, a collection of widely varying investors, including hedge funds, private equity, individuals, venture capitalists, mutual funds, pension funds, sovereign wealth funds, and state-owned enterprises.³ Millstein writes, “This increasingly diverse set of owners poses new challenges to company boards and management in terms of stewardship and governance. Diverse investors often have different agendas, reflecting their different time horizons and investment goals.”⁴ Lending stock and, as a result, transferring the right to vote is an important source of revenue for money managers. In addition, when you reflect that a large percentage of ownership is attributable to indexes and algorithms and not to human decision to buy a particular security, the weakness of the shareholder register as a basis for legitimacy is inescapable.

We are left with the myth of shareholder rights, expressed recently and poignantly in the majority and minority opinion of Citizens United. Justice Kennedy, writing for the court, shamefully invented a never-never land of corporate governance: “[L]ittle evidence of abuse that cannot be corrected by shareholders through the procedures of corporate democracy” (Citizens United v. Fed. Election Commission, 558 U.S., 2010). Justice Stevens in dissent introduced reality: “By ‘corporate democracy’ presumably the court means the rights of shareholders to vote and to bring derivative suits for breach of fiduciary duty. In practice, however, many corporate lawyers will tell you that ‘these rights are so limited as to be almost nonexistent’ given the internal authority wielded by boards and managers and the expansive protection of the business judgment rule…” (Ibid.) It has become apparent that the mechanisms of corporate democracy are fictitious. The integrity of the Supreme Court's opinion is diluted and the critical component of corporate capture—money in politics—has not only been approved but sanctified as part of the Constitution.

Free—In the Sense of Not Being Accountable—Cash

With the 2010 Citizens United case, corporations are permitted unlimited financial involvement in electoral politics and lobbying. Elsewhere, I have written: “I have long pondered the unresolved conundrum of the lack of value of cash in the largest companies. Focusing on the importance of the P/E (price-earnings ratio), what does $1 billion less mean to Exxon's market value?” (Monks and LaJoux 2011, 54). What is pocket change to a corporation is, in a different context, the most important single component in finance.

Managements literally have control over free money, in the sense that they can spend it without adverse effect on market value. Is there something perverse in the way Exxon management has used its free money? For how many years does full public settlement of the Valdez oil spill have to wait? Even though the amounts are trivial to Exxon, why does the management hire expensive law firms year after year to frustrate shareholder resolutions under Section 14a 8 of the Securities Exchange Act of 1934? This imposes a tax on shareholders in the exercise of their rights to ask questions of management. Exxon has funded think tanks that have obligingly introduced doubt in the public dialogue about the responsibility of carbon spewing companies for global warming. But, most importantly, in the post Citizens United world, the huge corporation can overwhelm all other participants in the political process. Gifts of millions and tens of millions of dollars so critical to political participants have virtually no impact on the value of huge corporations. They cannot be held to account because no one knows where the money has been directed. How much does ExxonMobil give to the U.S. Chamber of Commerce and how is that money to be used?

Drones

Distributed ownership is the essence of democratic capitalism. In the capital markets of Anglo-America, the widely held corporation is by far the most common form, with founder- or family-controlled companies comprising less than 15 percent of all public corporations. It was the group that was so widely owned and so widely traded that they have no owners—drones—we particularly sought to probe.⁵

Most simply stated, the drone corporation is one in which no single shareholder retains a principal position, defined by the SEC as 10 percent or more. In most cases the largest single position is likely to be less than half that amount, or it may be held by a shareholder that is itself also widely held, such as a mutual fund or a passive index fund. In the most radical cases, the largest single position may be less than one percent of the shares outstanding. Drones are thus the ultimate expression of the corporate form darkly envisioned by Louis Brandeis, enterprises in which “ownership has been separated from control” (Dissent, Liggett Co. v. Lee, 288 U.S. 517 (1933), 565–567).

