
Companies Shouldn’t Be Accountable Only to Shareholders - mji
https://www.wsj.com/articles/companies-shouldnt-be-accountable-only-to-shareholders-1534287687
======
lhopki01
This has some ideas that are similar to what happens in Germany.

[https://en.wikipedia.org/wiki/Codetermination_in_Germany](https://en.wikipedia.org/wiki/Codetermination_in_Germany)

Worker representation at the board level is good for companies as well because
it can encourage pay restraint when the company really can't afford a pay
rise. A board of very rich people telling you the company can't afford a pay
rise for you is very different from some of your fellow workers saying the
company can't afford a pay rise.

The German law goes a lot further than this law does though since it applies
to all companies with over 500 employees.

Considering Germany is an economic powerhouse this law probably isn't harming
the economy.

~~~
ChrisLomont
>Considering Germany is an economic powerhouse this law probably isn't harming
the economy

US median household annual disposable PPP income is around $34,000.

German median household annual disposable PPP income is around $25,000.

Note PPP means adjusted for cost of living, so that is not hiding the
difference.

There is likely some differences in household makeup, etc., but it seems
unlikely that any demographic difference is going to make up for Germans
having ~25% less disposable income.

So somehow the US system is generating significantly more disposable income
for its people.

[1]
[https://en.wikipedia.org/wiki/Median_income](https://en.wikipedia.org/wiki/Median_income)

~~~
jamroom
Being median income I have a feeling that the US median is "pulled up"
significantly by the top .01% of earners in the US - I have a feeling they
account for a far larger amount than the top .01% of German earners.

Also - this does not take into account additional costs such as healthcare
that will pull down the US amount.

~~~
sacheendra
I think you are mistaking median for mean. Mean gets pulled up, median
doesn't. It's literally what the guy at 50% mark has.

------
phkahler
>> By 1997 the Business Roundtable declared that the “principal objective of a
business enterprise is to generate economic returns to its owners.”

I've never agreed with that. As a private company you can be in business for
whatever reason you want. Maintaining financial viability seems to be
necessary, but beyond that "profit" or return for anyone is not obviously an
objective. Granted, you'll probably have trouble raising money if there's
nothing in it for investors but does that mean they have to become the one and
only priority?

I often think a CEO needs to state what they're doing and the investors should
decide if they think the plans and objectives of the company (and those
running it) are a good investment. Investors can take it or leave it - for
what it is. That seems to be what Google did to some extent.

I also say that if the only goal of a company is to create returns, then every
company that isn't in a higher profit industry should probably liquidate and
use the money to start a hedge fund, or invest in a company that is more
profitable. In other words, if your company makes small margins making some
widgets, your investors would get better returns if you sell everything and
invest in apple. This is a joke of course, but it makes my point. It's up to
the company to define what it's objectives are, and it's up the investors to
decide what they want to invest in based on those stated objectives of the
companies.

~~~
deelowe
But the CEO doesn't own the company, the investors do, so why would the CEO be
the one to state the goals leaving investors to "take it or leave it"?

~~~
snowwrestler
It's not clear that investors own a corporation, in the same sense that you
own something like a phone or a house. The right of investors to make a claim
on the resources of a corporation, or to direct its actions, are quite limited
unless the investor is on the board of directors.

The corporation has _duties_ to its shareholders--it can't defraud them, for
instance--but those duties are actually quite limited. In most cases the
remedy for unhappy shareholders is just to sell their stock.

The CEO doesn't own the corporation either, but the CEO can direct the
resources of the corporation. In any sort of operational sense, the CEO only
reports to the board of directors, not to the shareholders entire.

~~~
deelowe
Investors always own corporations (via their voting power). That's what a
corporation is. Some companies have different classes of investors (e.g.
restricted stock that isn't traded and converts when sold) to protect against
things like hostile take overs, but it doesn't change the overall structure.

~~~
vonmoltke
"Ownership" as a legal concept is not that simple:
[https://www.google.com/amp/s/amp.ft.com/content/7bd1b20a-879...](https://www.google.com/amp/s/amp.ft.com/content/7bd1b20a-879b-11e5-90de-f44762bf9896)

The meat of the article:

 _If I own an object I can use it, or not use it, sell it, rent it, give it to
others, throw it away and appeal to the police if a thief misappropriates it.
And I must accept responsibility for its misuse and admit the right of my
creditors to take a lien on it.

But shares give their holders no right of possession and no right of use. If
shareholders go to the company premises, they will more likely than not be
turned away.

They have no more right than other customers to the services of the business
they “own”. The company’s actions are not their responsibility, and corporate
assets cannot be used to satisfy their debts.

Shareholders do not have the right to manage the company in which they hold an
interest, and even their right to appoint the people who do is largely
theoretical. They are entitled only to such part of the income as the
directors declare as dividends, and have no right to the proceeds of the sale
of corporate assets — except in the event of the liquidation of the entire
company, in which case they will get what is left; not much, as a rule._

------
chatmasta
Thankfully there’s no chance this bill will ever pass with the current
Congress, and even if it did, the Supreme Court would likely strike it down on
account of state’s rights.

It’s a bill trying to solve the wrong problem with the wrong solution. What
value does workers electing their directors add for anybody? Firstly, the idea
that director appointments should be political is patently absurd — a
directorship is a job with well defined requirements and expectations, which
the majority of workers are often completely unqualified to judge. Secondly,
what right does the federal government have to dictate the internal governance
of corporations? (Answer: explicitly none, as per the tenth amendment of the
constitution.) This is such an awful, awful idea. One only needs to look at
the government itself to see what happens when leaders are elected, not
appointed. There’s a reason the private sector has a reputation for success
and efficiency and the government does not... the idea of executives being
elected by democratic process is so scary it’s almost comical.

Disclaimer: I am extremely skeptical of the motives of Elizabeth Warren and
hope she doesn’t come anywhere close to the White House

~~~
prolikewh0a
>What value does workers electing their directors add for anybody?

