Who should control corporations?

[innonimatu]

This old issue has been talked about in the forum already, it tends to become a topic after every economic crisis. I'm pleasantly surprised to see it well argued now before one is even declared.

The issue is stockholders, versus management, versus stakeholders. Corporations can be a kind of proto-state, in that they can outlive people. Akin to the old landed aristocratic titles and estates that got passed down generations, its "management" changed but its power unbroken. Given this, who should "be the management"?

In reality, however—as well as in law—corporations own themselves. Corporations are legal entities that require state government approval. Once incorporated, they have tremendous privileges to operate apart from the people who form them and run them: they have perpetual existence, limited liability, and the ability to take out debt in their own name. Corporations are different from other forms of businesses, such as sole proprietorships or LLCs, where there is no formal legal separation between the founders that profit from and run a business and the business itself. The very purpose of incorporating a business is to create an entity that lives on its own; it exists in perpetuity and is not just an extension of those who provide its capital.
Despite this fundamental separation, the delusion that shareholders are the exclusive owners of business corporations in the United States has persisted, causing most corporations to then govern themselves by the theory of shareholder primacy.

Corporations have multiple stakeholders other than shareholders, including employees, customers, suppliers, and communities. In this essay, I will focus on one set of stakeholders—employees— because changes to corporate law to include employees as equals in corporate ownership and governance would be radically pragmatic.
...

Involving all major stakeholders in the real control of these enduring economic enterprises is an idea dear to me. This piece focuses more on adding employees a share of control. And gets something wrong by casting Berle and Means as the originators of the idea of stockholder control, they made a good observation that such was already not the case more than a century ago, management instead exercised effective control. I doubt the author read the book he mentioned, they even called the prospect of shareholder control an operation for "the sole benefit of inactive and irresponsible security owners". They did call the option of leaving uncurbed powers in the hands of management an even worse alternative (giving rise to corporate oligarchy). But is is worth reading.

The main stakeholders to consider are:
- stockholders
- states (or the local political community)
- management
- workers
- customers
- suppliers

The third option, neither stockholders nor management, is to run the corporation for the "paramount interest of the community", directly quoting Berle. But how to achieve that was, and it seems to remain, an open political problem. He did his part back then as Roosevelt's adviser. What should be done now in terms of corporate legislation?

 

[abradley]

Management, who else!

 

[Dekker]

I think all workers should be part owners, or after every year of service they earn a certain amount of shares. Some kind of co-op model, along the lines of Mondragon corporation in Spain.

 

[Lexicus]

Involving all stakeholders seems impossible from a practical standpoint. But I think corporations should be controlled by their workers, I'm alright with other stakeholders getting a say via policy made by a democratic state.

 

[AmazonQueen]

I think all workers should be part owners, or after every year of service they earn a certain amount of shares. Some kind of co-op model, along the lines of Mondragon corporation in Spain.

I'd support that with the proviso that the shares not be sellable or inheritable.
Some co-ops have ended when non-worker shareholders have been able to outvote worker shareholders.

 

[Senethro]

Can anyone control corporations? Once they’re large enough and managed under a constitution with several human groups ensuring each other’s compliance then they’re almost like very slow AIs that run on human agents. They can only act to maximise expected profit and all the fleshbags hanging on hope profit creates value for them in some form.

 

[yung.carl.jung]

no words needed

 

[hobbsyoyo]

My Congresscritter (Katie Porter) was on Bill Maher again a couple weeks back and Bill lauded her for publicly shaming the CEO's of banks. She pointed out in a hearing that these banks talk about all the shareholder value they produce and how important their banks are to the economy yet they pay most of their staff minimum (or near minimum) wage, even in areas like Orange County where you can't live off minimum wage. Jamie Dimon (one of those bankers so shamed) then came out in support of the notion that the theory that corporations only exist to maximize shareholder value is morally bankrupt. There was a bunch of other CEO's signed on to the critique of our capitalist system but we'll have to wait and see what, if anything, comes of this.

