A Proposed Alternative to Corporate Governance and Theory of Shareholder Primacy
corpgov.law.harvard.edu
corpgov.law.harvard.edu
A modern B corp permits a board to balance this traditional fiduciary duty to act for the benefit of the shareholders with other specified goals defined in its charter and agreed to by those shareholders.
At no point in any of this does any type of governmental authority have any say whatever concerning how the company should be managed and for whose benefit (government has a role in a technical sense only in providing a state charter giving the corporation a legal existence and in non-management aspects such as having the power to tax the entity and to enforce broadly applicable criminal and regulatory laws against it, e.g., laws against securities fraud or illegal securities offerings).
In other words, the whole modern corporate structure assumes that private actors using a state-chartered mechanism (the corporate entity) can arrange their affairs freely to optimize the management of the entity to further the economic interests of the owners of that entity. As to that part, government has no say whatever.
The Warren proposal would substitute a range of public dictates for the private choice that characterizes the current system. It would initially apply to large cap companies but there is no limiting principle preventing the idea of such public dictates being applied to any manner of corporation or, for that matter, to any other limited liability entity, whether large or small. Taken to an extreme, this sort of regime could easily be implemented in a way that transforms most forms of private enterprise into entities restricted or burdened by whatever dictates the politically-organized forces who happen to hold sway at any moment might want to decree.
Of course, none of that might happen. It is certainly possible to adopt the Warren proposal and keep it limited to a narrow sphere of enterprise (large-cap companies) where its impact might be limited. But I wouldn't bet on it. With no restraining principle behind it, the proposal could easily be the foundation for completely transforming the notion of enterprise in the United States and I for one don't want to see a day where bureaucrats, lawyers, and second-guessing judges are gnawing termite-like at the foundations of what today are vibrant and healthy businesses in the name of other goals having nothing whatever to do with the economic interests of shareholders.
The proposal looks like an attempt to model interactions between corporations and people with more nuances.
Obviously corporations don't exist in vacuum. Government provides states charter not as a matter of tradition. The corporate registration has its uses. What this proposal does is more accurately reflects interactions between corporation, existing in an environment governed by the government (country), and that environment. Corporation interacts with the country when hiring employees, selling goods or going to courts. Since all of that affects the country in various ways, it seems natural for the country to look for ways to consider its interests.
No, under modern corporate law a corporation doesn't have owners as such; it is a creature of law in which shareholders have a claim on assets in the event of dissolution as well as rights to participate in government of the entity as specified in the governing law and chartering documents. They don't own the entity, and they absolutely don't own it's assets (the entity itself is a legal person which owns its assets.)
It's true that in recent years chartering governments in the US have been less active in ensuring that the public receives benefit (or at least, isn't actively and maliciously exploited) in exchange for the benefits granted by the public in the corporate form, and Warren's proposal—in addition to shifting chartering of certain corps to the feds—could be an inspiring example for a retreat from complacency by chartering governments more generally.
So why does my Apple stock have such a high value? Apple has a low probability of being dissolved, so chances are low I am getting their assets.
https://en.m.wikipedia.org/wiki/Dividend_discount_model
In reality...
> as well as rights to participate in government of the entity
It's easy to underestimate this -- the price of the stock represents a barrier to acquisition of the company. If the stock falls below a certain point, it would become profitable for an entity or group of entities to gain a controlling interest and reform the company in a way that suits their needs.
That is, not just the promise of future dividends paid to the shareholders, but a barrier against the profits being dispersed in a more aggressive fashion.
That earlier period, by the way, was not a living hell of industry killing regulation but in fact had less consolidation. It also had higher GPD growth, lower cost of living, and more economic stability, so apparently it won't kill the economy either.
The US system is massively debt based at the moment, private debt (note: private not public) went from 40% -> 80% GDP from 1970 to today. My naive perspective is that I would expect higher debt loads to cause:
* Lower GDP growth
* Higher costs of living
* Reduced economic stability
* Consolidation (because large players have more capital so can secure larger loans)
* Low real wage growth (because ability to earn by working is not as attractive because there is an option to 'earn' by borrowing)
The US ended the Brenton Woods system in the early 70s, and the consolidations really started in in around the early 80s [1]. So we know that there were some pretty major changes at the roots, of the financial system. It seems very plausible that some critical incentive changed in the late 70s (roughly lines up with Paul Volcker becoming Fed chair) and we have been seeing the ramifications ever since. That happens to coincide with the highest interest rates set under the current monetary system and the start of the current trend which is extending into the negatives [2].
