If they don’t get paid, then they are no longer workers.
As for the OP:
This is a classic slippery slope where there really is a slipper slope. What exactly are “the interests” of those groups, and how are those internets going to change over time?
Don’t know about this, but I’m concerned there is no limit to the size of corporation where this would apply, like #1. And unless it’s coupled with some sort of profit sharing (and losing) plan it gives an awful lot of power to people who don’t own the company.
Sounds like a great way to silence the editorial board of the NYT an other major news outlets. Probably wouldn’t be constitutional.
What kind of illegal behavior? Any kind? What problem is this supposed to solve that the law making the behavior illegal does not already solve?
I agree they are ‘stakeholders’. I don’t have a lot of use for that political term, but it is intended to mean people who don’t own the company but are affected by its actions (employees, locales with company facilities, etc).
Although for some reason there is no proposal to give bondholders or other lenders to solvent companies seats on the board. They also want the company to make some money, and are unlikely to get paid their interest and principal if the company makes literally nothing though technically they would get fully paid at zero profit, like employees. But also like employees they have no particular interest in high profitability, because it doesn’t add to what they get paid unlike for the owners (and managers, depending how the latter get paid).
The reason being that such a proposal is not about ‘how it should work’ in general. It’s about finding a new mechanism for income and wealth redistribution. Which doesn’t by itself invalidate the idea, but just to avoid tangents about how it’s a fundamental principal that non-owning parties seriously affected by the owner decisions should have a say over them. That’s not being proposed for all of them, just some of them.
That’s simply not true. They get paid as long as the business stays in business. A company can break even indefinitely in which case the workers get paid and the investors get nothing.
Putting labor on the board is a good thing and it seems to have good results in Germany. The rest of her bill is a thinly disguised effort to have the government pretty much indirectly run every big company in the country through the use of the charter. The charter is unnecesssary unless you want to have the threat of dissolution as a stick. Which in practice will be used more against disruptive companies that threaten existing incumbents than companies that actually engage in bad behavior.
Seems like somebody has been reading goldbug-style books about how corporations used to have temporary charters for specific purposes. Who knew she was a mercantilist?
As noted upthread, McDonalds exists in Germany. I think 40% is a little high, but that could (and moreover would) be negotiated down.
Shareholders pay far less attention to the Board of Directors than any set of employees would.
Why is 40% high? Pure worker coops exist in the US. The problem is that they tend to repress employment, since every additional worker cuts into the profits that are divided between them. But this effect can be diluted.
You are absolutely correct of course. Just as there are no McDonalds in Germany, they also have no plumbers.
Yes, truly Germany is a funhouse mirror country, just as the investor owned cooperative Vanguard Group a wholly non-viable company which is the largest provider of mutual funds and the second largest provider of ETFs.
We’ve already established that Germany lacks McDonalds and plumbers.
Companies used to need special permission to get such a charter. 1800s. Just wanted to mention that.
I’m guessing the first plank is meaningless, the second a good idea if the share was like 20% or a little higher, something like the third is a very good idea as it advances accountability, and the fourth… interesting. In practice revocation would be pretty rare given the number of jobs involved. But what if the governmental overseer was like the FDIC and would arrange takeovers? (A: Anti-trust problems??)
As I said before, I don’t think it’s a strong argument to just look at one aspect of the Continental European approach to business and society and assume that transplanting it to an Anglo-Saxon business culture country would have the same end result for society as a whole. Plus there’s the cherry picking element of a) Germany v France or Italy (not on codetermination per se with Italy which doesn’t have it, but the general results of the Continental approach including France and Italy, not just Germany and the Nordics as if the US were so much more similar to the latter than the former, who says?) b) ignoring the upside of the Anglo-Saxon approach (much more corporate value creation in US compared to Europe in recent decades, and a blow out when it comes to value in new, as opposed to old, industries).
But then the Warren proposal 2) to begin with waters down codetermination to 40% (it’s 50% for big co’s in Germany with a tie breaker for shareholders, though in lower in other countries which require worker board rep). And then as you rightly say, you probably wouldn’t get 40%. But at 20% I don’t really know what that huge divisive battle to enact that on undoubtedly razor thin margin would accomplish. ‘Listening to some different perspectives in the board room’? That’s not really the idea. The idea is to transfer wealth from shareholders (nominally also CEO’s but that’s somewhat of a political dodge) to employees. 20% would not do that in any meaningful way. Even 40% in the US business culture not some other country’s would result in loads of 60-40 votes.
