Banks Will Remain Unaccountable Until (Share) Owners Hold Directors Personally Liable

If Americans have learned one concrete thing about our financial system over the past few years, it is that we can pretty much bank on the big banks screwing us over. From "mistakenly" foreclosing on active duty servicemembers (with pregnant wives), to systematically defrauding schools, non-profits and hospitals, to misleading their own customers and investors, to submitting tens of thousands of improper forclosure affidavits, to paying themselves outrageously after imploding our economy, the banksters seem utterly immune to moral suasion or legal sanction.

A huge but generally overlooked reason these big banks have such long rap sheets is that the 1%ers who run them are "indemnified" and use company funds to buy themselves various forms of insurance. In layman's terms, this means that bank shareholders (often unwittingly) pay for what amount to licenses for these public menaces to be shielded from the costs associated with the sociopathic behavior of the corporations they run. 

To show how this plays out in real life, let's say that you are one of the millions of long-term Citigroup shareowners that have have a couple hundred bucks of Citi stock in your retirement account. As of a landmark ruling earlier this week, your 2012 dividends look like they will be negatively impacted by charges that Citi lied to some customers about the (high) risk of some collateralized debt obligations it sold them.

Many observers guess that the case will still be settled out of court, but if the case goes to trial, guess who pays for the legal defense of the executives who made those allegedly misleading (fraudulent?) statements?

That's right, you do.

Guess who will pay any eventual judgement/settlement?

I'll give you a hint -- it isn't deducted from anybody's paycheck.

If the bank is found guilty of fraud, guess what happens to the handsomely paid Citigroup directors who are supposed to be accountable for big picture issues relating to the company such as -- I don't know -- how about, "Is our bank committing large scale crime?" You guessed it, not much.

If you want to see who pays for criminally poor corporate management of big banks, take a look in your retirement account and see how well those shares of "C," have held up since the alleged fraud took place back in 2007. See how that chart goes dramatically down and to the right? That's you and everyone you know paying for really bad business decisions by really, really highly compensated bankers. Weird how that works, huh?

To show the dynamics of how this works, let's take a look at a hypothetical scenario: Let's say someone sells you a house. Let's say that they provide you paperwork attesting that it is among the best engineered houses in the world. Then, after the house collapses in an earthquake you discover that it was built a major fault-line, the guy who sold you the house claims "nobody could have seen an earthquake coming."

So you sue him for fraud. But he's already got all your money and he uses it to take the building inspector out to dinner. He asks the inspector which consultant he should hire to undermine your claim and the inspector says "give my cousin a call."

Meanwhile you can barely convince the lawyer who wears a clown nose while wrestling with a chimpanzee in his TV advertisement that your case is worth taking. I mean, seriously, your broke butt vs. Richie Rich and the inspector's cousin? Get real. After a few meetings you realize it is in your best interests to just settle for whatever pittance you can get and move on. No legal blame is formally assigned.

And that guy who sold you that unsafe house? He will be rewarded with a massive year-end bonus. His boss is "indemnified" against civil suits so his legal costs fully covered too. That's what the lawyers are for, right? The lawyers that are paid for with your down payment. So what do you think this outfit does as soon as your case is resolved? They go out and do it again, of course.

That's pretty much happens time and time again with our biggest banks. Sometimes they get caught and have to pay a fine and/or apologize (for a good chuckle, I highly recommend clicking though on that hyperlink), but they pretty much never accept legal blame. Nobody is held accountable but while the executives keep collecting their year-end bonuses, the long-term investors shoulder the risk and are stuck with the bill when it finally comes due.

The problem is that the big banks have so much (of our) money to grease the wheels of justice defend themselves with that none of them ever go to jail. They just pay a fine with the corporate credit card and move on.

(Here's my prediction, one day soon we are going to learn that bankers are taking lavish trips with the frequent-flyer miles racked up from paying off the multi-hundred million dollar fines the SEC keeps hitting them with. You heard it here first, folks.)

We can change this dysfunctional dynamic by reducing director indemnification and executive liability insurance. If we want corporate behavior to change, the individuals who oversee those institutions need to be held to account.

My firm has a long history of using shareholder advocacy to try to make these banks to be more accountable. By honing in on director indemnification this year, we think we're really onto a reform that gets to the root of the problem. We are submitting shareholder resolutions with Citigroup,  JP Morgan Chase and Bank of America, that would, if adopted, significantly alter who pays the costs of irresponsible business practices.

