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    • In August, 2018, Elizabeth Warren introduced the Accountable Capitalism Act into Congress, a proposal that would significantly change corporate governance in the US. It would require large companies (>$1B revenue) to give employees 40% representation on the board of directors. Additionally, it would replace the current fiduciary responsibility to shareholders with a duty to create a general public benefit for all stakeholders including shareholders, employees, the community, the long term interest of the corporation itself and the environment. It is based on the idea that if corporations are to be treated as persons, they must be required to act as ethical members of society. It would also require that any political contributions by corporations be approved by 75% of shareholders and directors.

      It will never work, right? Well, it has worked in Germany since the mid 20th century, where it is known as Rhineland capitalism. Most other European countries require labor representation on the board at a minimum. Naturally, it is opposed by the very rich, as it will inevitably make them somewhat less rich. I'm not an economist, so I am not sure what the overall impact would be. But I would be fine with reducing corporate profits if it meant reducing economic inequality and promoting social responsibility.

      What do you think? Good idea? Bad idea? Good idea but politically impossible? I suspect the latter, but I do wonder why sensible measures that work in other successful countries never seem possible in the US.

    • Fascinating topic. It is emerging on the radar of more people in the U.S. because of the perception that Google has slowly come to place profits above values and one of the remedies may be to have employee representation on the board. 20,000 Google employees marching in the streets has given the story some oomph.

      There is an interesting article in the Harvard Business Review about employee participation on boards:

      In the U.S., a lot of status accrues to the rich and I wonder if an unspoken concern among execs is they think employees will make an issue of their compensation when they join boards.

    • I wonder if an unspoken concern among execs is they think employees will make an issue of their compensation when they join boards.

      They are almost certainly right to be concerned. It is not only the pay disparity itself, but the way that the gap is increasing over time that workers resent.

    • My understanding is congress has tried to limit CEO pay excesses by requiring that public companies report compensation of their to execs, and then limiting certain deductions companies can take.

      I asked Google for a refresh on what happened, couldn't find it, but my memory tells me that CEO compensation went up after the law that required it to be public because other CEOs saw it and could negotiate for what the others got.

      There is a form of the golden rule for tax law and compensation: those with the gold make the rules.

    • Really interesting topic, and more critical than many realise. Now I am an economist, and in this sense "a little knowledge is a dangerous thing" insofar as I can see where these sorts of pay inequalities are likely to go.

      First, let's set the scene.

      "Market forces" or "free markets" are held by many to be an intrinsically good and efficient system of allocating resources towards competing ends and distributing rewards to those resources. The devil is in the detail.

      To be specific, market forces tend to return the optimal rewards to whatever is the dominant input into the productive activity. In the 20th and early 21st century the biggest input was labour, and market forces allocated and rewarded labour; efficiency gains were passed to labour by way of pay increases and (to some extent) bonuses.

      This is increasingly not the case. Now the dominant factor is capital (i.e. machinery or automated systems) and this is the most important input. So, it is no surprise that market forces direct increasingly disproportionate rewards to the owners of capital, e.g. automated technology. For example, the owners of a factory save labour costs by sacking the workforce in favour of machines. The savings flow to the owners of the technology is retained as increasing remuneration and bonuses. These relative few live well at the expense of a rising proportion of disenfranchised people, previously used to stable employment, but now living in the "gig economy" or lesser paid work.

      I have grown to refer to the pressure point that is approaching as the Star Trek or Bladerunner Choice. In the former we engage with technology to become more enlightened, and free to follow our interests without fiscal concerns. Here the sun is always shining and your hair looks good. In the latter, large corporations progressively enslave the majority and trap them in a low-income subservience from which they will never escape. In this world it always rains and your hair has long since fallen out.

      I think the existence of disproportionate executive remuneration at the same time as widescale adoption of technology over labour means we are heading towards The Choice, but quickly.

      Other things being equal, and leaving people to make there own choices, we can look forward to rain and bad hair. To beat this, and turn down the road to Utopia, we need concerted action on a society-wide level. Governments acting in unison.