If greed, untempered by other considerations of the public good, were the measure of a corporation's ability to compete in the new, dog-eat-dog global economy, then it would stand to reason that enterprises of the sort that I have just been describing—what I've come to think of as drone corporations—would best serve investors. After all, this is the argument most often advanced in defense of manager-controlled enterprises operating in a highly unregulated environment: that the more free CEOs are to concentrate on profit, the more aligned their own interests are with the bottom line, and the more they can externalize all risks to the public at large, the greater the returns will be for all stakeholders: employees up and down the line, shareholders, community, country. But is it so?

To find out, we undertook a study to my knowledge never before attempted: a comparison of drone and nondrone corporations over a wide range of performance metrics. The study was headed up by Ric Marshall, chief analyst of GMIRatings (as of August 11, 2014, a division of MSCI), a company I helped form in 2010 to address systemic shortfalls in the understanding of risks facing public companies. We'll pause to consider two particularly prominent drone corporations in order to provide flavor in characterizing their conduct.

Pfizer

Bloomberg News' David Evans caught the spirit of the worst of Big Pharma's many offenders—Pfizer, the industry's alpha wolf—in a 2010 article that begins:

Prosecutor Michael Loucks remembers clearly when attorneys for Pfizer, the world's largest drug company, looked across the table and promised it wouldn't break the law again.

It was January 2004, and the lawyers were negotiating in a conference room on the ninth floor of the federal courthouse in Boston, where Loucks was head of the health-care fraud unit of the U.S. Attorney's Office. One of Pfizer's units had been pushing doctors to prescribe an epilepsy drug called Neurontin for uses the Food and Drug Administration had never approved.

In the agreement the lawyers eventually hammered out, the Pfizer unit, Warner-Lambert, pleaded guilty to two felony counts of marketing a drug for unapproved uses. New York-based Pfizer agreed to pay $430 million in criminal fines and civil penalties, and the company's lawyers assured Loucks and three other prosecutors that Pfizer and its units would stop promoting drugs for unauthorized purposes.

What Loucks, who was acting U.S. attorney in Boston until November, didn't know until years later was that Pfizer managers were breaking that pledge not to practice off-label marketing even before the ink was dry on their plea.⁶

And so it has gone continuously for Pfizer and other drug companies in the years since: a torrent of penalties, many in the billion-dollar range, many for what any reasonable panel of citizens would consider criminal malfeasance of duty.

Pfizer is the poster child for the new world of drone-dominated public affairs. Not only does Pfizer deal with criminal liability as a cost of doing business, it also violates undertakings made to communities to continue operations in exchange for concessions. The efforts by the city of New London, Connecticut, to retain Pfizer were so aggressive and imaginative that a split decision by the United States Supreme Court was necessary to confirm their constitutionality;⁷ while the abandonment of Ann Arbor, Michigan has been the subject of vast community distress. Ultimately, Pfizer, in the spring of 2014, made clear exactly what drone corporations do—it extended an offer to acquire Astra Zeneca and to change its domicile to the United Kingdom. The result would be global diminution of taxes by $1 billion without reference to any substantive change in its mode of doing business. Almost in the slipstream of Pfizer's failed (as of August 11, 2014) inversion: “The current poster child for inversion outrage is Medtronic Inc., the multinational Minnesota medical device company that once exuded a cleaner-than-clean image but now proposes to move its nominal headquarters to Ireland by paying a fat premium price to purchase Covidien, itself a faux-Irish firm that is run from Massachusetts except for income-tax-paying purposes.”⁸ And so, we have passed to the place where corporate management is now in the unique position and power of being able without any constraint by public or legitimate authority to determine what taxes, if any, it will pay to particular domiciles.

The following data attest to the trend of corporate capture (Monks 2014).

• Corporate tax receipts as a percentage of total tax receipts has declined: In 1950, they represented 32 percent; in 1990, 15 percent; and in 2000, 10 percent.
• Real wages from 1973 to 2010: Flat.
• From 1978 to 2011, CEO compensation increased more than 725 percent: Taking into consideration the value of stock options that means that CEOs earned 20.1 times more than typical workers in 1965, 383.4 times more in 2000, and 231.0 times more in 2011.
• In 2013, for the first time, none of the top 10 defined benefit retirement plans are sponsored by private corporations.