https://www.cnbc.com/2019/08/19/the...-value-is-no-longer-their-main-objective.html

Clearly the system is in need of correction as it's set our country on a downward spiral with the middle class being squeeze out of a decent standard of living so that the rich can continue to get richer. I think co-ownership of companies by the workers would be a good step in the right direction. Another thing that needs to change is that businesses need to stop engaging in illegal or unethical behavior because they know that the profits of doing so far outweigh the potential penalties. We need to increase fines and begin throwing board and executive members in prison for breaking laws. We also need to overhaul anti-consumer and anti-monopoly laws, particularly those governing the technology sector.

 

[Cheetah]

Co-ops are good, but I'm not adverse to having corporations not owned by the workers. In fact, once it gets big enough (again, about over 150), it's hard for the workers to properly communicate, and my understanding is that any co-op much bigger than that becomes less well managed, and are taken over by cliques and corruption. I'd like to see co-ops less than 150 members getting tax breaks and such, however, to give them an extra advantage on regular corporations.

What I do want to see however, is mandatory worker participation on the boards (minimum 40%), and a shared criminal responsibility for all executives, board members, and all owners with more than 10% of the shares. By criminal responsibility I mean that anything the corporation does which and individual person would be found criminally guilty of, will lead to each executive, board member, and owner (of >10%) to be charged similarly. E.g.: if the corporation commits an environmental crime that would lead to four years in prison and €150,000 in damages? Then each executive, board member, and owner gets four years in prison and fines of €150,000.

Also, all fines should be adjusted by wealth and income (but that's a more general topic).

That and further regulation, of course. Especially breaking corporations up into several pieces if they ever get close to too-big-to-fail.

 

[uppi]

What I do want to see however, is mandatory worker participation on the boards (minimum 40%), and a shared criminal responsibility for all executives, board members, and all owners with more than 10% of the shares. By criminal responsibility I mean that anything the corporation does which and individual person would be found criminally guilty of, will lead to each executive, board member, and owner (of >10%) to be charged similarly. E.g.: if the corporation commits an environmental crime that would lead to four years in prison and €150,000 in damages? Then each executive, board member, and owner gets four years in prison and fines of €150,000.

I am a bit torn about this. Suppose you have a minority share in a company (e.g. 10%) and you learn of something illegal that company is doing. You can't stop this, because you don't have a controlling share. And if you report it, you get punished as well. So you have every incentive to participate in the cover-up.

But if you introduce an exemption for those reporting it, it becomes too easy again to avoid punishment: "We knew nothing about this, we came to the authorities the second we learned about it".

 

[Dekker]

Co-ops are good, but I'm not adverse to having corporations not owned by the workers. In fact, once it gets big enough (again, about over 150), it's hard for the workers to properly communicate, and my understanding is that any co-op much bigger than that becomes less well managed, and are taken over by cliques and corruption. I'd like to see co-ops less than 150 members getting tax breaks and such, however, to give them an extra advantage on regular corporations.

What I do want to see however, is mandatory worker participation on the boards (minimum 40%), and a shared criminal responsibility for all executives, board members, and all owners with more than 10% of the shares. By criminal responsibility I mean that anything the corporation does which and individual person would be found criminally guilty of, will lead to each executive, board member, and owner (of >10%) to be charged similarly. E.g.: if the corporation commits an environmental crime that would lead to four years in prison and €150,000 in damages? Then each executive, board member, and owner gets four years in prison and fines of €150,000.

Also, all fines should be adjusted by wealth and income (but that's a more general topic).

That and further regulation, of course. Especially breaking corporations up into several pieces if they ever get close to too-big-to-fail.

Mondragon is many thousands strong. I don't think it's a shining example (especially since internationally they use wage workers) but I use it to show major co-ops can function.

