Bookshelf: <I>Traitor to His Class</I>

While no one is neutral about Robert A.G. Monks, this book's author applauds him a bit too much.
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Traitor to His Class: Robert A.G. Monks and the Battle to Change Corporate America , Hilary Rosenberg; John Wiley & Sons; January 1999; 288 pages.

Maybe they won't let him use the microphone at shareholder meetings, but that hasn't stopped Robert A.G. Monks from raising a loud voice in the otherwise hushed halls of "corporate governance."

According to many, including Ralph Whitworth -- another corporate governance firebrand who is now managing member of

Relational Investors

, and also chairman of the board of

Waste Management

(WMI)

(a position that would have been impossible for him to attain before the new era of accountability) -- Monks has been a

Ralph Nader

-like visionary who gave birth to a movement and brought legitimacy to questions previously considered impolite about managerial ineptitude and accountability.

Unfortunately, too often, the author seems like a hired hand, praising the worthy Monks to the skies and interpreting his every move as a mark of genius or a gift from the gods.

Monks was born in 1933 into a well-bred New England family of wealth and privilege. He acquired a hard-driving, competitive personality at an early age, and quickly became a typical overachiever with a

Harvard

law degree and a couple of well-appointed homes. But apparently motivated by a strong sense of social justice and equality, he disconcertingly departed from the program. Rather than work toward more privilege and power for his family, friends and classmates, Monks devoted his considerable energies toward furthering a style and an ethos of corporate management that would be more responsible to mass shareholders.

Almost no one is neutral about Monks. Some cast him as a publicity-seeking gadfly, out to make a quick buck for big investors. For others, he is a

Jesus Christ

of the activist movement, a burr under the saddle of corporate management. Whatever his personality, the central issue in this book is how Monks galvanized the rather significant ownership of corporate America by ERISA-regulated pension funds and used that ownership to shift the companies' strategic decisions and day-to-day policies away from "good old boy" clubbiness and closer to hard-nosed profit-making.

Before Monks forged his new expectations for corporate governance and developed his activist approach, pension funds owned large percentages of particular corporations. But they did little more than watch in dismay as corporate managers like Roger Smith of

General Motors

(GM) - Get Report

frittered away 18% of the market (twice the market share then held by

Chrysler

), or as

IBM

(IBM) - Get Report

lost $17 billion in market capitalization (prior to the dot-com era, when market capitalization was relatively slow to change and actually reflected underlying corporate strength).

Before Monks, boards member were frequently friends of the CEO, eager to rubber-stamp decisions and enjoy their perks. Dissident shareholders were routinely ignored. Any motions they managed to put forward at annual meetings were easily defeated. Shareholder interests tended to be narrowly defined as the need and desire for profit.

Monks expanded this restricted definition, becoming one of the first to make the now-obvious point that shareholders breathe air, drink water, raise children, hold jobs in the same companies they own and have a wide range of interests separate from increasing their cash income. Therefore, in Monks' view, being responsible to shareholders should translate directly into behaving as a good corporate citizen of the world, as well as a fair and good-natured employer. And if done right, the new style might not even compromise profits.

Today, we can look back on a long history of large corporations being forced to change policies, change management, and even change board members as a result of pressure from Monks-led or Monks-inspired activist shareholders. Institutional investors -- the very ones Monks still urges to exert stronger control -- own about half of all corporate America's equities, and they have been flexing their muscles. In the summer of 1999, for example, Waste Management fired its entire top management team because of conduct the board considered unacceptable.

In 1998, Monks' firm,

Institutional Shareholder Services

, rallied shareholders and ultimately forced

Marriott

(MAR) - Get Report

to rethink its complex spinoff of certain operations and its simultaneous adoption of antitakeover provisions. In 1997, ISS opposed a merger plan between

Avenor

and

Repap Enterprises

(RPAPF:OTC BB), two large paper manufacturers, and forced changes to significantly limit shareholder equity dilution. In 1995, a group of Monks-inspired shareholders, operating as the Committee to Restore Value, captured eight of 21 board positions at the

Student Loan Marketing Association

(popularly known as

Sallie Mae

). Other companies steadily being brought to heel by Monks-inspired insurgent shareholders are

Sears

(S) - Get Report

,

Eastman Kodak

(EK)

,

Westinghouse

and

American Express

(AXP) - Get Report

.

Nevertheless, the vast majority of corporate policies regarding the rainforest, agriculture, food processing, product safety, global warming and many similarly critical issues -- as well as board tolerance for inept or wrong-headed management -- still appear to need improvement. For example,

President Clinton's

Oct.13 announcement that 40 million acres of the George Washington Forest in the Shenandoah Mountains will be protected from logging roads quietly exempts another 20 million richly forested acres from the ban on roads, and does nothing whatever to stop logging companies from taking trees out via helicopter. The Forest Service estimates that the new ban will reduce the 4 billion board feet of lumber removed annually from our national forests by only 28 million board feet, or 0.7%. Clearly, corporate restraint still has a role to play here.

Ms. Rosenberg seems blithely unaware of how much remains to be done. She generously ladles effusive praise of Monks' many successes into every section of the book, clearly viewing the man through a glass much more than "half full." Even his failed efforts to win election to Sears' board of directors, and to the U.S.

Senate

(in three separate races) are portrayed as personal triumphs. By this measure, my own greatest moment was being forced to repeat third grade!

I seriously question the value of this book as an accurate history of the corporate governance movement as a whole. But it certainly provides an interesting read about an often-overlooked figure in the ongoing reform of business organizations.

Robert Moskowitz is a freelance author and editor, and has contributed to Investor's Business Daily, PC Week, Computer World and the Journal of Accountancy, among others. He is also the author of several books, and invites your feedback at

robertam@knowledgetree.com.

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