The received wisdom that corporations are the creatures of the state, existing to promote a public purpose has been succeeded by the world in which owners are now diverse residents of Millstein's zoo and corporations are drones existing to promote managerial continuance and without meaningful accountability to terrestrial authority.

ExxonMobil

ExxonMobil is one of the most fully realized examples of the new drone corporate model. As early as 2003, I raised these issues at the annual meeting.

Mr. Mulva, I wish to reserve three minutes for rebuttal. As we speak, the eight great nations are meeting in St. Petersburg. It is not beyond possibility that sometime in the future they would expand this number. If they did so, ExxonMobil could be invited to the meeting, as it is today the twenty-first largest economic system in the world. And, Mr. Chairman, you have less restraints on the exercise of power than any of the leaders of countries today. The scope of your operations—as you so brilliantly described them to us earlier in this meeting—is global, and goes beyond the usual language of business into politics and foreign policy. The scope of your power, Mr. Chairman, is truly imperial. You are an emperor. (ExxonMobil Annual Meeting, 2003)

The reality—the unmistakable conclusions that neither Lee Raymond (nor his successor Rex Tillerson) nor ExxonMobil itself are effectively accountable to anyone—raises critical questions. Is authoritarian power in management essential for the competitive functioning of a major enterprise? Or, is there an even more important issue raised: Will the corporation in 2014 be the sole definer of the appropriate scope of its impact or will it have any meaningful accountability to its domicile or anyone else? I continued to address Lee Raymond:

In referring to you as emperor, Mr. Raymond, I meant no disrespect. I use this language to point out the real nature of the problem of governance for ExxonMobil. You have the nature of a country. The board must think more in terms of the mode developed for national system and stop trying to apply the business precedents which ExxonMobil has grown out of. As Americans, we must think with pride of the care that the framers of our Constitution organized a system in which the power of the chief executive was effectively accountable to that of a Congress and a Supreme Court…. Exxon Mobil is an empire and the board needs to look at the political model to find a counterforce for the power of the executive. Mr. Raymond, if you don't like what I say, you have only yourself to blame. You are a victim of your own success…

Raymond famously answered the question whether his company would build more U.S. refineries to fend off gasoline shortages: “I am not a U.S. company and I don't make decisions based on what's good for the U.S.”⁹

Exxon has tremendous power in our world and they have used this power in several helpful ways during past years. It is genuinely exciting that one of the great creative minds of our time—Craig Venter—has received substantial financial backing from Exxon for biofuels research and the development of algae as a fuel source. And it makes one proud to be a shareholder to see the extent to which a culture of safety is built into Exxon's compensation system and into its operating culture. Also, it is good that Exxon speaks bluntly about the deficiencies in BP's management of the Macondo well and oil spill.¹⁰ Beyond this, chairman and CEO Tillerson has introduced an extensive public relations program which has had the effect of lifting public esteem for the company.

And there are bigger issues at stake. Exxon is a global enterprise with massive operations on six continents. Its scope is manifestly larger than that of any single country in which it operates, including the United States, the country in which it is legally domiciled. There is a serious, and largely unexamined, asymmetry of power between the company and any single country. There are neither transnational laws nor enforceable regulations affecting companies of the scale of Exxon. Exxon functions, in 2014, virtually as an independent state in its partnerships with various Russian oil groups. Chairman Tillerson contents himself with disapproval of sanctions at the same time as the president of the United States has selectively sanctioned particular Russian leaders, including the Rosneft CEO with whom Exxon is dealing. “Oil can drive foreign policy. But it can also trump foreign policy ‘It's a bit discordant with the message that the United States is trying to send, having this long-planned drilling season go ahead right now,’ Rosenberg [former sanctions advisor at Treasury] said. Putin said that despite sanctions, foreign firms from the U.S. and Europe still want to work with Russia.”¹¹

The temptations and tendencies toward regulatory and tax arbitrage are manifest and short-term profit accretive. This is the principal reason why the niceties of accountability to ownership are so important—only the shareholders—not regulators, not legislators, not tax authority—have the capacity clearly to guide and direct management, because ownership, too, transcends global and political boundaries.