Now just because workers are part owners doesn't mean every day to day decision is direct democracy. For the most part it is still like a regular corporation, with some major decisions coming to vote where the worker assembly has a say, for things like pay increases. The main point is less on the management but more on the ownership of the labor, having workers own and profit from their work not earn a wage while the profits fill the pockets of the monied class. If a game developer models the levels of a AAA game, it's his creation as much as the publishers and he should get some share of the profits beyond a salary and bonus. Even if it's minimal compared to the bigger monied shareholders. As it stands, I barely see how capitalism is different than feudalism, where our corporate overlords provide us the bare necessities of life in exchange for undervalued labor that earns them riches. If it's being earned, if there is profit from this labor it should be spread amongst those doing it. To use another example, professional sports, where yes the athletes make obscene money, but it's peanuts compared to the owners. And the owners aren't even providing money towards anything like regular shareholders etc. They simply OWN the profit of these players. That is absurd and those profits should be shared amongst the players, even if the owners still get a larger share for whatever reason, but they won't get all of it. The salary model, no matter how rich the salary, is simply another evolution of the elite ownership that is designed to keep these obsence disparities in wealth and power no matter how many CEOs sign a feel good document and until the model itself changes, nothing really will.

 

[Cheetah]

I am a bit torn about this. Suppose you have a minority share in a company (e.g. 10%) and you learn of something illegal that company is doing. You can't stop this, because you don't have a controlling share. And if you report it, you get punished as well. So you have every incentive to participate in the cover-up.

But if you introduce an exemption for those reporting it, it becomes too easy again to avoid punishment: "We knew nothing about this, we came to the authorities the second we learned about it".

Sufficient incentive to do due diligence and pay attention to how ones company works, then? And it would make it harder for people to own multiple companies, or to sit on hundreds of boards simultaneously, all of which I consider an extra benefit.

But in all seriousness some kind of leniency would have to be included. Lesser punishment for the first to come forward, or something. I'm more than willing to amend the details of the idea, as long as the core remains: those with power must be punished when crimes are committed.

Mondragon is many thousands strong. I don't think it's a shining example (especially since internationally they use wage workers) but I use it to show major co-ops can function.

Interesting. In all fairness I'm much too little read up on co-ops, so I should try to study this more.

Now just because workers are part owners doesn't mean every day to day decision is direct democracy. For the most part it is still like a regular corporation, with some major decisions coming to vote where the worker assembly has a say, for things like pay increases. The main point is less on the management but more on the ownership of the labor, having workers own and profit from their work not earn a wage while the profits fill the pockets of the monied class. If a game developer models the levels of a AAA game, it's his creation as much as the publishers and he should get some share of the profits beyond a salary and bonus. Even if it's minimal compared to the bigger monied shareholders. As it stands, I barely see how capitalism is different than feudalism, where our corporate overlords provide us the bare necessities of life in exchange for undervalued labor that earns them riches. If it's being earned, if there is profit from this labor it should be spread amongst those doing it. To use another example, professional sports, where yes the athletes make obscene money, but it's peanuts compared to the owners. And the owners aren't even providing money towards anything like regular shareholders etc. They simply OWN the profit of these players. That is absurd and those profits should be shared amongst the players, even if the owners still get a larger share for whatever reason, but they won't get all of it. The salary model, no matter how rich the salary, is simply another evolution of the elite ownership that is designed to keep these obsence disparities in wealth and power no matter how many CEOs sign a feel good document and until the model itself changes, nothing really will.

I sympathise with all this, and I agree that the workers should keep more of the profits. My focus is also on the ability to have effective control over a company. When there becomes too many people with a say, it can easily turn into no-one feeling any strong responsibility to properly stay informed, I fear. Not that a vote can't work I suppose, and yes, such a criticism can be levied at state-democracies as well, but I still feel there is something to it.

 

[hobbsyoyo]

Corporations can already have thousands of different shareholders and adding workers to that group wouldn't change anything. The shareholders only vote on big issues; giving workers more of a say doesn't mean they get to have input on the ordinary, day-to-day considerations.

 

[Cheetah]

Well, no, but will they pay enough attention to kick out bad management? Maybe, I suppose, if they work in the corporation. Just thinking out loud here.