It provides workers say in what they do, since the workers do LITERALLY ALL
THE WORK. The shareholders do literally no work in a quest for profit at the
expense of the people who DO THE WORK. The company/business cannot survive
without workers, they are the most important part.

Have some solidarity for your fellow people. It's truly sickening that anyone
would think workers shouldn't have any say at all and should just be useless
cogs in the machine getting all representation gutted year after year so a few
people can massively profit at the expense of everyone else.

~~~
tepidandroid
This is such an emotional response.

It's not about who does the work. It never has been about who does the work.
It's about who takes on the initial burden of risk and what kind of
compensation that risk demands. A worker takes on little to no risk when
offering his/her labour in return for a steady salary. An entrepreneur taking
on massive amounts of leverage can be completely ruined when that venture
fails.

There is nothing to stop a worker from quitting their job and taking on the
risk of starting their own business. It happens all the time and if they
succeed, they deserve to reap the rewards. If a worker chooses the safe path,
they cannot then in good faith argue that they now deserve a bigger piece of
the pie just because the enterprise has succeeded. Life does not work that
way.

~~~
prolikewh0a
>It's about who takes on the initial burden of risk and what kind of
compensation that risk demands. A worker takes on little to no risk when
offering his/her labour in return for a steady salary.

Who takes more risk, the worker standing 70 stories up on an I-beam with no
health insurance or life insurance (couldn't afford it!), or the guy who
borrowed money to start a business? Who creates the profit that allows the
owner to pay back that loan? Who dug the metal out of the ground? Oh, right,
it all comes back to the worker. Workers risk their lives and livelihood. The
worker takes on just as much risk, if not more, especially with 80% of our
country living paycheck to paycheck.

Let me know how you start a business on $7.25/hr?

~~~
tepidandroid
> the worker standing 70 stories up on an I-beam with no health insurance or
> life insurance

Hyperbole aside, I'm pretty sure this is illegal and no worker should ever be
allowed onto a job site without insurance.

> Who creates the profit that allows the owner to pay back that loan? Who dug
> the metal out of the ground?

If digging the metal out of the ground commanded an executive's or major
stakeholder's compensation, the market would compensate them. The fact, right
or wrong, is that the barrier of entry for menial labour does not command a
high salary. Almost anyone can do it. Can the same be said about directing a
multinational organization?

> Workers risk their lives and livelihood. The worker takes on just as much
> risk, if not more, especially with 80% of our country living paycheck to
> paycheck.

I would hazard that the vast majority of occupations (in the US) do not
involve workers risking their lives and livelihoods.

> Let me know how you start a business on $7.25/hr?

Wozniak sold his HP calculator for $500 and Jobs sold his Volkswagen for
$1500. No one said it would be easy, but plenty of people started with less.

~~~
genericid
> The fact, right or wrong, is that the barrier of entry for menial labour
> does not command a high salary.

This is merely a description of the current state of affairs. It is not
relevant in a debate about the desired state of affairs.

~~~
tepidandroid
Really?

~~~
genericid
What kind of answer do you expect? "No I do not mean what I say, I'm just a
markov chain."?

------
Y_Y
This is a fantastic idea, and I can't see how anyone (other than the people
who stand to lose directly) could oppose it.

All the same I know that they will. Consumers are anything but rational, and
that is by design. The ultra-rich know well the value of hearts and minds, and
that it's quite possible to spend money convincing (at least some) people of
whatever you'd like them to believe.

Maybe it's just because I'm a pinko-European, but in the unlikely event of
this succeeding, I think it could really be the start of the pendulum swinging
in the right direction in global economics.

~~~
quotemstr
If I bought a share in a company fair and square, I bought that share came
with a certain expectation of control. That share is my property. Giving
control to people who haven't bought control fair and square is a taking of my
property, and as a general heuristic, we should be _extremely_ skeptical of
taking people's property for some kind of ostensible good.

Would you support a bill forcing owners of large houses to set aside some of
their space for the homeless? Would you give your squatter a vote equal to
your own in matters of deciding how to arrange the furniture and paint the
walls?

~~~
minikites
>Would you support a bill forcing owners of large houses to set aside some of
their space for the homeless?

I support the idea of taxing the rich to support the less fortunate so yes, I
agree with the general idea behind your bizarrely worded scenario.

~~~
quotemstr
We already tax corporations. Taxation isn't surrending ownership control. It's
very different, just like a property tax that funds a homeless shelter is very
different from forcing someone to live with a squatter.

~~~
minikites
"Taxation is theft" is a very common refrain because the government is taking
"your property" in the form of currency.

------
quotemstr
Yes, companies should be accountable to their owners, who in many cases are
shareholders. Property ownership is what aligns incentives toward the
maintenance and improvement of infrastructure, which in the end benefits us
all. There's no sin in profit.

When you strip property owners of control over their property and give control
to people with no skin in the game, you misalign incentives and contribute to
bad decision making and eventual decay arising from the accumulated
consequences of bad decion making.

If you think companies make bad decisions now, just wait until they're legally
obligated to obey people who don't give a damn about the company's survival
and who want to hijack the effort for stupid ideological and status signaling
games.