These resolutions seek to minimize bank directors indemnification for civil, criminal, administrative or investigative claims, actions, suits or proceedings.

Hopefully the next time a bank commits a crime, the guys who fell asleep at the wheel won't have their defense paid for out of your retirement account. We will only see significant improvements in bank behavior when their directors are liable for some of the damages caused by the institutions they are paid to oversee.

Occupy Retirement Planning

Your retirement savings are not safe.  I mean, they’re way more secure right now than they would have been if President G.W. Bush and friends had succeeded in privatizing social security back in the 2000’s, but unless you are among the 1% or so of Americans with substantial and globally diversified portfolios, a dignified retirement is far from guaranteed no matter how diligent a saver you’ve been.  For that you can thank our good friends in both parties in Washington and their generous benefactors on Wall Street.

When I say that your retirement savings are not safe, I actually mean that they are dangerous. It sounds crazy but they are in fact probably hurting you right now.  For the past several decades your retirement portfolio has been -- and continues to be -- used by Wall Street to undercut your career prospects, your earnings prospects, and I dare say your overall quality of life.  

What do I mean when I say this?  I mean that American retirement funds are one of the very biggest sources of investment capital in the economy, so the investment decisions made by those who oversee those funds have tremendous influence over the direction of our whole society.  

And oh boy have those folks taken our economy in the wrong direction. They took it so far in the wrong direction that the industrial heart of it ended up in Asia.  Despite a few recent rhetorical nods to the 99%, Obama has proven committed to the bi-partisan consensus to send US jobs oversees via corporatist job-killing free trade agreements.

Now we have a whole generation of blue collar folks with virtually zero job prospects and a backlog of deeply indebted, highly embittered, and extremely over-educated college graduates competing for low wage “service sector jobs.”  

How did this happen?  It happened partially because our corporate financed political class, investment professionals, and pension fund managers all deluded themselves into the macro-mistake of believing that the best way to help Americans have a dignified retirement is to invest in the causes of the very crises currently plaguing our country.

Take unemployment.  There are a lot of reasons why we face such high unemployment rates these days, but several come to mind right away.  How about outsourcing?  How about off-shoring?  How about automation?  Heck, how about the financial crisis itself?

Well, while hard working Americans have been struggling to save for their golden years the Wall St.-DC-finance industrial-complex has been using our retirement savings to finance a golden age in corporate profitability.  

Guess what those profits are largely based on?  Yep, cutting worker wages, laying off workers, speculating on esoteric/exotic/synthetic financial instruments, moving operations off-shore, and replacing human employees with machines.  

Currently, investing for retirement means parking a portion of your paycheck with the same old folks who are singing the same old song.  Your hard earned dough ends up paying the exorbitant salaries of high flying executives of global companies using global stock and bond markets to finance global operations.  

Global companies don’t care about you.  They don’t care about your retirement.  They don’t care about your community.  They don’t care about America.  They only care about next quarter’s bottom line.  When the chips are down, that is all they are capable of caring about.

So what are you going to do about it?  Now that you’ve moved your money out of that big bad bank, I challenge you to find a way to move your retirement savings out of the equally big investment banks and equally bad broker-dealers who oversee your retirement account.  You pretty much can’t do it.  All the experts agree -- if you want to start saving for old age, address the check to Wall St.  

Local businesses need your money more than the big guys do.  And who doesn’t want to invest in local businesses which provide local jobs and thereby support vibrant communities? The problem is that there just aren’t a lot of options for regular folks to do so.  One option is to invest in Community Development Finance Institution Funds, which will use your money to provide valuable financial services to marginalized people that traditional banks aren’t interest in helping because they can’t make enough money from them. Women’s Economic Ventures, for example, is a local CDFI doing great work.

Lots of other initiatives and enterprises are being tried right now to redirect our money toward more human-scale enterprises that are rooted in communities, but there just aren’t any great options yet for retirement investing.

Developing the tools, analysis and legal structures to empower investment professionals to invest in sustainable and regenerative enterprises is one of the greatest challenges facing this generation of activists, policy makers, scholars, and financial professionals.  It just doesn’t seem like anybody realizes that yet.  

I don’t claim to have the answers, but I do know that if we want to save the middle class, we’d better find some answers soon.

