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Controlling Our Corporations - Part 3

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Tom Cobb
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The prior essay in this series showed how small investors and workers actually have a common interest in wresting voting control of our corporations from the Agency Industry. To make this happen, workers would need a means of converting corporations to an ownership structure that gave them voting control. How could this result be brought about? Doing so would not be so difficult were it not for the resistance of the Agency Industry. With their perch atop our economy threatened, their resistance should be assumed. This resistance could, however, be overcome through tax incentives.

One approach would be to provide a tax break on capital gains to shareholders on the proviso that two requirements be met. The first would be that they exchange their corporate shares for shares in government-approved mutual funds chartered to invest in employee-owned corporations (hereafter, EOCs). The second requirement would be that only shares from corporations that are in compliance with certain rules would then be eligible for such exchanges. The focus of these rules would be to ensure that corporate boards are receptive to takeover offers from workers and the syndicate of funds backing their conversion efforts.

This would strictly be a first step, and the motivation would be more stick than carrot. Compliance wouldn't force a conversion by any stretch, but it could improve some shareholders' investment returns through the tax break. And since shareholders would only be eligible for the tax break if their corporation complied with the rules, it would be a gross dereliction of duty for corporate boards to fail to press for participation in the program. The centerpiece of the compliance requirements would be to initiate and fund the creation of an employee stock ownership trust (ESOT), and perhaps contribute a nominal number of shares to the trust. The ESOT would be responsible for educating workers on how the process of a conversion would work, and to gauge the general level of support for the idea amongst workers.

The funds that invested in EOCs would have their own compliance requirements. These funds would be referred to as conversion funds, and they would operate under a specific charter that required at least two things from them. First, conversion funds would hand over their voting rights to the ESOT. Second, they would commit their shares as equity available to back a conversion offer. As these funds gained in popularity, they would contribute towards the block of voting shares that an ESOT would need to control in order to mount a conversion effort. While this incentive alone wouldn't be sufficient, the ESOT's goal would be to accumulate enough voting shares to cross the tipping point, culminating in conversions.

This tipping point would be reached long before a majority of shareholders committed their shares to the group of approved funds. This is because the pressure to execute a conversion would mount well before majority voting control was achieved. The specter of a takeover would loom at a much earlier point than this, and uncommitted shareholders would properly sense that the earlier they negotiated a deal, the better the terms of a conversion would be. At some point, shareholders outside of the Conversion Fund syndicate would put tremendous pressure on their corporate boards to strike a deal.

The point of such takeovers wouldn't be to have workers borrow monies to buy out the corporations. Instead, it would be to revise the nature of the securities used to represent each stakeholder's interest in the company. Absentee shareholders would be reissued non-voting shares that would have a preferred status for dividend payouts. These shares would have lower returns, but they would ensure a more stable, less risky return on investment. Workers would be issued voting shares, but their equity value would only represent the last layer of ownership in the corporation. This would ensure workers controlled the selection of their leaders, and the strategic direction of the corporation, while not allowing them to raid the interests of absentee investors.

Who amongst our political leaders could step forward to push these reforms? Now that Democrats control Congress, a revitalization of the party could be achieved through the promotion of these reforms. In providing a reform plan that wasn't built upon entitlements and regulation, they could counter the commonly made criticism that the party is bereft of new ideas. The reforms would provide a path to social and economic justice without producing the moral hazards that arise out of the use of entitlements and regulation. From the seeds of such reform, we could reap a better world for all.

Best of all, these reforms would be exceedingly difficult for Republicans to argue against. With them fully on record advocating for a so-called "Ownership Society", how could they argue against the real thing?
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As the author of "A Real Ownership Society", I advocate for socializing the behavior of our corporations, and democratizing their benefits. By discarding the conventional model of corporate ownership that now relies upon absentee ownership, and (more...)
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