Utopian projects that amount to taking stuff from property owners and giving
it to ideologues _never_ work. They usually end up generating nothing but
heaps of bodies.

~~~
pjc50
> no skin in the game

The presumption that people who spend 40+ hours a week of their lives there,
and are dependent on the company for their income and healthcare have "no skin
in the game" is odd.

~~~
quotemstr
The sort of person advocating employee control, in my very direct experience,
comes to take the company's profitability for _granted_ and wants to push the
company in unprofitable directions for reasons that are personal, political,
and ultimately emotional. I've seen this pattern play out too many times to
believe the idea that someone who merely works at a company (and who can move
to another) cares nearly as much about success as someone who built the
company, or at least whose fortune is riding on it.

~~~
pjc50
Conversely, in a publicly traded company if you don't like the way it's being
run you can exit your position with the press of a button.

------
castlecrasher2
>American corporations exist only because the American people grant them
charters.

I get what she's saying here but it's not exactly the cause. A counter-
argument to this premise could take this line and re-write it as "American
corporations exist only because shareholders/VC firms invested capital in
them."

And while I don't disagree that CEO pay is nutso today I'm not convinced that
employee-elected directors is the way to go. My initial reaction is I don't
want to work under populist execs vying for employee votes; I think we get
enough political speak from them as it is.

~~~
wffurr
>> populist execs vying for employee votes

The alternative to democracy is feudalism, which is basically what we have
now. You might hold your nose and say "politics" or "populism" but this is how
you as an employee can exercise power in the workplace.

I certainly prefer "populist execs vying for employee votes" to "brown nosing
employees vying for exec favor".

~~~
Brushfire
Surely you aren't serious. Feudalism required working for the landowners near
where you lived. In our society you can change jobs, start your own business,
move, do freelance work, or not work at all if you so choose. I agree there
are problems with the current system, but to equate it to feudalism is
insanity.

~~~
wffurr
Insanity? CEOs seem an awful lot like Kings to me. And everything in a company
is essentially at the whim of the CEO or private owners.

>> you can change jobs

At the whim of the hiring managers and their bosses etc.

>> start your own business

At the whim of the financiers or by boostrapping yourself with the crumbs the
capitalists leave to the working class.

>> move

In fact often one _has_ to move away from one's home, community, and family to
find work, because that's where the bosses decided to employ people.

>> do freelance work

Again at the whim of those who have money to pay for your services.

>> or not work at all

If you want to accept a severely reduced lifestyle with the dregs of an under-
funded dehumanizing welfare state, designed to force people into employment.

I'm absolutely serious.

~~~
cabaalis
I think you harmed your claim by elaborating. I have a tendency to do so as
well. I often stop myself from replying to those who reply to me, in order to
provide someone else a chance who agrees with my position to reinforce.

------
dahdum
Considering how this would decimate the market and cause large amounts of
frivolous lawsuits, I can't imagine this passes even pared down.

She's announcing this merely to pad her resume before running in 2020. It
doesn't have to be feasible, just needs to sound good.

~~~
toomuchtodo
The US equities market value is already highly inflated. It will be coming
down regardless over the next decade.

~~~
chollida1
> The US equities market value is already highly inflated. It will be coming
> down regardless over the next decade.

I'll take the other side of that bet if you are saying that the market will be
worth less in 10 years time than it is now.

If on the other hand you are saying the market will go down sometime in the
next 10 years then, we'll that's not really a statement worth making:) That's
like saying I predict that it will be colder than it is today sometime in the
next 10 years.

~~~
toomuchtodo
Based on current P/E ratios, the higher chances of an inverted yield curve,
companies going private or not going public, and market analysis from folks
like Vanguard about future returns being muted, my opinion is that most
equities returns have been pulled forward, risk-adjusted returns will be
comparable to bonds, and that there will both be a market pullback in the
foreseeable future with total market value moving roughly sideways from
today's highs for quite a while.

~~~
tanderson92
As a point of fact, the yield curve is not inverted (nor has it been for some
time). Furthermore, forward PE ratios show returns far in excess of current
government bond yields.

------
lixtra
Sounds a bit like the German works council system [1] that gives workers some
representation in management.

[1]
[https://en.m.wikipedia.org/wiki/Works_council](https://en.m.wikipedia.org/wiki/Works_council)

~~~
smileysteve
While it might be considered communist / socialist; I'd be interested in a tax
policy that encouraged companies to ~X% worker owned.

~~~
fabianhjr
That could be encouraged trough mutualization programs.

------
zaroth
We already have a dwindling supply of decent public companies. Regulations
like this, and the CA bill mandating gender diversity hires for the Board of
Directors, both would put additional downward pressure on the number and
quality of public companies.

Make it cheaper for companies to grant stock to their rank-and-file employees
if you want employees to have more skin in the game. Leave the prescriptive
governance out of it.

~~~
mercutio2
Skin in the game is unrelated to a voice in decision making. This would
increase worker representation, more employee stock ownership doesn’t do that.

------
bb2018
I am not a fan of Warren or Bernie would do have some practical questions for
how this might function for someone who believes this is a good idea. I am
skeptical but open-minded.

\- Does every employee get an equal vote? Is it weighted at all by seniority,
hours worked, salary? In a company like Starbucks where most employees are
baristas what would stop them from joining forces with a small number of
investors and looting the company's assets?

-Do employees get a vote if they are contractors? Could a company simply set up hundreds of shell corporations and hire those corporations to prevent employee votes? If not, would you get a vote at every company you contract for?

-Is there any concern that this could lead to a slowdown of new hiring? Right now a company may make 1B in income in a year and decide to invest the majority of it to open new locations or expand business. Do we think this would ever happen under this system - or would that money be given as short term profit? Would employees not want expansion which could possible benefit "the corporation" in the long run because it would cut into their bonus that year.

