Massachusetts Sen. Elizabeth Warren has a new scheme to impose employee co-determination and an assortment of other forcible corporate governance alterations on American business. My new Cato post argues that it would expropriate huge sums in shareholder value while undercutting incentives for economic dynamism. Alternatives to the U.S. corporate governance system, “European or otherwise, simply do not have as good a track record of supporting a dynamic economy that generates world-beating enterprises across a wide range of business sectors.” Other views: Donald Boudreaux (“deeply truly scary”), Matt Yglesias/Vox (taking favorable view of scheme, including its destruction of perhaps 25 percent of current shareholder value). More on the “stakeholder” and co-determination angles: Samuel Hammond, and Megan McArdle on the latter.
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What she is ultimately proposing (absent the government involvement) is an employee-owned company. There are hundreds of such companies. Does she not know this?
As to the gov involvement, the gov is already too involved in companies, with the SEC, the NLRB, the EEOC, OSHA and others promulgating hundreds of rules they must follow, many of which are nonsensical. To make companies agents of government policy is to send them into bankruptcy.
This idea of nebulous “stakeholders” is why the Forest Service can never get a management plan approved–every plan bothers someone, many of whom want it to just be shut down. The are required to submit all plans to outside review by “stakeholders”.
“What she is ultimately proposing (absent the government involvement) is an employee-owned company.”
No, it’s worse than that. Customers and activist NGOs would all count as “stakeholder” that have to be included in corporate decision making under Warren’s plan.
Warren would rather we hadn’t revolted against King George III.
More fundamental to the discussion is the plain fact that such legislation would be unconstitutional. Congress has the power to “regulate” commerce, not control it to the exclusion of the owners of businesses. And that is what Senator Warren’s proposal would do: de facto nationalization of businesses with revenues of $1 billion or more per year. Don’t kid yourselves: after a time, the legislation would be amended to include every business in America. Then we can say hello to communism.
In the 1970s, the management theorist Peter Drucker wrote a book called How Pension Fund Socialism Came to America in which he pointed out that a large share of public traded companies were owned by pension funds, and by public sector ones in particular. As it turned out, even progressive governors and other state officials who controlled those pension funds have chosen to only get involved in politically showy moves and have not tried to undermine the underlying business. If those on the left chose to move in the direction that Sen. Warren suggests, they could do so without any changes in federal law as they already have effective control over most large companies.
Given the catastrophic situation of state and local pension funds, I very much doubt that serious efforts to undermine the value of their stock market investments will occur.
“Warren’s plan starts from the premise that corporations that claim the legal rights of personhood should be legally required to accept the moral obligations of personhood,” writes Yglesias.
Is this a valid premise? If not, the discussion ends.
If so, what is the best way to make this happen?
The purpose of a corporation is whatever the charter says it is. The charter has to say what the incorporating oversight entity says it is. So, there is nothing inherently wrong with requiring this.
I am more concerned from a federalism perspective. What right does the federal government have to regulate corporations in this manner? Perhaps this would be ok under the commerce clause, but IDK.
Warren’s comments about “personhood” concern Citizens United, that corporations can contribute to political campaigns and make campaign statements. Given how the Left has now got many companies overtly acting as agents of the Democrats (Twitter, Facebook etc), i am surprised she is making that claim.
Her hatred of “shareholders” is so strange when a huge chunk of the stock market is owned by pension funds and 401k accounts.
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