1. Shareholders are not owners
First of all, let's dispose of a myth: shareholders are not owners and do not want to be owners of the corporations they invest in. Ownership would necessarily involve liability for corporate wrongs committed against society and individuals. And, since shareholders do not want that liability and have opted to invest in entities (corporations) that don't convey that liability to their investors, such investors are not 'owners'. Investors who want to be real owners have the option of buying into partnerships or other business entities where the owners are legally and financially responsible for harms those entities commit.
A corporation is a business form invented and chartered by government out of the belief that such entities will benefit society. If the benefit is not there, then government obviously should revoke the corporate charters it has issued. Or, instead of that drastic move, it should modify corporations so that they think and act in more socially beneficial ways. My point is always that government must design a corporate governance regime that works well, and then re-design it based on experience to make it work even better.
2. Go beyond the all-or-nothing simplicities
Designing how corporate boards would be constituted would be hard, trial-and-error work. But, right off the bat you wouldn't want one group of 'stakeholders' — whether that is creditors, local or state government, employees, managers or shareholdrs — to have all formal power within the corporation.
We at least know that all power to the shareholders (the dominant libertarian/mainstream economic rage) works badly for society as a whole, as we can see by comparing per capita US economic data from the post-war (1946 to 1973) and 'monetarist' (1979 and forward) eras, making sure to note also the severe increase in inequality since the mid-70s. But all or nearly all power to the workers also works badly for society as a whole, learning from the limited experience we've had with it in Yugoslavia. The same for economic systems in which creditors have excessive power over business entities, the economic decision-makers becomes too cautious. And as for all power to government, we can see that failed in most economic sectors (but worked well in health care) in the Soviet Union and other 'socialist' countries.
To detail one of the above examples further… Employee power pushes a corporation to distribute wealth to the employees. Great, because a strong economy is in part founded on a strong _demand_ side. But all power to employees and not enough corporate wealth is distributed to one source of capital, shareholders. Too much employee power means corporate wealth may not be managed responsibly and with reasonable caution, and debts to creditors paid off. Excessive employee power also means the corporation is less interested than the government would want it to be in creating new employment. Similar problems, of course, would arise from excessive creditor power, shareholder power, and government power within a corporation.
3. Redesign corporations' governance, their ‘brains’
So, are we gonna stay stuck in the black & white simplicities forever (All Power to the Shareholders! All Power to the Workers!)? Or, will we move on to a human and complex solution for how we as a society should best handle the 'ownership' of our economy?
I think that the ideal power distribution within a corporation — i.e., on the corporate board of directors — will involve a balance of power among shareholders, employees (all employees, not just 'workers'), creditors and (local, regional, and national) government. Governments (this is not a libertarian project!) need to design corporate governance so it works best for society. That will necessarily be a trial-and-error effort, they won't get the form perfectly balanced the first time they try, and they likely will find that different balances of internal corporate power work better in different industries.
And governments are free to do the above without stepping on the rights of anyone, since as I've clarified shareholders are _not_ owners and therefore the guardians of corporations and how corporations should be governed. No, 'we the people' can decide such matters, from the fact that corporations are institutions that exist only with a corporate charter provided by government. Governments elected by you and me are free to modify that corporate charter. And shareholders are free to go along with the new rules, start up their own private firms, and/or take their money elsewhere and invest in other business forms such as partnerships where investors really are owners.
(By the way) it should be obvious but I am not a socialist but a social democrat. If we had a democratic system that was truly representative of the people then I trust its leaders would move forward to a complex solution to the benefits and costs the corporation imposes on society. The education systems might be 'socialist' or government-operated, and the health care system might be operated as a public utility with strong government oversight, but I think most of the economy would end up being operated by society-friendly corporations with newly installed 'brains' (a useful way of thinking about corporate boards).
Wow, gas at $72 a gallon and all I can talk about is replacing every corporation’s brain. Sorry I couldn’t be more ‘newsy’ but I hope you’ll give me a recommend or tip anyway.
This is a great post – I appreciate so much the desire to look beyond the easy labels and factions and the attempt to forge something new. If only there were more minds on the planet trying to think this way, we might find our way out of our present nightmares yet. Well done.
Thank you. Here is one other person — Marjorie Kelly — thinking along the same lines as me: http://www.business-ethics.com/marjorie_kelly.htm
Well, actually there’s me as well, just dropping in from European Tribune where I wax lyrical about the new UK corporate form that essentially makes companies obsolete: the UK Limited Liability Partnership.
It’s a bit like a US LLC, except unlike an LLC it actually IS (despite the name it is not a partnership) a “Corporate” body with a separate and continuing legal existence independent of its Members.
It’s also limited in liability, and….’er that’s it.
There isn’t even a requirement to have a written agreement because simple partnership-based principles apply as a default.
It opens up all manner of possibilities in terms of structure, in particular the “Capital Partnership” – a simple LLP with Capital Provider and Capital User Members “co-owning” an asset and sharing the production or the revenues, units of whichcan be sold to investors like units in an Income Trust.
Revolutionary: and an LLC comes close.
http://www.opencapital.net
has some stuff about the implications of the LLP.
An LLP costs $40.00: takes two or three days for the cerificate of incorporation to arrive from Companies House (same day service $100) and like an LLC is “tax transparent” or “pass through”.
It’s no wonder the number of them has doubled in the last 2 years.
The Corporation is dead, long live the “Open Corporate”.
If they are able to set up slave labor/carbon emission exempt whole industries in China and India in ten short years while convincing the other sheep they should give up their modern lifestyles do you really think you have a chance in bitching about it?
I think the resistance needs a better understanding of how to solve our world and society’s basic problem. Not only are we incredibly out-gunned, but we don’t know what exactly the problem is.
Yes, but we that know what the problem is are all viewed as “tin foil hatters”
Interesting post. Thank you.