------
maym86
Unions and worker ownership can help make a company actually consider the
workers rather than just profit. In the US the balance has gone so far in the
direction of treating low wage workers as disposable resources that any step
to improve worker power is a good thing. Even if this bill passes the system
would still favour the owners but there could be a little more consideration
of the employees.

The profit comes from the labour of people who work for the company. Any
profit it makes is the difference between what their true labour is worth and
what they are paid. So unless the owners are adding billions in value by
themselves they are paying people less than the true value of their work. The
extent at which this happens is where some ethical issues lie. If you keep
wages low while making large profit there is a point of view that you are
ripping off your workers and hopefully an extra voice at the top of the
company can help here and emphasize some more consideration of worker needs.

------
chollida1
In this case the author matters a bit. It's Elizabeth Warren, the congress
woman who is putting forth a bill to "reign in" wall street.

I'm a fan of her and I like the parts of the bill that I've seen. I think we
do need more regulation on wall street.

> That shift has had a tremendous effect on the economy. In the early 1980s,
> large American companies sent less than half their earnings to shareholders,
> spending the rest on their employees and other priorities. But between 2007
> and 2016, large American companies dedicated 93% of their earnings to
> shareholders. Because the wealthiest 10% of U.S. households own 84% of
> American-held shares, the obsession with maximizing shareholder returns
> effectively means America’s biggest companies have dedicated themselves to
> making the rich even richer.

One of the best things I learned from becoming an engineer was the concept of
feedback loops and how you need to constantly monitor and dampen them when
they start to get out of control. The above certainly illustrates how the
wealth gap started to increase over the past 30 years.

I'm not sure what the correct ratio of how to payout mopey to employees vs
owners but you could start by looking at what ratio public hedge funds or
investment banks payout(like Virtu or GS).

> In the four decades after World War II, shareholders on net contributed more
> than $250 billion to U.S. companies. But since 1985 they have extracted
> almost $7 trillion

This is just intentionally obfuscating. What percentage of the dividends paid
out where reinvested automatically. What percentage of the cash paid out in
stock buy backs went right back into the market, you cant' tell because in the
first line she used net contributions, but int he second she only mentions the
money flowing out but not the net. It actually could be net positive but that
wouldn't fit her narrative.

> My bill also would give workers a stronger voice in corporate decision-
> making at large companies. Employees would elect at least 40% of directors.

I really like this idea. I assume the directors would be qualified people and
not just a random employee.

To be honest the largest issue I see int he markets now is the dictator model
where a single founder controls the voting. We've only seen this model in tech
work during the bull tech market of 2004-present. 2008 was down but tech still
did much better than most other asset classes.

What happens when tech has another 2001 and people want Mark Zuckerberg fired
or they want Google to focus on their bread and butter instead of the moon
shots that cost them money, or Snap to, well do anything to earn the valuation
that they and promises that they fooled everyone with.

~~~
dsfyu404ed
>In this case the author matters a bit. It's Elizabeth Warren, the congress
woman who is putting forth a bill to "reign in" wall street.

The consumer advocate who used to be really productive when she didn't spend
her time catering to the farther left parts of the democrat's base and playing
identity politics introduces a bill that requires companies be X% controlled
by the workers. Color me surprised.

I really liked her better when her primary focus was enacting laws (or at
least trying) that made it harder for consumers to get screwed by predatory
business practices and gave them more recourse when they did. Stuff likes this
makes me not want to vote for her though. This sounds like it was purposefully
half-baked to appeal to the younger socialist portion of the democratic base
even though it has no hope of passing.

I like the idea of giving employees a better share of profits but I think
trying to do that by putting a bunch of them on the board is heavy handed
(especially when you start talking large shares like 40%) and likely to have a
bunch of bad side effects.

Edit: why is this an unacceptable opinion?

~~~
prolikewh0a
>I really liked her better when her primary focus was enacting laws (or at
least trying) that made it harder for people to get screwed by predatory
business practices and gave them more recourse when they did. Stuff likes this
makes me not want to vote for her though.

Giving workers power in their workplace is exactly "enacting laws that made it
harder for people to get screwed by predatory business practicies".

You seem to be doing some circular thinking? Workers do literally all the
work, the business cannot survive with no workers. Want to tell me why workers
shouldn't have a say yet shareholders who do literally nothing except thirst
for profit get all of the say?

~~~
castlecrasher2
> Want to tell me why workers shouldn't have a say yet shareholders who do
> literally nothing except thirst for profit get all of the say?

Ignoring your hyperbole, shareholders have tangible, actual property in the
form of shares in the company while the average worker does not, and they
likely can be replaced rather easily. I'm not sure how simply working at a
company should grant more than what the worker accepted when hired. It's not
like a single worker or even a group of workers can independently create
output similar to what they can at the company.

~~~
dragonwriter
> Ignoring your hyperbole, shareholders have tangible, actual property in the
> form of shares in the company

Actually, shares in a company are a textbook example of intangible personal
property as opposed to tangible property.

> It's not like a single worker or even a group of workers can independently
> create output similar to what they can at the company.

Neither can a single shareholder (or they would); laws were created to create
the concept of shareholders and give them rights specifically for that reason,
even though capital-providers _could_ participate together I'm ventures by
providing debt financing where the upside would be captured by the funded
entrepreneur even before joint stock companies existed.

Conditioning this government-created _special legal privilege for certain
providers of capital_ on the provision of a minimum level of similar control
on those providing labor to the venture only seems outlandish because of the
long history of not doing it.

