[corp-focus] Questioning the Call for More Shareholder Power

[Robert Weissman]

Questioning the Call for Shareholder Power
By Russell Mokhiber and Robert Weissman

If nothing else, the still-unfolding corporate scandals should free us
to think freely and creatively about corporate power, corporate form and
the rules governing corporate behavior.

A common diagnosis of the current scandals is that they can be traced to
company executives' ability to function with little accountability to
shareholders.

An alternative view is that the problem was that executives were
thinking too much about what shareholders want. Of course, shareholders
did not want CEOs to steal from their companies and arrange bogus loans
to themselves. But the more serious accounting crimes -- projecting
inflated profits and revenue streams -- were arguably a result of what
shareholders did want: short-term profits and other indicators that
raise share prices, especially in the short term.

Marjorie Kelly is an adherent to this second interpretation. Kelly is
the author of The Divine Right of Capital: Dethroning the Corporate
Aristocracy (www.divinerightofcapital.com), and editor of Business
Ethics magazine.

Starting in the late 1980s, she points out, "shareholders got precisely
what they wanted. The Enron and attendant scandals hold some interesting
lessons. We think of this as a situation where shareholders got harmed,
but forget that leading up to it, shareholders got precisely what they
wanted. The financial elite got complete alignment between CEOs and
shareholders through stock options, they got the removal of a regulatory
regime to a large extent, and they got a rising stock market -- all the
things that they wanted -- and yet it imploded."

"People are saying we need to align executives closer to shareholders,"
she says. "I believe their alignment was too close. We need a
corporation that is accountable to someone besides shareholders."

Moreover, Kelly says, shareholders do not deserve to exert control of
the corporation. Shareholders contribute very little to the company. But
for initial public offerings (IPOs) and other sales of new company
stock, none of the back-and-forth trading on the stock exchanges
contributes new money to the company. Indeed, Kelly notes, in 15 of the
last 20 years, corporations have spent more on stock buybacks than
shareholders have invested in new equity.

For the one-time contribution to corporations at their founding, or at
the placement of shares on the market, shareholders gain perpetual
absolute control of the corporation.

Recognizing the minimal contribution of shareholders, says Kelly, leads
away from questions about enhancing shareholder power, and instead to,
"Is any amount of return ever enough for a one-time hit of money? Or
must a company have as its single-minded purpose, forever, that it will
move heaven and earth to create return for that one-time gamble?"

Kelly suggests a range of alternatives to the entrenchment of
shareholder power and privilege.

One of her most provocative suggestions is time-limited shareholding.

One approach would be to dilute shareholder control progressively over
time. Residual control could be lodged in employees, or a public entity.
Or the for-profit corporation could morph over time into a non-profit
enterprise -- a reversal of the current trend to convert not-for-profit
and mutual insurance companies (such as Blue Cross) to for-profit
status.

All of this is far from immediate enactment, of course.

But it is nonetheless worth assessing as a conceptual tool, and perhaps
as a long-term project, to move business enterprises out of the
shareholder-dominated and for-profit paradigms, to a place where new
values may govern their operations.

One place where such conversions might be contemplated first is at the
point of least shareholder power, in bankruptcy -- a place where more
and more corporations are sure to find themselves in the months ahead.



Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter. Robert Weissman is editor of the Washington, D.C.-based
Multinational Monitor, http://www.multinationalmonitor.org. They are
co-authors of Corporate Predators: The Hunt for MegaProfits and the
Attack on Democracy (Monroe, Maine: Common Courage Press, 1999;
http://www.corporatepredators.org).

(c) Russell Mokhiber and Robert Weissman

This article is posted at:
http://lists.essential.org/pipermail/corp-focus/2002/000123.html