[1] https://en.wikipedia.org/wiki/List_of_bank_mergers_in_the_Un...
[2] https://tradingeconomics.com/united-states/interest-rate
Additionally, I would intuit that it improves the employee's condition and because employees are strongly motivated to keep the company they depend on strong, their motivations align with investors to that degree while they may have additional insights. So I'm theorizing their presence will at worst do no harm.
As you imply, the American rapid rise to economic supremacy and current slow down is undoubtedly complex. I would add that initially part of it was the annihilation of productive capacity outside the US after WWII and part of it was the Keynesian stimulation that WWII forced the US to do during the war.
I just meant to say to the grandparent post that observationally Elizabeth Warren's proposal was not a threat national commerce.
The Warren proposal purports to give employees 40% of the shareholder’s votes, and then give management a duty to act for “the public.”
Neither was present in the ‘old’ system. I can’t see that either of these steps give management or employees better long term incentives.
A "modern B corp" doesn't permit anything. There is no legal concept of a "B-corp". It's a certification issued by a non-profit that a standard corporation is being run in a particular, socially-responsible manner. Any corporation can choose to do this, regardless of whether they want to pursue that certification or not.
Denmark has similar structures in place - for employee representation, anyway.
http://www.bechbruun.com/en/Services/Setting+Up+in+Denmark/C...
I've been reading up on Denmark, because they seem to have a very balanced system, where regulations make sense and corruption is low. The workers are paid well, and the social safety net is pretty robust. Still learning a lot, and I'd love to hear from people who know more.
>Denmark’s economy performs notably well in regulatory efficiency. Open-market policies sustain flexibility, competitiveness, and large trade and investment flows, and the transparent and efficient regulatory and legal environment encourages robust entrepreneurial activity. Banking regulations are sensible, and lending practices are prudent. Monetary stability is well maintained, and the judicial system provides strong protection for property rights. Political pressure for expanded government spending has been increasing, but such institutional assets as high degrees of business efficiency and regulatory flexibility have counterbalanced some of the shortcomings of heavy social spending.
I'm generally curious about the role of culture vs specific mechanisms (laws, regulations, etc.) and how they intermingle. I'm sure I'm forgetting a bunch, but these are the questions that immediately come to mind:
How is Denmark able to limit corruption (relative to most countries)?
How is Denmark able to pay its working class such a high wage (relative to countries like the US)?
How are you able to institute regulations that are both effective but not overly burdensome?
How is Denmark able to balance a strong social-safety while promoting a productive working class/discouraging freeloaders?
What areas would you most like to see Denmark improve?
Thank you again!
I really don't have a good answer to this one. I think it is a combination of relatively equal wages (so you would be limited in how much you can afford to pay in bribes and I don't have to take bribes to live) and very strong taboo.
I mean it isn't perfect, there was a case that started about a year ago with a computer supply company called Atea that had arranged for 10% of payments to be diverted to a special account that the employees in charge of purchasing could then use for expensive trips.
It also highlighted a lot of small favors that the company had done -- and it meant that people got (suspended) prison sentences and fines for such small things as getting an iPad on permanent "loan".
>How is Denmark able to pay its working class such a high wage (relative to countries like the US)?
That is mostly because they are in a position to demand it: we had relatively aggressive unions, but we also pay a very high "kontanthjælp" (directly translated: cash help) of about 1768 usd/month for a single person (on top of that comes rent assistance, though there is now a cap on the combined amount), much more if you a single parent (including completely paid for child care) -- that is less than it would be in the US, because we have a higher cost of living.
Cash assistance is literally the lowest amount you can get, so effectively unless you pay more you are not going to be able to hire anybody (technically cash assistance requires that you are trying to get a job, in practice, you can learn to cheat the system).
Note that this also means that many of the things that are done in the US are not done in Denmark: nobody packs bags for you at the supermarket, greeters are unheard of, substantially everybody does their own laundry, we mostly cook at home, etc.
We also have unemployment insurance, a quasi public private scheem, where you will recieve up to 80% of your previous salary for up to 2 years, though the actual cap on the salary payout is low enough that most wouldn't get that much out of it.
>How are you able to institute regulations that are both effective but not overly burdensome?