------
bumholio
If 40% of the board is selected by the employees, I expect an intense
political power struggle over compensation and automation, because continued
employment and the paycheck are the paramount concerns of the employees, that
by far trump any other social responsibility yadda yadda.

It's as if all employees have received equity by force from the business
owners, and they can cash out dividends every month regardless of marketplace
performance. This will tend to form a caste system, where existing employees
are strongly favored over potential new hires, with impact in unemployment
figures, just like in Europe. It will also reduce the adaptability of the firm
- any reorganization that involves layoffs is out of the question. Again, just
like Europe, a stronger safety net and worker stability at the price of lower
national competitiveness.

~~~
genericid
You must be talking about a different Europe than the one I live in.

~~~
Joky
I relate fairly well to the Europe I lived in for 30y, YMMV

------
r_smart
Why do people always seem to forget that that 'Shareholders' frequently means
pension funds for retired workers? This accounts for a pretty large pie of
'Shareholders' and many of them are struggling with unfunded liabilities,
despite companies ruthless pursuit of profits on their behalf, that need to be
made up somewhere (higher taxes or reduced payments).

~~~
mfringel
It appears you're conflating two things.

1\. "Pension funds", which include stuff like TIAA-CREF, who administer
401(k)-like plans for tax-exempt organizations. Those are definitionally fully
funded because the annuities that retirees receive are only based on the money
they put in over time.

2\. "Pensions" as in the old-school corporate-owned "you work for us for n
years and then we give you an annuity for the rest of your life, based on a
percentage of ending salary." _Those_ have a lot of problems with funding, for
a load of reasons including life expectancy, and because bankruptcy relieves
companies of a lot of those obligations.

Either way, a shareholder owning a comparatively tiny amount of stock has
neither a duty nor the impetus to align their interests with that of the
corporation in which they hold stock.

~~~
r_smart
>It appears you're conflating two things.

I probably am :)

I'm definitely guilty of playing loose with my words. I was thinking of all of
the various pensions. But as far as unfunded liabilities go, I was thinking of
public employee pensions, where the amount they get out is not at all what
they've paid in, and many (most?) of the various public pension programs are
paying into the pensions to cover shortfalls from their investment portfolios.
Many of them are looking at large amounts of financial liability in the future
they don't currently have a budget for paying as I understand it.

>Either way, a shareholder owning a comparatively tiny amount of stock has
neither a duty nor the impetus to align their interests with that of the
corporation in which they hold stock.

I make no argument about what anyone should or shouldn't do. My point is that
I think a lot of people picture four or five guys leering at each other around
a table when they talk about shareholders, but in reality there are a lot of
small fish with a vested interest in companies getting them the best return
they can on their investment because they're relying on those returns to pay
their expenses during the fixed income period of their life.

------
spork12
This is really more an issue for public companies than private companies.
Public companies tend to make decisions that favor short term gains for
shareholders in the upcoming quarter. It's a give and take, they initially get
a lot more money to play around with going public, but then become handcuffed
to chasing profits for their shareholders.

Really though it should be up to companies to align themselves to whatever
vision they have. Politicians should just stay out of it.

------
kwhitefoot
The title should contain "US". Companies in many (most?) other countries are
already accountably to a wider constituency.

------
mfer
While I can't find it now, there have been articles detailing how shareholder
value is down now compared to periods prior to the rise in executive pay.
Naming (marketing) and focus are really two different things.

Are many companies accountable to shareholders? The large ones anyway. How
many shareholders are engaged?

The money distribution has been very much to executives. From Fortune[1]:

> According to a new report on CEO pay from the Economic Policy Institute, >
> chief executives at those 350 companies made $15.6 million on average in >
> 2016—271 times what the typical worker earns. Though CEO compensation has >
> fallen slightly in the past few years, it has increased by more than 930% >
> since 1978.

Theory is different from practice.

[1] [http://fortune.com/2017/07/20/ceo-pay-
ratio-2016/](http://fortune.com/2017/07/20/ceo-pay-ratio-2016/)

------
Brushfire
This will just lead to more private companies that average Joe doesn't get to
benefit from. Creating rules for private companies would take a refactor of
our entire legal system.

------
ummonk
It's interesting that we work in an industry where employees are naturally
given out a share of the company, but this share is structured so as to give
them zero legal power over, e.g., the composition of the board or company
decisions in general.

It is merely there to give employees a claimed share in the future financial
success of the company (I say claimed because some companies have terms such
as clawback provisions that make the stock worthless - check out Skype for
example).

While many startups do informally have heavy involvement of employees in
decision-making, others do not. It would be an interesting experiment to have
a startup where employees who have vested and exercised shares get to elect
their own board representatives.

------
grondilu
> Corporate profits are booming, but average wages haven’t budged over the
> past year.

Why would they? Wages reward work. Profits have nothing to do with this.

------
whack
Here's a non-paywall version:

[https://www.vox.com/2018/8/15/17683022/elizabeth-warren-
acco...](https://www.vox.com/2018/8/15/17683022/elizabeth-warren-accountable-
capitalism-corporations)

And one key clause from the bill:

> _" More concretely, citizen corporations would be required to allow their
> workers to elect 40 percent of the membership of their board of directors."_

This is a bold proposal, and it's worth considering what consequences it's
going to have. Companies are already wary of going public these days, with
many unicorns staying private longer, and some public companies even going
private again. This bill would sharply accelerate the trend for one very
simple reason: A privately held corporation would now be much more valuable
than a public corporation. A corporation run by leaders who are 100% focused
on optimizing (long-term) shareholder profits, will generate more (long-term)
profits than a board that's 40% worker-elected. By definition then, as soon as
a private company goes public, they can expect an immediate valuation hit.