They'd be better than the thousand of anonymous owner-shareholders in any case, that is true.

 

[innonimatu]

Corporations can already have thousands of different shareholders and adding workers to that group wouldn't change anything. The shareholders only vote on big issues; giving workers more of a say doesn't mean they get to have input on the ordinary, day-to-day considerations.

Well, no, but will they pay enough attention to kick out bad management? Maybe, I suppose, if they work in the corporation. Just thinking out loud here.

They'd be better than the thousand of anonymous owner-shareholders in any case, that is true.

That is my reasoning also: workers are much more involved than shareholders. They are likely to have more information on the issues up for discussion, and they're less likely to just bail out if they're displeased. It would be an improvement in terms of control over management, to have aboard with workers represented instead of shareholders. They have "more skin in the game".

 

[hobbsyoyo]

Well, no, but will they pay enough attention to kick out bad management?

I'd say yes but I doubt that this would be something that would fall under board or shareholder purview for most firms as it's more a day-to-day thing. This is less true for small firms where management of management does get handled at higher levels as there's less middle-management at most smaller firms but even then, firing managers isn't usually a board/shareholder function.

 

[Socrates99]

I like the worker co-op idea in general. It gives the people creating the actual wealth more power over the fruits of their labor. I've been wondering how turnover is handled. Does the company buy back whatever shares the departing employee has accrued?

In general I don't mind the idea of an entrepreneur or investors owning a company but I do think labor needs some representation. A worker isn't going to vote to offshore labor to increase profits. They're not going to gift exorbitant bonuses to CEOs while denying raises to themselves. They wouldn't support harmful environmental policy since most live near the process. I could go on but you get my point.

Dekker's feudalism analogy is so spot on. Serfs were tied to the land, employees are tied to the company, especially in the US where we depend on the employer for healthcare. We have a democracy but our jobs, where we spend most of our waking hours, are decidedly undemocratic.

 

[Lexicus]

Dekker's feudalism analogy

Dekker stole it from Marx

We have a democracy but our jobs, where we spend most of our waking hours, are decidedly undemocratic.

"It's private property so it doesn't count. Democracy just means voting in all the elections. Brainssss....brainsssss"

 

[GoodEnoughForMe]

Any work space should be democratically run and owned, preferably by everyone who works there, but I don't think capitalism allows such a system to work the way it should. Senethro is right. Even the most 'radical' modern day co-ops have voted for distinctly labor abusive or anti-democratic values. Any sort of non-hierarchical workplace, even if fully and completely somehow made so, is sort of window dressing when profit is the main motivation and the main driver of the company's survival. There's only so much you can do before you run into financially motivated or self-preservation motivated choices of wage slavery, corner cutting, etc. etc.

 

[Dekker]

Dekker stole it from Marx



"It's private property so it doesn't count. Democracy just means voting in all the elections. Brainssss....brainsssss"

You mean I did not single handedly come up with a revolutionary new perspective on human economics in a gaming forum

Any work space should be democratically run and owned, preferably by everyone who works there, but I don't think capitalism allows such a system to work the way it should. Senethro is right. Even the most 'radical' modern day co-ops have voted for distinctly labor abusive or anti-democratic values. Any sort of non-hierarchical workplace, even if fully and completely somehow made so, is sort of window dressing when profit is the main motivation and the main driver of the company's survival. There's only so much you can do before you run into financially motivated or self-preservation motivated choices of wage slavery, corner cutting, etc. etc.

That's why I think it must be mandatory, can't allow non co-ops because they'd be doing the abusing or co-ops would abuse non co-op workers. Now unlike Marx I don't have such high hopes for humanity where I think profit motives can be fully removed in any near future, so the main goal is to ensure the profits are not concentrated to the few, that the work people do by and large benefits them just as much as the corporation, and that the system does not allow full ownership of one man over another (masked as labor/time/employment/wages)

So the state would not run these things like communism or state led capitalism, but the state would enforce the laws that mandated this structure.