Putting Investors First.

• Author: Monks, Robert A.G.
• Position: Director Library - Book Review

Putting Investors First

By Scott C. Newquist with Max B. Russell

Published by Bloomberg Press, Princeton, N.J., 205 pages, $39.95

THE WORDS "corporate governance" in a book's title or subtitle evoke the prospect of concepts organized into seemingly impeccable conclusions and proposals. These words, however mellifluous they may sound, seldom mean what they say because the proposals are almost never susceptible to being achieved. In contrast, Putting Investors First: Real Solutions for Better Corporate Governance, is an absolute delight. When it says something, you can believe what you read.

Let's start with the familiar bromide that shareholders are the ultimate source of power because they uniquely are given by law and lore control over who will be the directors. Scott Newquist, of consulting firm Board Governance Services (www.boardgov.com), and his coauthor, business writer Max Russell, tell us forthrightly that directors are "not really elected by the shareholders" and that, accordingly, directors' "interests tend to align more closely with management."

The authors' candor is tempered a bit by good manners, but they do conclude that directors are selected by the CEO. In the spring of 2002, Alan Greenspan, talking to students at NYU's Stern Business School, concluded along complementary lines that governance really depended on the benevolent dictatorship of the CEO. Unhappily, our experience over the last decade proved that CEO power was primarily concerned with transferring ownership of 10% of the outstanding capital of publicly traded companies to themselves, a pattern of self-enrichment unabated in the recent years of market decline.

One's hopes and expectations run high when coming to the section on "Electing and Removing Directors." All manner of election is discussed, but not a word on removal. And yet, this is the key to the equilibrium of corporate constituency powers most fully achieved today in the United Kingdom. The Companies Act provides that 10% of the shareholders can call an EGM--a special meeting of shareholders--at which a majority of the quorum may remove any or all of the directors with or without cause. Isn't this the essence of the balance of power that the authors seek?

An ugliness to which the authors allude is the self-disenfranchisement by conflicted institutional shareholders. In the interest of full candor, I must confess to being cited on page 133 as the authority for this proposition: "It is the ugly...