As for Vanguard, my favorite financial provider, the principal that seems to be applied there is ‘whatever is desirable shall be mandatory’. The debate here isn’t whether to allow cooperative ownership, it’s whether to require board representation without ownership. So Vang is a double mismatch, since it’s not giving non-owner employee’s voting power, it’s making customers the literal owners. But moreover its founder chose to set it up that way (mutual ownership of financial co’s used to be a popular form of corporate structure for insurance companies too). It wasn’t imposed by a 50%+1 dictation by the body politic at the cyclical peak of one of two bitterly opposed parties, as would be the case with enacting Warrenism. Which matters itself IMO.
Which leads to my agreement with you on Warren 1) where this basic problem is more directly evident. The basic flaw is giving more control by the dysfunctional US political system over the basically highly functional US business culture and economy. Note that’s not on the basis of some doctrinaire ‘Libertarianism’ overall (though I would admit to small ‘l’ leanings). It includes the empirical fact of the political system and players in it we actually have in the US.
I’m not aware of any country with a law saying corps should not aim to maximize shareholder value, although it’s true some national cultures organically emphasize that less than US business culture (Japan is a notable one without a written law saying so), and others have specific laws which inhibit value creation in favor of redistribution (either in the business process itself like codetermination, or after the fact in redistribution taxation, of which the US itself has plenty though it’s never enough for some).
Good grief. Let’s see…the first one will probably have the effect of causing our high end companies to go multi-national and re-flag their corporations to other countries. Who is going to want the current US government to have control wrt corporations…they aren’t even doing a bang up job of running the government, and that’s their jobs. The second one…does this mean that the ‘workers’ would get a 40% share (collectively?) to the corporation? How will they be on the board of shareholders without having a compensatory share of the company? If so, then it’s a bad idea to basically seize by fiat 40% of a company and give it to the ‘workers’. If not, it’s a bad idea, as they won’t have any skin in the game. As others have said, we’d need a lot more detail, but this looks like the standard grab to me. The 3rd one is probably going to get into issues with the 1st Amendment one way or the other. I’m unsure why she is throwing this one in, to be honest, since ‘corporations’ in the US generally split between the parties, with many of them supporting both candidates in a given race (or, their boards do…afaik the actual corporation doesn’t support a candidate directly). Last one…just no. Along with the first one I see corporation that make over a billion USD annually either going international and reflagging or figuring out loopholes that bring them under the billion dollar mark (maybe breaking up the company into a series of business units, each of which stays under the ceiling). With the way our government is so dysfunctional lately, I can’t see any corporation willingly putting their throat under the knife of our current system.
Hard to see how anyone thinks this sort of stuff is a good idea. As for Germany, if that works for them well and good. This isn’t Germany, however, and what works there doesn’t necessarily work here…or vice versa.
I think this is a trial balloon to see how progressive thought is doing wrt market penetration of the US voters and the current political structure. I haven’t dug into the details, but just the bullet points given in the OP make this look like yet another fluffy headed liberal/progressive pie in the sky unrealistic proposal that isn’t going to play well with anyone (other than liberal/progressive types), and probably doesn’t even take itself seriously, since there is virtually no chance of this being enacted.
On the whole I don’t think this is a good idea. Yes, this seems to work reasonably well in Germany but you can’t just transplant a completely different corporate governance framework, which has developed over many decades, through a stroke of legislation. There are many elements of the Germany system like moderate unions and their famous apprenticeship system which don’t exist in the US. Depending on how exactly it is implemented this proposal could have a catastrophic impact on US stock markets and throw many of its corporations into chaos.
Politically, I think it will draw nearly unanimous opposition from corporate America in a way that will scare moderate voters. The Democrats can and should pick battles with corporations on specific issues but this is like an all-out war on corporate America and I don’t think it will help them.
Yes, I learned that in RMU MBA program. It is a nice sentiment and it would be just swell if things actually worked that way. What we have, instead, is a system where the goal for CEOs and other top-level management to stuff their pockets and fuck the shareholders.
I usually agree with Ms. Warren, but I think she’s off base with this.
I’m on the board of a corporation (the corporation that owns my apartment building ) and the business judgement rule is really important.
Most decisions have winners and losers. Sometimes, if we make a considered decision in good faith, it may turn out, in hindsight, that we made the wrong decision. And it’s inportant to me that we have some degree of legal protection and that we aren’t subject to having every decision we make relitigated in a courtroom.
