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, 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, and co-director of Essential Action. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press, 1999.