It is annual general meeting (AGM) season for many major corporations including many of the largest U.S. banks. These annual gatherings, which are required by law for publicly held companies, range from small intimate gatherings in conference hotel rooms or corporate board rooms that quite often pass unnoticed by both the public and the media to gatherings of hundreds of stakeholders and sessions that have been known to go on for hours.
The ritual and agenda for these meetings are fairly routine and familiar. The agenda is prepared and managed by the board of directors and unfolds in a predictable pattern. Votes are taken on compensation plans, board membership and approval of auditors. The last half of the agenda is sometimes taken up by resolutions that have been presented by shareholders and there is the usual well managed and deftly timed Q&A where the chair entertains the queries of attending shareholders.
Recent years, ever since the near meltdown of the financial system in September 2008, the AGMs in the banking sector have received much more attention. Compensation patterns and policies for senior management have received a lot of attention. How after all does one calculate what the leader of a global bank deserve in compensation and how should it be delivered? Does a good last quarter tip the scale? Should the amount paid out on legal fees, fines or settlements be considered? How should one include the impact of negative headlines or the size of dividends in the compensation calculations?
Consistent with the accepted standards for good governance, the concentration of power in one person, where the same person is the CEO and the chair of the board, has also received a lot of attention. The competency and capacity of the members of the board and their ability to fulfill their responsibilities on different committees such as risk, audit and compensation have also been raised. Expenditures on lobbying and political campaigns are also receiving increased scrutiny especially in the light of the Citizens United decision of the US Supreme Court in January 2010.
Pope Francis raised a number of the important issues that have been publicly debated since the near collapse of the financial system in a talk to a group of Ambassadors on May 15. Referring to the impact of the financial crisis on millions of people across the world, he said, "Certain pathologies are increasing, with their psychological consequences; fear and desperation grip the hearts of many people, even in the so-called rich countries; the joy of life is diminishing; indecency and violence are on the rise; poverty is becoming more and more evident. People have to struggle to live and, frequently, to live in an undignified way."
He raised directly the contradiction that exists between the promotion of the common good and the logic of the free and unfettered marketplace. Looking at the foundational issue of the purpose of economic activity and financial transactions he said that the "solidarity, which is the treasure of the poor, is often considered counterproductive, opposed to the logic of finance and the economy."
Turning his attention to the increasing inequality that is a result of the prevailing financial system, a concern which has been raised by numerous leaders in the political and economic sphere, the pope stated that "While the income of a minority is increasing exponentially, that of the majority is crumbling."
In a recent article in Foreign Affairs on this topic, the author, Jerry Mueller, concluded that "The challenge for government policy in the advanced capitalist world is thus how to maintain a rate of economic dynamism that will provide increasing benefits for all while still managing to pay for the social welfare programs required to make citizens' lives bearable under conditions of increasing inequality and insecurity."
The pope also turned his attention to the challenge of regulation that a globally integrated financial system presents to a global political network of independent states. With no appetite for global government or global authorities the quest for harmonization across jurisdictions that have very different political, cultural and financial frameworks and traditions continues to prove elusive. On the inability of sovereign states and their regulators to direct and monitor the policies and behaviors of major financial institutions the Pope identifies one of the causes of this imbalance as resulting from "ideologies which uphold the absolute autonomy of markets and financial speculation, and thus deny the right of control to States, which are themselves charged with providing for the common good."
The obvious coincidence between the issues raised by faith consistent and socially responsible investors to banks, boards of directors and their fellow shareholders and the priorities elaborated in the address by Pope Francis is indeed welcome. An increased congruence between the moral, ethical and legal foundations of corporations, especially in the financial services sector, is essential If they are to be refunded to serve the social purposes and human needs for which they were chartered.