And I’m not in favor of giving non-shareholders voting representation on the board either. It’s just not the way corporations work. And the dollar threshold is problematic, I can’t see forcing a company to drastically restructure their board once they become really successful, it seems punitive. At most, I might support giving employees some sort of non-voting representation.
I understand what the law is intended to accomplish but I believe in accomplishing it by requiring corporations to adhere to regulations and addressing problems with systemic malfeasance through stronger external regulation. This seems like an attempt to force corporations to be more socially responsible by redefining the way corporations work rather than relying on external enforcement. And I don’t think it’ll work, corporations will find their work-arounds.
If I was looking for an argument in favor of the proposal, the fact that it would piss off people who think this little of the people that actually do the work that makes corporations money would definitely convince me to favor it.
We assume that corporations should serve only shareholders because that’s the model we have chosen. There’s nothing inevitable about that model. It makes perfect sense to me to give other kinds of stakeholders power in a corporation if we decide that a different model is better. There’s nothing unworkable or impossible about it. We allow corporations to exist because they serve a social purpose. There’s nothing inherent about them.
But that contention, as common as it is, is basically contradicted by the performance of stock markets in the US v other developed countries in the recent times in which this US CEO problem is supposed to be particularly acute. The US system is ‘fucking shareholders’, yet those shareholders’ returns have been significantly higher than for European shareholders for a prolonged period.
The realistic statement of the CEO pay problem is more at the margin: an arguable categorical overcompensation of all US CEO’s relative performance among them. IOW the easily demonstrable fact that delivering mediocre shareholder value in the US tends to result in higher CEO compensation than delivering equal shareholder value in Continental Europe (and most other countries, but it’s not as divergent among Anglo-Saxon countries as AS v Continental or Japan). But again that doesn’t address the fact that mediocre shareholder value is more commonly delivered in CE and exceptional shareholder value more common in the US, hence superior overall US returns. It’s not simple to separate out the CEO pay system from superior US returns overall.
Anyway the real macro issue Warren is addressing is the high return delivered to US shareholders v the arguable lower ‘return’ delivered to US labor. CEO’s are attractive poster children to criticize, but an informed, honest defense of Warren can’t pretend Warrenism would be in favor of shareholders. It would basically be in favor of labor at the expense of shareholders, trying to reverse the tendency for labor compensation’s share of the economy to shrink relative to capital return’s share of the economy. Which is also true worldwide overall and in almost every other country, although that also doesn’t exclude trying to come up with US solutions to the issue in the US. But it’s a distraction to try to sell those proposals based on the unpopularity of highly paid CEO’s and it’s outright dishonest if somebody claims Warrenite solutions could give a significant macro amount to labor through more govt control of corporations without taking it most of it from shareholders.
OTOH, it will help Warren herself. She’s a hero to the progressive movement, but lately there are other up-and-coming contenders, and she needs to stay on her game.
And the beauty of it is that she doesn’t even need for the proposals to pass to achieve this. Merely introducing and promoting such legislation serves her purpose quite well.
The proposal is based on a faulty premises. Wages for *individuals *are increasing. Average wages are masked by the 10k experienced boomers who retire each day and by the massive additionof new workers to the workforce. So of the 149 million nonfarm payrolls recorded by BLS last month, ~6 million (4%) weren’t even in the workforce a year ago and obviously aren’t going to be paid as much as the experienced workers they’re replacing. Despite that, we’re seeing the highest increases in the lowest income quartiles and in the lowest educated: http://www.latimes.com/opinion/op-ed/la-oe-baker-wages-are-growing-20171026-story.html .* Seems like the sort of thing EAW would be down with.
*Although fuck not showing their work. I hate when newspapers do this. The BLS datasets are all here: https://www.bls.gov/cps/earnings.htm#demographics or via their API if you’re into that coding thing.
I’m uneasy with the notion that someone else’s business needs my permission to operate. But what do we get in return? A damn fine place to live with damn fine stuff to buy that sure beats the America I grew up in.
We still are thriving.
Yes, the rich are getting richer faster than you are I are. CEOs of a select few companies do make a lot of money more money than they used to. Whoop de do. That is not a problem that Warrens a policy change.
Hers is the sort of false narrative that got our current dear leader elected. It was wrong then, and it’s still wrong, despite his apparent efforts to screw things up.
Pretty much anything the government does or doesn’t do will piss someone off. If it pisses off people who I think should be pissed off, then I’ll mark that as a positive, yes.