The Corporate Capture of the United States
Posted by the Harvard Law School Forum on Corporate
Governance & Financial Regulation, on Thursday, January
5, 2012
8 Commentsprint this page Printemail this post E-Mail
Bailouts, Executive Compensation, Financial crisis,
Political spending, Public interest, Social contract
More from: Robert Monks
Editor’s Note: Robert Monks is the founder of Lens
Governance Advisors, a law firm that advises on
corporate governance in the settlement of shareholder
litigation.
American corporations today are like the great European
monarchies of yore: They have the power to control the
rules under which they function and to direct the
allocation of public resources. This is not a prediction
of what’s to come; this is a simple statement of the
present state of affairs. Corporations have effectively
captured the United States: its judiciary, its political
system, and its national wealth, without assuming any of
the responsibilities of dominion. Evidence is
everywhere.
The “smoking gun” is CEO pay. Compensation is an
expression of concentrated power — of enterprise power
concentrated in the chief executive officer and of
national power concentrated in corporations. Median US
CEO pay for 2010 was up 35 percent in the midst of a
lingering recession, while CEO pay over the last decade
has doubled as a percentage of pre-tax corporate income.
Yet there has been no justification for current levels
of CEO pay based on economic value added.
When Lee Raymond retired as CEO of ExxonMobil at the end
of 2005, after six years at the helm of the merged firm
and another six as head of Exxon before that, he walked
away with more than a quarter billion dollars in
realizable equity. In his final year alone, Raymond
received in excess of $70 million in total compensation
— an hourly wage of about $34,500 calculated at 40 hours
a week for 50 weeks. No metric can justify such a raid
on the corporate treasury and shareholder equity, but
Raymond is only a particularly egregious and early
example of what has since become common practice. Little
wonder that the driving concern of banks receiving TARP
“bailout” money was to pay it back so as to escape any
restriction on executive pay.
Retirement risk has been transferred to employees.
During the same period that CEOs were doubling their own
compensation, the “best” CEOs of the “best” companies
abrogated the century-old commitment by employers to
provide pensions to their workers. IBM has been the
corporate leader in abolishing a “real” pension system
for its employees. The 2006 elimination of on-going
defined benefit plans will “save [IBM] as much as $3
billion through the next few years and provide it with a
more ‘predictable cost structure’,” TK said at the time.
Translation: The worker bees are on their own.
This is the essence of “capture” – CEOs are enriched,
while all other corporate constituencies, including
government, are left with liabilities. A relatively few
autocrats have taken control over the policies and
wealth allocation of the United States.
The financial power of American corporations now
controls every stage of politics — legislative,
executive, and ultimately judicial. With its January
2010 decision in the Citizens United case, the Supreme
Court removed all legal restraints on the extent of
corporate financial involvement in politics, a grotesque
decision that can have only one effect: maximizing
corporate – not national — value. Today’s CEOs have been
granted the power to direct political payments and
organize PAC programs to achieve objectives entirely in
their own self-interest, and they have been quick to use
it.
More than $300 million was “invested” by corporations in
the 2008 Presidential elections. The totals will be
vastly higher in 2012 when the full impact of Citizens
United is expressed, and the distribution will be
politically agnostic. As Bill Moyers recently noted,
President Obama “has raised more money from banks, hedge
funds and private equity managers than any Republican
candidate.” [1]
Capture has been further implemented through the
extensive lobbying power of corporations. Abraham
Lincoln’s warning about “corporations enthroned” and
Dwight Eisenhower’s about the “unwarranted influence by
the military/industrial complex” have been fully
realized in our own time. Reported lobbying expenditures
have risen annually, to $3.5 billion in 2010. Half of
the Senators and 42 percent of House members who left
Congress between 1998 and 2004 became lobbyists, as did
310 former appointees of George W. Bush and 283 of Bill
Clinton.