But corporate power is real. Today, corporations capture every aspect of our lives. They contribute to political campaigns, own and control the mass media and rapidly the Internet. Their actions affect families and individuals. Multinational and world trade organizations have changed the nature of economic and political markets, coordinating economic activity across political, cultural and social boundaries. If the turn of the twentieth century witnesses the nationalization of the business corporation, with the creation of multistate corporations, the twenty-first century confronts the internationalization of the business corporations. Global corporations weaken the capacity of individual countries to control their internal economies, while simultaneously furthering the consolidation of a global society. (Mitchell 2005, 219)

Capitalism as Corruption

The failure of market capitalism—corruption, wealth inequality, and market dysfunction—has called into question the integrity and sustainability of this system barely two decades after it was enshrined as optimal at “the end of history.”¹² The hegemony of corporate management within the institutional structure of a democratic society has consequences transcending the impact of corporate governance.

In recognizing the problem of state capture, we wish to focus attention on the complex interactions between firms and the state. In particular, we emphasize the importance of mechanisms through which firms seek to shape decisions taken by the state to gain specific advantages, often through the imposition of anticompetitive barriers that generate highly concentrated gains to selected powerful firms at a significant social cost. Because such firms use their influence to block any policy reforms that might eliminate these advantages, state capture has become not merely a symptom but also a fundamental cause of poor governance. In this view, the capture economy is trapped in a vicious circle in which the policy and institutional reforms necessary to improve governance are undermined by collusion between powerful firms and state officials who reap substantial private gains from the continuation of weak governance (Hellman and Kaufmann 2001).

Corruption is not simply a third world disease. The governing class in the United States is overwhelmingly made up of corporate executives and corporate lawyers (Peet 2007; Faux 2006). Beyond providing virtually every cabinet officer and senior official, corporations also finance political campaigns, provide well-paying jobs for defeated candidates and retired civil servants, give grants to think tanks and fellowships to journalists, pay lobbyists and influential insiders and so on.

When corruption indices measure cruder forms of corruption, such as bribery, they mask one of the most serious governance challenges facing countries like the United States today—so-called legal corruption and state capture by powerful corporations. For evidence of this, one need only look at the undue influence exerted by Wall Street and mortgage giants over regulations leading up to the financial crisis, or by giant carmakers over automobile safety regulators. Indeed, research suggests that the extent of legal corruption and state capture in the United States is very high when compared with most countries in the world, and higher than any other industrialized OECD (Organization of Economic Co-operation and Development) country. Thus, contrary to popular notions, both developing and rich countries face corruption challenges, although their form may differ (Kaufmann 2010).

Americans do not like to think of ourselves as oligarchs or as being enablers of a corrupt system, but confronting this ignorable reality may be the necessary beginning of change and reform.

The essence of democracy is the capacity of the citizenry to make an informed choice as to electoral and policy alternatives. Corporations, as fiduciaries to their shareholders, are obligated only to spend money for the long-term value maximization of the enterprise. American citizens today live in a world where corporate speech dominates political dialogue—human values are subordinate to corporate values. “We empower, encourage, goad citizens to exercise their right to vote, but now we tie one hand behind their back, forcing them to interpret election messaging without the benefit of knowing what ulterior motives or hidden benefits may be driving the messenger to air those ads” (Krumholz 2013, 1133).

Increased Regulation

Government regulation, no matter how well conceived and competently administered it is imagined to be, will ultimately prove ineffective. History has shown that the main effect of increased regulation is not changing corporate behavior but, rather, increasing the billable hours of expensive lawyers. In the legal arena, corporations hold a distinct advantage in time, resources, and talented individuals, virtually guaranteeing the hegemony of the corporate state.¹³ This is fundamentally a question of power, of corporations and their CEOs having too much of it, and of the state acquiescing in a passive role (Monks and Sykes 2002).