As more and more companies go/stay private, to avoid the above hit, the
accessibility of public markets becomes weakened. Right now, any average Joe
from Main Street can invest his savings into Google stock, and participate
somewhat in corporate success. Not so if companies decide to remain private
instead.

I think the intent behind the bill is in the right place. Mega-corps are
strangling our democracy (see the recent article about Intuit lobbying against
tax-filing-reform), and their successes are being enjoyed primarily by the 1%.
But I think we need a different solution to this problem. Higher taxes on the
1%, a stronger social safety net, campaign-finance reform, and better
enforcement of anti-trust laws, would be my preferred approach for tackling
the current problems.

~~~
ummonk
I don't think the bill checks whether a company is private or not. Merely
whether it has $1 billion in revenues or not. So it doesn't directly affect
whether a company will want to go public.

------
riemannzeta
I love the intent. I often have the sense that decisionmaking at big
corporations manifests a well-functioning prefrontal cortex and no limbic
system -- i.e., somewhere on the socipathy/psycopathy spectrum.

It's interesting to note that some of the most successful corporations have
already moved in this direction on a voluntary basis. Regardless of whether or
how this particular initiative is received by Congress and the Courts, any big
corporation that wants to grow long-term will have to move in this direction.
In that sense, this is not necessarily a competition-friendly proposal.

On the other hand, it's the whippersnappers that are growing fast by cutting
corners that are likely to be hurt the worst. Personally, I prefer to live in
a world of socially-responsible for-profit goliaths with Schumpeterian
competition from startups over a world of free-for-all, dog-eat-dog
competition in which bad values drive out the good.

Lots of things to like about this proposal.

------
jakoblorz
This is basically the discussion between Shareholder Value vs Stakeholder
Value

[https://www.naturalinvestments.com/blog/shareholder-value-
vs...](https://www.naturalinvestments.com/blog/shareholder-value-vs-
stakeholder-value/)

------
wyldfire
The Long-term Stock Exchange (LTSE) [1] is an interesting proposal. It gives
greater weight to the duration a shareholder has held the shares. IIRC it also
had incentives for companies to reduce ludicrous executive compensation.

[1] [https://ltse.com/](https://ltse.com/)

[2] [https://www.bloomberg.com/view/articles/2017-10-16/the-
long-...](https://www.bloomberg.com/view/articles/2017-10-16/the-long-term-
stock-exchange-is-worth-a-shot)

[3] [https://qz.com/704657/eric-ries-ltse-long-term-stock-
exchang...](https://qz.com/704657/eric-ries-ltse-long-term-stock-exchange/)

------
makecheck
I see a lot of criticism about particular _parts_ of this one bill that seem
to skip right past the larger potential value here: _worker rights are
actually being discussed_. Just _having_ that discussion is a step forward and
should be _encouraged_ , to improve whatever we can.

Furthermore, nothing is ever perfect so don’t lose a chance at _some_ benefit
just because not _all_ of this particular bill may be practical.

------
tim333
While Warren's intentions are good it sounds like it could be messy in
practice. "The new charter requires corporate directors to consider the
interests of all major corporate stakeholders." With the possibility to sue if
they don't. I could see no end of legal cases - workers suing for more pay or
less layoffs, suppliers suing if they switch suppliers and so on.

------
methehack
While I'm not sure of the mechanics of a lot of what's outlined here, and I'm
especially not sure about the board of directors part, I think the idea of the
"benefit corporation" could be a real game changer.

Currently, as you probably know, the management of a public company has a
fiduciary duty to maximize shareholder value. What's funny about this is that,
in doing so, management may undermine every other _value_ the shareholders
have -- and, in fact, is duty-and-legally-bound to do so if it increases
shareholder value as measured in money.

A legal framework like this gives management a way to maximize not only
shareholder value but shareholder values. Without it, there's no legal/ethical
basis do so. Companies sometimes act like they're about shareholder values,
and to some degree maybe even meekly are, but, without a legal basis like
this, that 's all marketing, in essence.

I've always thought it was amazing that we create these institutions
(companies) that don't represent any of the values of the people in them. It's
as if we've played a trick on our humanity by given it to an institution that
itself isn't human nor values anything humans value despite being made up
entirely of humans.

------
EliRivers
This idea that companies should be all about shareholder value is so recent,
but it seems to have infected minds so thoroughly that people even assume
there are laws enforcing it.

To quote the US Supreme Court: "Modern corporate law does not require for-
profit corporations to pursue profit at the expense of everything else, and
many do not."

~~~
sonnyblarney
Companies have always basically been about shareholder value.

The whole point of a 'company' was for investors to hire an 'Executive
Officer' sailor, so he could make/rent a ship, hire a crew, buy some stuff 1/2
way around the world, come back and sell it a profit so the investors could
make money.

That's it.

And there are definitely laws to protect those interests.

People mostly buy shares and found companies to make money.

There are other motivations and concerns, always ...

But if a group of people are getting together, raising money, to do something
other than making money ... there are other words for those: non-profits,
NGOs, clubs ...

~~~
ummonk
Note, non-profit and corporation are not mutually exclusive. A not-for-profit
corporation is a type of corporation, and has shareholders.

------
pdonis
The root problem isn't that companies are only accountable to shareholders.
The root problem is that the shareholders of the large companies that are
causing the income inequality the article refers to are not individuals any
more; they're mutual funds and other financial institutions, i.e., other
corporations.

------
ailideex
They are not - they are also accountable to jurisdiction in which they
operate. So problem solved.

------
ucaetano
But they aren't. They are accountable to society through laws, regulations and
taxation, and to their employees through labor laws.