Public Corporations Are Not Democracies, But They Should Be

One thing us 99%ers seem to agree on is that we can't wait any longer to take back our democracy from the super-humanly wealthy and the fictitious persons that serve their narrow economic interests. But while struggling to occupy public places and front offices has been a crucial first step in our re-empowerment, I'd like to humbly suggest that the 99% in fact has every right to be Occupying the corporate boardrooms.

Ignorance and apathy are all that's keeping representatives of the 99%'s interests from holding seats on the boards of America's most powerful corporations. Feel free to consider that a challenge.

As a socially responsible investor, I think a lot about how corporations are governed and how they could be governed to better serve the 99% while increasing the financial returns of my clients. I credit the Occupy movement for the realization that "shareholder's rights," is the wrong label for what I do. What I really do is try to democratize corporations.

The big companies that my firm invests in are not democratic. But they should be.

Occupy Places Like Wall Street, Execute Companies Like Exxon Mobile

Let's imagine the following hypothetical:

An American citizen is proven to be significantly responsible for the death of, say, 3% of all Americans and 1.3 million people around the world EACH YEAR.  Let's say that that person's culpability owes to the fact that he is the sole proprietor of a company that manufactures, markets, and sales a product that, when used as instructed, kills people.

Lots of people.  In addition to the direct human cost imposed by the product's correct usage, its manufacture imposes massive social - actually civilizational -- costs, including war, genocide, and terrorism.  To top it off, this guy and a few of his pals have a virtual monopoly over this particularly important sector of the economy, so when they raise their prices the rest of us get poorer.  In addition to being a murderer, he's a thug.  He has the power to take your money for his own enrichment and so he does.

Legions of leading scientists testify to the danger this guy's product poses to human life as we know it.  He funds pseudo-science to refute them and public relations front groups to besmirch them. Public interest groups painstakingly document his toll on society, but still this person keeps on killing -- as if he has no conscience whatsoever.  

Public policies are proposed to limit the murderous toll of this person's product, but his political connections run too deep. His wealth renders him politically untouchable.  Some idealistic federal authorities make several attempts to question him, but every time they show up at his office, he has just left the country.  

Seeing the death and destruction caused by this person on their own soil, foreign governments get into the game.  They ask him nicely to use his wealth and intelligence to find a new way of doing business, one that will help their economies develop, their societies become more equal, their environments more livable.  He refuses.  He has the force of the American political establishment firmly behind him.

You want to know what power is? Study this guy.  Foreign officials threaten to fine him for the destruction he has caused.  He dismiss them as corrupt.  The foreign officials take offense, Mr. tough-guy responds with veiled threats like "adverse macro-economic conditions" and "deteriorating security environment."  Countries, then whole continents, start to reconsider their attitude toward America based on the stuff this guy says.  Before you know it, you're filling your gas tank with fuel from state-owned companies of countries whose leaders are avowedly anti-American.   

So what should be done about this guy once we bring him into custody?  Should we fine him and send him on his way?  Given that he is clearly a sociopath, should we send him to a mental institution for a while?  I mean, hey, this guy is RICH and it would be a shame to lose valuable income tax revenues at a time of severe budgetary shortfalls. Maybe we should go easy on him this time, no?  

But then it turns out that not only has this guy been making loads of money while killing and impoverishing Americans, he's been doing so while dodging taxes and receiving welfare checks!  I like to consider myself a pretty level headed dude, so I don't like to use this word, but I have to say I'm really starting hate this guy.

Are "we the people" just going to let this guy keep killing our children?  Don't we have the power to bring him to justice?  

We do, but only if we assert it. Let’s get this guy. His name’s Exxon Mobile Corporation and I found a copy of his birth certificate online.  Turns out Mr. Exxon Mobile is from New Jersey.  He was born out of an unholy union of Exxon Corporation and Mobile Corporation.  I call it an unholy union because Mr. Exxon Mobile's is the result of incest.  His descendants were siblings, separated at birth by Supreme Court Of the United States in 1911.  Turns out Mr. Exxon Mobile's grandparent was the Standard Oil Company -- one of the most loathed Americans in history. Public outcry against Exxon Mobile's progenitor was so intense that the Supreme Court ordered that he be chopped into no less than 34 pieces.  Damn, Americans didn't mess around back then!

Exxon Mobile and its antecedents are responsible for a huge percentage of all oil ever burned by human beings.  And given that oil is responsible for a huge proportion of all climate changing gases ever emitted by human beings, that means that Exxon Mobile is one of the primary culprits behind what is already one of the greatest mass murders ever committed.  The crime continues to take more victims each day.