Neither is this a situation that is likely to ameliorate as we move further and further into a world of multinational corporations.¹⁴ Business ventures today are essentially stateless, which puts them beyond the bounds of national regulation. They expand in response to their commercial urgencies, limited only by compliance with the regulations and customs of host countries. We are now functioning on two levels—the one with territorial limits and popularly elected government, the other without boundaries and a global power-seeking dynamic.¹⁵ Tyco and Halliburton are just the first of the high-profile cases of global corporations simply moving offshore (to Bermuda and Dubai, respectively) to avoid U.S. regulation.¹⁶ This problem itself is, of course, also international in scope. In 2008, The Economist reported on WPP, a big advertising firm, that joined the “small but growing band of firms” that have moved their headquarters. “It took an oft-traveled route, remaining listed on the London Stock Exchange but creating a new parent company that is incorporated in Jersey, in the Channel Islands, and is resident for tax purposes in Ireland.”¹⁷ How long will the world be able to tolerate large corporations apparently not accountable to anyone, certainly not to a single country of legal domicile?

The United States, the United Kingdom, and various European NGOs have published codes defining the stewardship obligation of fiduciary owners of corporations. Unhappily, there is no record of enforcement. If the well-meant and carefully crafted words are to achieve practical impact, we will need a new pattern of compliance, monitoring, and enforcement.

Better Boards of Directors

In the Anglophone world, there has persisted almost an obsession that properly led and staffed boards of directors will assure the harmony of corporate enterprise with public interest. Rudely apparent, however, are the inherent limitations of these groups. At its core, a board of directors is a group of outsiders meeting maybe a dozen times a year and working with information and an agenda provided by the chief executive, whose performance evaluation is one of their prime responsibilities.

Beyond the fact that these boards almost seem designed to fail at providing oversight, there is not even agreement on the optimum scope of board functioning and responsibility. As some authors dramatically put it: “Directors operate in a vacuum as to the purposes boards ought to be pursuing” (Lorsch, Berlowitz, and Zelleke 2005, 74). Without such a general consensus on what even effective boards should be doing, the range of director concern can be as narrow as compliance with law or as vast as the human imagination. In The Bored Board, Peter Drucker went so far as to raise the question as to whether standards of board functioning are sufficiently unsatisfactory as to require structural change. Writing in 1981—more than three decades ago—Drucker made a strongly worded case about the boards' systemic failures in oversight: “Whenever an institution malfunctions as consistently as boards of directors have in nearly every major fiasco of the last forty or fifty years it is futile to blame men. It is the institution that malfunctions” (110). Sadly, those institutional malfunctions continue into our own time unabated.

Certainly it's true that very few sitting directors match up with what leverage buyout guru Henry Kravis might call a real director—one who, in fact, fulfills the role to its statutory expectation. In a 2004 speech in New York City, Kravis contrasted his activist owner/director role with the mass of people who “show up once a month and whose primary source of revenue is elsewhere.” By performing extensive due diligence and analysis on both his companies and the competition, Kravis said, “We know these businesses as well, if not better, than the management teams. Board meetings are interactive discussions, not reports to passive friendly directors.”¹⁸

The result, claimed Kravis, is just what should happen in a healthy corporation: The company remains focused on the bottom line, management scandals are extremely rare, and shareholders' interests are well protected. Unfortunately, nobody has been able to bottle this formula for directorial success, a failing at least partially due to the fact that Kravis, as head of an equity firm, can leverage his own heft as a major investor in most of these companies he helps oversee. For now, Kravis remains a fairly isolated example of the success that a director can have with the backing of a strong, engaged ownership interest: someone, for example, like Kravis himself.