Capture has focused on particular industries. Two
powerful Democratic administrations have not been able
even to propose a system of “single payer” health
insurance. Meanwhile, business interests have assured
that whatever program of “universal coverage” emerges
will lock in the interests of the insurance and the
pharmaceutical industries.
History has yet to sort out whether the second Iraq War
served any national objectives beyond military and
industrial ones, but the suspicion that oil interests
played a critical role in the rush to battle is enhanced
by Vice President Cheney’s refusal to reveal the names
of the participants in his energy transition committee.
Simultaneously, the inability to force public disclosure
of those participants offers a window into how
thoroughly the energy industry controls its own agenda,
destiny, and information flow. Not only has the industry
succeeded in achieving and maintaining special
regulatory and tax treatment; in multiple other ways, it
functions virtually as an independent state.
Capture has placed the most powerful CEOs above the
reach of the law and beyond its effective enforcement.
Extensive evidence of Wall Street’s critical involvement
in the financial crisis notwithstanding, not a single
senior Wall Street executive has lost his job, and pay
levels have been rigorously maintained even when, as
noted earlier, TARP payments had to be refinanced in
order to remove any possible restrictions.
While several financial firms have paid civil penalties
for their abuses, the amounts involved bear little
relation to the malfeasance. US District Judge Jed S.
Rakoff recently — and rightly — rejected the $285-
million settlement agreed to between Citigroup Inc. and
the Securities and Exchange Commission as “neither fair,
nor reasonable, nor adequate, not in the public
interest.”
Worse, such fines as have been imposed on the financial
industry are basically being paid by the government
itself. At the same time that various regulatory
agencies boast of record setting penalties assessed
against banks, the Federal Reserve pays banks interest
on money that is not being lent, resulting in an
“interest margin” realized by U.S. banks in the first
six months of this year of $211 billion — more than
ample funding for any penalties suffered.
Finally, capture has been perpetuated through the
removal of property “off shore,” where it is neither
regulated nor taxed. The social contract between
Americans and their corporations was supposed to go
roughly as follows: In exchange for limited liability
and other privileges, corporations were to be held to a
set of obligations that legitimatized the powers they
were given. But modern corporations have assumed the
right to relocate to different jurisdictions, almost at
will, irrespective of where they really do business, and
thus avoid the constraints of those obligations.
As Nicholas Shaxson writes in Treasure Islands, “The
privileges have been preserved and enhanced, but the
obligations have withered.” Meanwhile, the U.S. Treasury
is estimated to be losing $100 billion annually from
off-shore tax abuses.
Government cannot and will not hold corporations to
account. That much is now obvious. Indeed, the dawning
realization of this truth is what has informed the
Occupy movement, but only the owners of corporations can
create the accountability that will ultimately unwind
the knot of government capture.
The essence of the problem is quite straightforward: a
failed system of corporate governance. So is the cause:
the unwillingness of trustee owners of America’s
corporations to assert their responsibility, legal duty,
and civic obligation to monitor and oversee the
corporations they invest in. Fiduciary institutions own
80 percent of the outstanding shares of corporate
America and thus bear at least 80 percent of the
responsibility for present circumstances as well as 80
percent of the onus for saving the system itself. And
the largest institutional investors — the Bill and
Melinda Gates Foundation, Harvard University, and others
— must take the lead because (a) they should and (b) all
other courses have failed.
Urban park by urban park, campus by campus, the
Occupiers are bearing sometimes inchoate witness to
America’s capture by corporate interests. Now, men and
women of conscience need to reoccupy the boardrooms of
America’s corporations. The boardroom is where the
takeover began, and it’s where capture can finally be
undone and a government of, by, and for the people, not
the corporations, restored to the land.
Endnotes
[1] Moyers, Bill, Our Politicians are Money Laundered in
the Trafficking of Power and Policy, 3 November 2011.
(go back)
Bailouts, Executive Compensation, Financial crisis,
Political spending, Public interest, Social contract
More from: Robert Monks
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