~~~
maym86
This would be another labour law to increase accountability.

------
neonate
[http://archive.is/bGmKh](http://archive.is/bGmKh)

------
rdlecler1
Companies should be accountable to stakeholders.

------
bassman9000
_The problem may get worse, because executives have a strong financial
incentive to prioritize shareholder returns_

Well, yes. They own the company. And they're accountable to US law while doing
so. What's the issue? Why this socialist push now? Workers should demand a
share of the company, no doubt, and leave if not granted.

------
whytheam
Companies should be owned and democratically controlled by the workers.

------
Cthulhu_
non paywall version: [http://archive.is/bGmKh](http://archive.is/bGmKh)

------
dnomad
It will absolutely never happen in the US but similar ideas are floating
around France where there is real support and likelihood of something
happening before 2025. The Accountable Capitalism Act is too complicated. The
remedy here is quite simple:

* Tax share buy-backs into non-existence. All the available evidence indicates that corporate buy-backs help nobody but the corporate officers who authorize them.

* Make corporate dividends into pass through transfers. In fact, consider giving corporations that pass on X% of their profits a tax break.

* Severely lower taxes on options and share-in-kind salaries. This is probably the most important thing: you want to encourage corporations to pay their workers in equity.

* Ridiculous executive compensation is a problem in theory but it doesn't really matter, frankly, how a corporation divides its income payments. The only way to generate meaningful wages and wage growth for specific workers is to strengthen those worker's negotiating power. That means stronger unions. There's a lot the government can do to support unions but a good start would be making union dues tax free. In fact the government should probably collect and distribute all union fees. It becomes a standard withholding. Codetermination where unions get board seats is also good and has worked wonders in Germany.

* A Job Guarantee is perhaps the most effective solution but is somewhat radical. But there are incremental steps that could be taken in this direction. Tax breaks on worker training et al are the first step. There was a time, believe it or not, when corporations invested heavily in their workers. Today training is regarded as pure overhead and the result are workers that are, frankly, not that useful because they are over-specialized. The government should also provide tax credits (!) for personal expenditures a worker undertakes for their own training. This goes beyond expensive college courses: workers should be encouraged to attend conferences, seminars, workshops, buy books, and donate their skills in the service of charity. (Yes tax credits for open source.) Encouraging worker training and worker re-training through generous tax breaks would go a long way towards the structural unemployment that grips much of Europe.

The massive inequality that's drowning the West isn't really a problem of of
corporations abusing workers. The problem is the governments who have
willingly decided to serve the corporations and abandon the workers (combined
of course with the insane desire to _not_ build new housing in their major
cities). The result is the most slack labor market ever and wages that have
gone nowhere for forty years while corporations hoard giant useless piles of
cash.

------
extralego
In other words, Marxism.

You will downvote, but this was his central recommendation.

~~~
genericid
I'm sure you have a source for that?

~~~
dhakker
I can’t tell if you’re serious, but in the case you are:

It would be hard to find or read any serious writings of Marx that doesn’t
espouse this idea. Das Kapital is essentially nothing but an elaboration of
why workers should control the means of production.

Most of Marx’s influential work was academic, and Europeans generally
understand that his legacy lives in the the laws described here. Dissenters
usually highlight the early stuff like Capitalist Manifesto; the equivalent of
a student protest flyer. But this is terribly short-sighted and misrepresents
his impact on European economics and law. He is the one of the most studied
men of the 19th century for a reason.

And the only ultimate recommendation Marx made with confidence in his academic
work was exactly that workers own the means of production by way of democracy.

He was something of a democracy absolutist and basically called out liberal
capitalist economies for encouraging democracy in every part of society
_except_ for the workplace.

There is really not anything more Marxist than giving more control to workers.

~~~
genericid
I meant that Marx did not advocate _co_ determination, as in, leaving most
control to the capitalists.

~~~
dhakker
That’s definitely debatable. Marx was far from clueless about the benefits of
capitalism. We need to recognize Marx was not _against_ leadership. He was
simply _for_ democracy. He was intentionally vague in his prescriptions, and
increasingly so in the academic work his legacy is built on. It’s more
accurate to say he simply accepted the challenges of democratic means of
production instead of denying them, because he thought the latter as immoral
and ultimately harmful to society, due to the resulting deterioration of what
he called modes of production.

He was a proponent of technology, celebrated innovation, and fully
acknowledged that capitalism systemically enouraged their existence. He even
wrote about the importance of capitalism to art.

Marx lived in a time and place of agregious social malpractice in the name of
capitalism. His conceptions did not lack nuance, but they did evoke urgency.
And rightfully so.

------
kauffj
Since this article specifically cites Milton Friedman, it seems apropos to
consider his son David's point that if workers were interested in owning their
firms it would be fairly trivial to do.

Excerpt from "The Machinery of Freedom", by David Friedman:

> The socialists who advocate such institutions do object to our present
> society and would probably object even more to the completely capitalist
> society that I would like to see develop. They claim that the ownership of
> the means of production by capitalists instead of by workers is inherently
> unjust.

> I think they are wrong. Even if they are right, there is no need for them to
> fight me or anyone else; there is a much easier way to achieve their
> objective. If a society in which firms are owned by their workers is far
> more attractive than one in which they are owned by stockholders, let the
> workers buy the firms. If the workers cannot be convinced to spend their
> money, it is unlikely that they will be willing to spend their blood.

