The Return of the Shareholder

This post is by Robert A.G. Monks of Lens Governance Advisors.

Less than two decades after Francis Fukuyama famously enshrined market-based liberal democracy as an optimal system at “the end of history,” [1] Barack Obama used his inaugural address to warn the nation that, “without a watchful eye, the market can spin out of control.” The change in tenor from capitalist triumphalism to our current trepidation is indeed remarkable.

In these somber days, with corporate failures still grabbing headlines, the new President has inherited not only a severely weakened economy, but also executive leadership of a government that has already committed hundreds of billions of dollars recapitalizing the financial sector. With so much taxpayer money on the line, additional bailout requests piling up across the corporate landscape, and public anger still cresting, little wonder that the debate is now broadening to what kind of owner government should be. Will the large federal stake in banking, auto, and perhaps other industries prove blessing or burden? Onus or opportunity?

In fact, President Obama has signaled that he doesn’t have much taste for his government’s actively managing corporations. Immediately before his inaugural warning about the failures of unchecked capitalism, the President sounded almost Fukuyama-esque himself in declaring that there remains no question about the market’s unmatched “power to generate wealth and expand freedom.”

How then is the new administration to find a productive — but not meddlesome — federal role that neither relinquishes authority nor shirks its new responsibility as a major stakeholder? Finding such a position relies, I contend, on understanding the crucial role of corporate ownership in America’s economic system: how it should ideally function, how it has actually existed, and what can be done to encourage its more perfect realization.

My article is available here.

[1] Francis Fukuyama, Summer 1989, The National Interest – “The struggle between two opposing systems is no longer a determining tendency of the present-day era. At the modern stage, the ability to build up material wealth at an accelerated rate on the basis of front-ranking science and high-level techniques and technology, and to distribute it fairly, and through joint efforts to restore and protect the resources necessary for mankind’s survival acquires decisive importance.”
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  1. Michael F. Martin
    Posted Monday, February 2, 2009 at 3:39 pm | Permalink

    This is a fascinating piece, full of interesting methodological insights into institutional design.

    But the prescription it ends with is a disappointment. Is there anything worse than government created culture?

    The example must be set by private actors. The best the government can do is define the rules of the game that will let the best private actors succeed. A healthy culture of ownership has not developed because the dissemination and processing of information have not — up to now — kept up with the scale of growth of corporations. But that can change. The technology exists now to permit cost-effective dissemination of information. The capabilities of people to analyze and integrate it into an accurate picture, never better.

  2. Robert Monks
    Posted Sunday, February 8, 2009 at 10:06 am | Permalink

    Thank you for the compliment. I have agonized over your final question in the often seeming futile effort to persuade / compell individual and fiduciary owners to manifest themselves, as the need for human scale particpation is paramount. That I have not succeeded is my answer to your final question – there is something worse than government stimulated cullture – no culture at all.

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