Hey- That’s Robert Monks!!!

Elizabeth Nowicki —  26 October 2006

I needed a catchy title, to compete with Mann’s title below.  I could find no way to work “crack whore” into my title, however.  But I figured mentioning Robert Monks – shareholder activist qua shareholder primacy radical – would have a small bit of the same impact.  (Mind you, Robert Monks is a very very GOOD thing, while crack whores are very very BAD.  Mentions of either, however, perk up some ears!)

Nowicki’s Interaction With The Famous:  I was lucky enough to meet Robert Monks (of the “full page ad in the WSJ chastizing the Sears board of directors” fame) a few weeks ago at a conference at Columbia Law School.  Robert Monks is the man who spearheaded a surge of shareholder activism dating back . . . to at least the 1980s.  He was critical in the movement to activate institutional investors to exercise their power.  I am currently reading “A Traitor to His Class,” which provides an overview of Monks’s rise to fame and his innovative ways to better corporate governance.  The book is great – consider reading it.

I mention Monks, however, because meeting him and looking further into his beliefs gives me concern about the future of corporate governance.  Specifically, at the Columbia conference, I was on a panel addressing the role/achievements/failures of attorneys as Gatekeepers.  My fellow panelists – Professors Robert Gordon, David Wilkins, and Charles Silver, David Boies, and Justice Jack Jacobs – all proffered wonderfully insightful and sophisticated comments as to what lawyers were doing or failing to do as Gatekeepers and why.  My unsophisticated comments were limited to the observation that shareholders of “Corp. X” should sue outside counsel for Corp. X for fiduciary duty breaches when the outside counsel fails miserably at its job in working for those shareholders (due to too much blind deference to executives, the failure to act with due diligence, etc.).  I figured that that would create a fire under outside corporate counsel.
Now, I assumed that my pedestrian comments were the embarrassment of the conference, and I cannot say that I would have expected otherwise, given that scholars of high repute such as Larry Ribstein appear to have little use for litigation as a corporate governance strategy.  I am often alone in my chants of “sue the bastards,” and I expected to be similarly alone at the Columbia conference.  (I used the phrase “sue the bastards” b/c that phrase is so often bandied about pejoratively.  I apologize in advance to Gordon Smith, hierophant of profanity usage in the academy, and I reserve the right to cut my offensive language if needed.)  I failed to account for Robert Monks, however.
Mr. Monks, who was on the very last panel of the day at the Columbia conference, publicly agreed with my position (thus making my year), and he spoke at length about the need for more aggressive action and/or demanding scrutiny in the area of gatekeeping in general.  His comments were outstanding, but they made me think hard about his position, my position, and the next 20 years.
If part of the way to get directors to step in line, part of the way to get lawyers to step in line, and part of the way to get fund managers in line is to sue them, can we have any reasonable hope for meaningful change in the next 20 years?  Remember that Mr. Monks did a lot of what he did with his own money.  He utilized the courts and the proxy solicitation system to agitate for better corporate governance, and he failed a whole lot.  (I say that with admiration.  As we well know, it is the folks who are most ambitious and active who fail the most, simply as a matter of mathematics.)  Despite the existence of various shareholder advocacy groups, the reality is that being a shareholder advocate will not generate wealth with the least possible effort, *and* often it requires a long view.
Go back to my position that suing outside corporate counsel for fiduciary duty breaches should be useful in forcing lawyers like Vinson & Elkins (ala Enron debacle) to . . . do a better job of gatekeeping.  Yet one does not see a slew of lawsuits against big-firm corporate lawyers for breaching their fiduciary duty to shareholders of the corporation that they serve.  I imagine we do not see a slew of these suits b/c (a) lawyers do not like to sue lawyers (which is a view that is now being questioned by the wonks in the area, of which I am not one), (b) the courts have proved painfully protective of lawyers, (c) lawsuits against lawyers on related matters (but based on different legal theories, please note!) tend not to go far (recall how exciting Klein v. Boyd was. . . before it disappeared), and (d) plaintiffs’ lawyers who work on contingency are more likely to take cases that are easier to win (which plaintiff will pay out of pocket to underwrite a few unsuccessful fiduciary duty cases in order to test the system?).  Moreover, courts have proved to do a fairly mediocre job with fiduciary duty cases, such that there is a high risk for creating a track of bad precedent.
I have no answer – I just raise the question.  And I further muse on the question of whether we will ever more often see investors in funds sue the fund managers for breach of fiduciary duty (by failing to be activist shareholders).  Mercer Bullard, correct me if I am wrong, but those cases are not often brought, yes?
I am reaching blindly into the recesses of my brain, and I vaguely recall a recent case in which attorneys’ fees were paid by the corporation (in a derivative action) to the LOSING plaintiff qua shareholder’s counsel for having brought an important issue to public attention, despite the loss in court.  Maybe that is the way to get the plaintiffs’ bar to go out and look for these cases.
P.S.  It is good to be back.  Thanks to all of you who e-mailed and called to see why I had disappeared.  Oh, wait, NOBODY e-mailed or called to see why I disappeared.  Rats.

P.S.S.  I’m still worried about that “crack whore” comment.  You got what I meant, right?  I mean, I wasn’t saying anything BAD about Robert Monks – I am a huge, huge fan of his. . . .