> How much would it cost workers to purchase their firms? The total value of
> the shares of all stocks listed on the New York Stock Exchange in 1965 was
> $537 billion. The total wages and salaries of all private employees that
> year was $288.5 billion. State and federal income taxes totalled $75.2
> billion. If the workers had chosen to live at the consumption standard of
> hippies, saving half their after-tax incomes, they could have gotten a
> majority share in every firm in two and a half years and bought the
> capitalists out, lock, stock, and barrel, in five. That is a substantial
> cost, but surely it is cheaper than organizing a revolution. Also less of a
> gamble. And, unlike a revolution, it does not have to be done all at once.
> The employees of one firm can buy it this decade, then use their profits to
> help fellow workers buy theirs later.

> When you buy stock, you pay not only for the capital assets of the
> firm—buildings, machines, inventory, and the like —but also for its
> experience, reputation, and organization. If workers really can run firms
> better, these are unnecessary; all they need are the physical assets. Those
> assets—the net working capital of all corporations in the United States in
> 1965—totalled $171.7 billion. The workers could buy that much and go into
> business for themselves with 14 months' worth of savings.

> I do not expect any of this to happen. If workers wanted to be capitalists
> badly enough to pay that sort of price, many would have done so already.

~~~
pjc50
"If the workers want to be capitalists they should just get the money" is
exactly the kind of idiocy that seems to get a pass in right-wing economics.

~~~
hammock
Funnily enough it also sounds like left-wing economics. "Get the money (via
taxes and redistribution) to workers so they can act more like capitalists who
don't have to work"

------
econ4all
The costs of healthcare and housing are far and away the largest dampers on
the economy and the cause of inequality.

Shareholder accountability might be something worth looking at but it also
seems like a distraction for politicians who are incapable of tackling the
real issues.

Dear leftist politicians: please don't attack successful companies and sectors
and stop stoking the populist fervor of your hippy base and proto-socialist
newcomers and tackle the real issues of healthcare and housing costs which
have proven market based solutions.

~~~
prolikewh0a
As Union membership rises, inequality declines. Worker representation is
exactly what's needed. Don't ever say worker representation isn't a "real
issue" because it sure is. The 'successful company' is likely successful in
your viewpoint because the profits never went to the WORKERS who did ALL OF
THE WORK.

[https://www.epi.org/news/union-membership-declines-
inequalit...](https://www.epi.org/news/union-membership-declines-inequality-
rises/)

~~~
econ4all
The more money is spent on healthcare and housing the less people have for
everything else thus exasperating inequality.

Labor unions hamper corporate options and flexibility and hopefully soon they
will all be replaced by machines maybe that would finally make it clear to
marxists how much of a commodity labor really is.

~~~
prolikewh0a
>The more money is spent on healthcare and housing the less people have for
everything else thus exasperating inequality.

Sure, I'm not going to disagree there.

>Labor unions hamper corporate options and flexibility

So? They no longer will have the option to screw over their workers with low
wages and high cost benefits and I think that's an absolute win for the lower
80-90% of the country.

~~~
econ4all
Companies should have all the flexibility to restructure in order to survive
tough times or pivot to follow breakthroughs otherwise all these workers won't
have a job.

~~~
prolikewh0a
This is not really a great argument as it assumes workers would willingly
internally vote away their own jobs, and that's likely to not happen. Nobody
wants to be unemployed.

~~~
econ4all
They would stand in the way of every layoff and changes they don't like,
that's their mandate, unions are just another entity fighting for the status
quo and another hoop a company needs to jump through.

If the costs for major expenditures were lower people will have more resources
to climb the socioeconomic ladder, and we won't need to decrease the dynamism
of the labor market and saddle corporations with more obligations to achieve
that.

Oh and companies shouldn't pay for employee healthcare, that's a WW2 relic
that only benefits health insurers by keeping costs high.

~~~
prolikewh0a
>They would stand in the way of every layoff and changes they don't like,
that's their mandate, unions are just another entity fighting for the status
quo and another hoop a company needs to jump through.

Good, the workers make literally all of the profit and without them the
company would cease to exist or make any money. It's a hoop they should have
to jump through. The system we have now is maintaining the status quo, so I
think you have that backwards.

~~~
econ4all
GOTO
[https://news.ycombinator.com/item?id=17766831](https://news.ycombinator.com/item?id=17766831)

------
habosa
This sounds like a great idea, let's take it a little further and spread some
equity around.

If you come in every single day and spend the best hours of your life working
towards a company's goals, why shouldn't you share at all in the success of
the company if it succeeds?

Some allotment of shares or options per hour worked would not only help share
financial gains but also align interests and spread voting power.

It sort of achieves Warren's idea without a new charter. If your employees are
the shareholders then you serve your employees.

------
onetimemanytime
_> >In the four decades after World War II, shareholders on net contributed
more than $250 billion to U.S. companies. But since 1985 they have extracted
almost $7 trillion. That’s trillions of dollars in profits that might
otherwise have been reinvested in the workers who helped produce them._

Nonsense. So tax them more on dividends, if that's needed. Why add more
lawsuits from anyone on why AT&T bought x company when "it's not good for the
common good"....whatever that is.

------
creaghpatr
No chance this will pass and the potential economic downstream effects could
be pretty extreme, but I think there are some interesting nuggets in there
that would make for good corporate stewardship ideas.

But the premise that companies are only accountable to shareholders is false
(or in this case, editorialized)- companies are accountable to the government,
and more recently you have companies like FB and SNAP that are only truly
accountable to voting shareholders and can choose to not maximize profit for
whatever reason.

Lastly, if employees are electing 40% of the directors, I would expect that to
politicize the hiring process unnecessarily, and likely lead to far more
unionization.