Lucky for this Exxon Mobile chap, it also turns out that the State of New Jersey repealed the death penalty a few years back.  Maybe that’s for the best, I actually oppose the death penalty anyway.

But hold on, Exxon Mobile isn't human.  Exxon Mobile is a corporation, a legal fiction assembled out of a set of contracts.  Exxon doesn't feel pain, or remorse. It is always hungry and never satisfied.  It was designed to be that way.  And it is killing us.  Exxon Mobile Corporation is literally killing us.

"We the people" are sovereign.  We the people hold the power of granting businesses the privilege to operate in our communities. We also hold the right to take away that privilege.
Exxon Mobile demonstrates each day that it has no soul.  Exxon Mobile is hurting Americans with its products and America by its actions abroad.


We have the power to turn the page of history if we choose to use it.  Let's hold those accountable who are most accountable and get on with the task of restructuring our society with clean products made by companies and people that respect Americans and their political system.  Let's execute Exxon Mobile.

Corporate Democracy Now (Grown up version of my response to John Morrison, who is very definitely all growed up.)

Corporate Democracy Now

I am honored to accept the invitation of John Morrison, Executive Director of the Institute for Business and Human Rights, to “join in working more actively with the growing movement to make respect for human rights part of mainstream corporate practice.”  You won’t find me at the upcoming Conference on Implementation of the Guiding Principles, in DC next month though.  

Instead, inspired by the upswelling of democratic spirit exhibited by the Occupy movement, I am fostering an initiative focusing on the democratization of corporate governance and determining the rightful role of corporations in society.  As an activist investor, I have found that a fundamental cause of corporate irresponsibility boils down to deficits of democracy.  As every manager knows, only what gets measured gets managed, so I’m working on developing metrics to assess the “democracy quotient” of publicly traded corporations.  Rather than continue working on this project from the comfort of my office, I believe that the more perspectives that can be incorporated in the metrics, the more useful the index will be.  

Too few of my fellow citizens understand the levers of corporate power.  (Did you know that shareowners can’t even nominate the corporate directors that are supposed to represent their interests?  Did you know that on many proxy ballots you can’t vote “no” to oppose a management nominated director?) We would all have a greater voice if we were to democratize corporate governance.    

My Underwatered Down Response to John Morrison of the Institute for Human Rights and Business:

My Underwatered Down Response to John Morrison of the Institute for Human Rights and Business:

We the (Natural) People Are Asserting Our Sovereignty. Lead or Get Out of Our Way.


The extent to which the latest and greatest UN convention/framework/statement/process on human rights makes any elite-controlled institutions of power (see the second to last paragraph of John Morrison’s piece for an incomplete list) more responsive to the rights and needs of human beings will be dictated by democratic force. Effective human rights policies will not be achieved by semantic sparring between corporate lawyers and nominal reformers.

Occupy Corporate Political Spending

Corporate influence over our political system is one of the concerns heard loudest from the Occupations springing up everywhere these days.

The standard corporate response to those who notice that corporate capture of politics is harming our country goes something like this: (in your whiniest, spoiled-child-complaining-to-Mom-like voice): "but corporations are people too and dominating the political discourse is our ri-ight. The Supreme Court even says so!"

That's technically true little Jonny, but you and I both know it is also some of the most dangerous horse s--t our legal system has ever produced. While corporations are legally recognized "persons," the reality is that public corporations are vast, ungainly amalgamations of people and institutions. And their political influence is eating away at the fabric of our Republic with increasingly greedy mouthfuls.

The People at the Head of the Table Are Talking Past the People Sitting Around the Table

Last week I sat in on a graduate seminar facilitated by the Honorable Mary Robinson. Not that you might need reminding, but she was the first female president of Ireland (1990-1997), a famously influential former UN High Commissioner on Human Rights (1997-2002), and is currently one of the twelve Global Elders. While I'm at it, I might as well mention that she founded Realizing Rights: The Ethical Globalization Initiative, "which aimed to put human rights standards at the heart of global governance and to ensure that the needs of the poorest and most vulnerable are addressed on the global stage." Her new project is The Mary Robinson Foundation - Climate Justice, "a centre for education and advocacy on sustainable and people-centred development in the world's poorest communities."

She sat at the head of the seminar table. We discussed the intersection of business and human rights. Actually, she mostly lectured.