I publish some of the stuff that I write here. Mostly reflections, rants, and response pieces. I welcome feedback.
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Friday, November 25, 2011
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-humanlywealthy and the fictitiouspersons 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 sociallyresponsibleinvestor, 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.
If public corporations were democratic like they are supposed to be, your interests would be represented in the boardroom. Just to spell out exactly how this relates to you, if you are one of the 100+ million Americans who have a retirement account or own shares in a mutual fund, you either directly or indirectly own stock. That means that you own a piece of corporate America. That means that you, in theory, run the show.
One share, one vote.
A lot of people have somehow picked up the notion that public corporations need to be run like ClassicalSparta, with a Herculean CEO descended from the Sun God unilaterally ruling on all matters foreign and domestic. While it is true that CEO's dominate contemporary corporate governance, it need not be so. It should not be so. In theory, it is not so.
Militaristic oligarchy didn't work out very well for most Spartans (who were forced to lead, well, spartanexistences at home and sacrifice their lives abroad on ill-conceived military adventures) and it didn't work out for Sparta herself, which was rendered a second-rate power after being humbled by an alliance led by democratic Athens.
The only people who really benefited from Sparta's political arrangement were an elite class associated Sparta's generals. Those folks were stinking rich and stupidly powerful for centuries until getting their gluteus maximi handed to them at the BattleofLeuctra. Corporate managers take note.
Compared to democracy, oligarchy is just a bad system of governance. That's what is so great about American history -- it demonstrates that the more people who are granted a voice, the stronger our republic becomes..
Oligarchies in general aren't sustainable because they don't have adequate built in feedback mechanisms. Those with the power exploit everyone else until the whole system breaks down. I know good Americans are not technically allowed to acknowledge that he knew anything about anything, but Karl Marx would have called this one of the internalcontradictions of capitalism. The US economy seems pretty close to breaking down entirely right now, but if we enact the right reforms in time we can get our country back on track.
For years I've told people that corporations are not democracies. While that is true, it has also been is a mistake because it serves to perpetuate the myth that there are good reasons why corporate managers should be insulated from being held accountable by shareowners. I now realize that democracy is the primary lens through which we should be understanding and challengingcorporatepower.
Like all big organizations, public corporations have a lot of internally competing interests. As is so often the case with organizations of any type, the executives who manage the day-to-day operations of publicly traded corporations have been able to use informationaladvantages to hijack corporate resources for their ownpersonalinterests. Call me crazy but I do not want my retirement money funding corporate jet fleets. Academics call this the"Principal-agentProblem." Others just call it greed.
Public corporations have owners -- share owners -- and those owners are entitled to elect people to represent their interests -- the corporate directors. Corporate directors are supposed to be the most important body within a corporation. If CEO's are the generals, directors are supposed to be more like Senators. Just as Senators are charged with simultaneously representing their constituents while upholding their oath to act in the interests of the United States of America, corporate directors have a legal duty -- we call it afiduciaryduty -- to represent the interests of shareowners while overseeing the long term stability of the enterprise. That's the theory.
In theory, corporate boards hire and fire CEO's, not vice-versa. In practice, CEO's pretty much hire and fire their boards. Generally, new CEO's bring with them their own slate of directors. Right away that should raise some alarms bells, but let's just see where this goes.
Not only are many CEO's also Directors, a 2010 study showed that only nine percent (that number shocks me so much that I'd welcome hearing from anyone who has a different number) of corporate boards at America's largest companies have non-executive chairman leading their boards. These CEO's have effectively no boss. So when controversial issues arise at big corporations, it is pretty clear who makes the call and it isn't you, the owners.
Right about now some of you are thinking: "yeah but I only have a few thousand bucks in my retirement account so my votes don't really matter compared to the big investors whose job it is to actually understand this stuff." That is true, but then again, through pension funds and 401k's and IRA's and brokerage accounts, small investors like yourself are the beneficial owners of most of the U.S. stock market.
I was frustrated by not being able to find any good numbers on how much of the stock market is owned by/for individuals until it dawned on me that another word for small investors and is "people." We're talking the 99% here folks. The only reason we created corporations and stock markets in the first place is to serve the real needs of real people.
The CEO of JP Morgan Chase received between $20 and $45 million in compensation last year. If you want to get really pissed off, calculate how many lifetimes you'd have to work at your present job to earn that kind of money. Has anybody ever asked you to vote on how much CEO's get paid? When was the last time you marked a ballot that asked if a big oil company should continue its environment destroying practices?
Does it strike anyone else as ironic that the companies responsible for off-shoring millions of American jobs over the last few decades are largely owned by public pension funds responsible for ensuring Americans have adequate retirement savings?
Did you know that if you own just $2,000 of a company's stock, you can place a proposal on a corporate ballot? That gives you the right to tell that company's top management and board of directors exactly what you think? (I get to do this several times a year and let me assure you that it is worth taking a morning off of work for.)
You haven't been asked to participate in corporate governance because generations of corporate managers have used corporate funds to stack the deck in their favor at the expense of you, the 99%. In future posts, I'll get into precisely how they do that.
For now though, let me be the first to tell you that the tide is starting to turn against corporate tyranny. People are starting to imagine what real corporate democracy would like. The UnitedStatesProxyExchangeand the CorporateDemocracyInitiative are just two of the organizations through which the 99% is empowering itself and confronting Wall Street abuse.