Enlightened Management

If relying on more enlightened boards represents a triumph of hope over experience, hoping for a spate of more enlightened managements amounts to a willful neglect of the obvious. One need look only to the continuing systemic board failure to rein in excessive executive compensation to see how hopeless this route is. If shareholders, through their boards, cannot hold CEOs accountable for their compensation, they have neither the right nor the expectation to assume that CEOs will exercise effective accountability in any other area.¹⁹

Or one could simply look at the compensation itself. When pay for principal executives bears no correlation to value added, history, or any rational economic index, there is nothing left for it to represent other than the absolute power under existing circumstances for executives to control the allocation of corporate assets. In brief, this is not fertile ground from which reform is likely to sprout.

Faute de Mieux²⁰—Back to Ownership

Rather than adding to the dusty pile of unenforced and ineffective regulations or clinging to the myth of a truly effective board of directors—or, for that matter, praying for a crisis of conscience among top management—owners themselves must attempt to resurrect meaningful duty and responsibility in this country, and government, as the biggest Johnny-come-lately to the ownership circle (however it chooses to define ownership), must do its part to repair and rejuvenate corporate capitalism within an American context.

The obstacles to effective shareholder involvement are obviously many. This country has traditionally had relatively weak enforcement of laws and a penchant for strong executives, both disadvantages for owners, The United States is also the only country in the OECD without clear statutory rights for shareholders to replace directors. Yet in the face of such challenges, another, often misunderstood American tradition might well offer a useful solution: low-cost, low-risk governance improvement through litigation. Indeed, in his search for the “legendary shareholder,” J.W. Hurst (1970) pointed specifically to legal remedy as a bright spot: “Though ineffective as a body, stockholders as individuals might operate as a check-and-balance force within the enterprise through lawsuits or through the stock market.” (98).

A second national advantage, this one of character, pertains as well. Just as we Americans sometimes resist change, we are also unique in our willingness to bear the consequences of it—to endure Joseph Schumpeter's celebrated “creative destruction.” Those who cause corporate change are not always heroes in America, but in contrast to other countries, shareholder activism and its many possible disruptions are not generally branded in this country as disloyal or, worse, criminal.

What is needed is not a departure from American tradition, but an empowering of our homegrown activists. Our current corporate dysfunction, caused in no small part by the Bush administration's turning the country over to the pro-CEO agenda of the Business Round Table and The Chamber of Commerce, and the Obama administration's abetting these same policies, is best remedied by requiring ownership that will stare down and challenge the unchecked prerogatives of management. While mindful of the American electorate's deep suspicions about state interference, the government's best role in the economy is not none at all, but one which strives to restore a healthy balance of power both between the nation's political and economic forces and within corporations themselves. Leveling this playing field will require sustained and diverse efforts, but the battle begins with activating the commitment of those institutional owners who already stand to gain the most from a healthy equity culture.

We have waited overlong for this process to begin. It will not just happen; nor will institutional investors spontaneously create an effective engagement mechanism. It is government action that has shattered the atom of ownership; government action will be needed in order to restore its necessary monitoring function. No new laws are necessary. Executive branch action can and should be immediate. What is needed is dramatic enforcement action—whether by the executive, judicial, or regulatory branch of government—that will make clear the scope of responsibility of fiduciary owners and the consequences for their continued dysfunction. Without court intervention and with judicial opinions plainly and unmistakably limiting the scope of liability for continued shirking, the myriad advantages of doing nothing will continue. This is the time and place for a strategically focused “Government Stick.”

Postscript

The following is from an interview by The Economist, August 2, 2014, with President Obama.

Where we have made less progress than I would like, and is my obsession since I came into office and will continue to be my obsession until I leave office and afterward, is the broader trend of an increasingly bifurcated economy where those at the top are getting a larger and larger share of GDP, increased productivity, corporate profits, and middle-class and working-class families are stuck. Their wages and incomes are stagnant. They've been stagnant for almost two decades now. This is not a phenomenon unique to the United States, but it is global.

And this to me is the big challenge: How do we preserve the incredible dynamism of the capitalist system while making sure that the distribution of wealth and incomes and goods and services in that system is broadly based, is widely spread?