      As a capitalist, it is painful to say this, but if we are to continue to operate a society for all people, we are going to have to use direct taxation to redistribute the rewards of automation away from owners of capital, and towards otherwise disenfranchised individuals. This is the only way to make the Star Trek choice possible. Is this anti-capitalist? I don't think so. It may just be that we are creating a world that, because of its technological sophistication, has passed beyond such antiquated concepts as "capitalist", "socialist" (to name only two).

      But how do we calibrate this? How do we deal with the secondary problems that emerge from people having no purpose? Although these are issues, it is better to have these and seek to solve them than to continue down the path we are going.

    • Fascinating, Cygnus. I am not an economist but I get the impression that the pendulum has swung back and forth many times in history where we had child labor and unsafe working conditions that enriched the elite, but there came a point where workers organized and forced governments to intervene. Then sometimes the unions overreached and the pendulum went the other way. And so on it swings.

    • Thanks for a thoughtful reply. You raise several important questions about our future that go well beyond anything that tweaking corporate governance can address. I agree with you that the only reasonable hope of avoiding a dystopian future will require redistribution of wealth financed by increased taxes on capital, but I'm afraid I'm not very confident that's going to happen. I'd love to be proven wrong.

      Changing the subject slightly, I'd be really interested in hearing if you have an opinion of Shoshana Zuboff's The Age of Surveillance Capitalism. I'm in the middle of it now and can't decide how worried to be yet.

    • I'll try to get hold of a copy; I have not read it yet. Thoughts to follow. But even before doing so, I can guess the answer to your question; be very worried.

    • That's an interesting historical perspective. I guess the difference in the child-labour years was that Labour was a valuable resource and, when Labour spoke, governments and companies listened. Hence laws to mitigate bad working conditions, etc.

      The difference today is that the relative value of Labour is declining all the time, so governments and companies are listening less. As I posit, the only way to take the correct fork in the road is for collective (and that means government) action. Unfortunately, the people needing this have a smaller and smaller voice.

      Every now and then I consider the benefits of selling up and buying a small island and stocking the cupboard with tinned goods! The trouble with tipping points is that if you only react once you reach them, you are already too late.

      I read George Orwell's "1984" at school and often wondered how any society could ever let itself get that way. Now, as an older man, I can see small incremental things going on that could easily lead to that direction of travel. We don't see where the path is leading because we are too busy in our daily lives looking at our feet, so we don't where the path is taking us. This is how it happens. Not by revolution. Not by coup. By a thousand tiny increments.

    • The Business Roundtable is a group of CEOs of America's top corporations. 181 of 192 members have just signed a statement on the purpose of corporations which endorses the idea of serving all stakeholders, not just trying to maximize profits. Now this does not have the force of law, so it's not likely to make much of a short-term difference. But it is an indication that attitudes are changing even at the corporate elite level. Nobody ever accused Jaime Dimon of being a wild-eyed radical.

    • I saw this too, and didn't know quite what to make of it. The cynic in me says that when 181 corporations act in unison (and in an unprecedented manner), they are in fact trying to pre-empt some form of anticipated regulation being forced on them by a third party (i.e. "you don't need to regulate us, because we can regulate ourselves").

      The fact is, Dimon's JP Morgan Chase will continue to engage in the banking sector's typical behaviour, that being to sack swathes of employees whilst at the same time reporting healthy profits. Perhaps the statement of the 181 corporations should have referred to serving "remaining stakeholders".

      I do hate to give sway to my cynical side as I am more often than not an optimistic fellow. However, I think my take on this is as probable as the corporations suddenly de-prioritising profits (at any cost).

      If the banks stop their annual staff culls during profitable periods, I may be prepared to be persuaded of their altruistic motives, though.

    • You might well be right that this is little more than a PR move designed to preempt government action (like the Warren proposal). Sort of like Mark Zuckerberg claiming privacy is Facebook's new priority. But no change is possible without changes to the legal framework of corporate governance--under the existing rules, a well-meaning board could be sued by stockholders for neglecting its fiduciary duty if it fails to put profits first. While some clear-thinking CEOs might believe that some reform now beats torches and pitchforks later, I don't have a lot of confidence that they're really serious. We'll see what they have to say when and if a new administration tries to act on these ideas.