We aren't, though because we don't have nearly the freedom of speech protections the US have, it is easier to curtail lobbyism (there is also the factor of scale, and most really large international companies move their profits to Ireland so their interest in lobbying here is limited in the first place), which means we don't generally have regulations that benefit a single big company (we also only have a handful of really big companies, such as Maesk and Lego and basically no really heavy industry which would normally require more regulations)
We have lots of burdensome regulations: Uber is banned, the rules and regulations on unemployment and unemployment insurances are enormous, immigration law is constantly being changed to make it more difficult to get here (this is caused by political demand by one of the parties the government needs support from to stay in power).
In general though, Denmark is (or was) a very productive society, even more so that Norway and Sweden, and we had a very high amount of trust (aka social cohesion) - to some extend this is still true. That means that it is generally easier to create regulations that people think are fair, so they are less likely to be broken.
>How is Denmark able to balance a strong social-safety while promoting a productive working class/discouraging freeloaders?
We have a problem with freeloaders in the working (or not working) class (in many cases unemployment/cash assistance will get you close to what you can make on an entry level job, which typically isn't that fun, so you might feel going to work is a joke), but the systems still have a huge support in general among everybody, partly because most people do believe that they will be there for them, the day they might need them. This is especially the case with health services, although, like the UK, the waiting lists are long. I carry private insurance (relatively inexpensive, because the amount covered is not that high) should I need, e.g shoulder surgery and this is getting to be a common perk.
In general though I think people are more willing to tolerate some freeloading, so long as the system is kept, because the system is very popular. This is in direct contrast to the US, where people don't see the system as working for them, and so they are even less willing to accept freelancers.
>What areas would you most like to see Denmark improve?
I would love for us to focus on keeping an acceptable standard for the bottom and focus less on inequality, and I would for us to look more broadly about how to achieve it (e.g we have government health care, but that doesn't mean the government should necessarily run the hospitals, anymore than the government unemployment insurance should only be useable in government shops), with more trust/responsibility in individuals rather than regulations.
Any policy we attempted to implement would be resisted by the states. Held up in court, and ultimately made useless by special interest.
The prime minister of Lower Saxony is also part of the board. No share holder can vote more than 20% even if they own more. Only the prime minister can vote 20,2%
The entire system of corporate governance is designed to be honest in emissions tests? There are many goals in corporate governance, with integrity (if that's what the parent is referring to) being only one of them, and one failure at one company on one item (emissions testing) under one of the goals tells us nothing about the system's effectiveness.
The standard isn't perfection, of course, but performance relative to alternatives. Germany is known to be relatively corruption-free with excellent corporate governance. But are there better systems you can suggest? Ways to improve it?
Finally, if by productivity you mean income, I think it raises other issues: Productivity for who? It would be expected that governance models which favor shareholders generate more benefits for shareholders, and those which favor workers or other stakeholders would generate more benefits for them. It's circular to say: 1) the definition of productivity is shareholder income, 2) systems that favor shareholders are therefore more productive.
Japan is actually exceptionally not productive. The Japanese people have a reputation for industriousness, but their businesses are actually managed quite poorly. You can see this in their GDP (per capita) growth. Let's look at some plots:
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2017...
These are all the countries we're talking about. Japan's GDP has been flat for a couple of decades now. Since the mid-90s, when they misinterpreted their credit expansion as evidence of their success and over-leveraged themselves buying foreign assets they couldn't afford. Germany has been more responsible, but you can see quite clearly that their productivity growth has been spiky, unstable, and plateauing for the last few years. Yes, overall their GDP per capita is quite high, as is Japan's, but I would attribute that more to a cultural bent towards work ethic and education, to generate consistent growth takes innovation, and innovation requires more than an educated populace and work ethic. It requires a friendly regulatory environment and an incentive structure that rewards people for innovating.
On the other hand, look at the US and China. Those are almost impossibly smooth curves. Ya, China is still much lower in absolute terms, but their growth is steady and substantial (notably, since the introduction of capitalist reforms). China is still very much a mixed economy, but you have to look at what they regulate, and how. The Chinese government doesn't regulate their labor market very much, and they certainly don't attempt to impose any sort of co-determination with workers. They want Chinese companies to align themselves with the interest of China as a country (which generally means censorship, and sometimes arbitrarily telling them to stay out of or get into certain markets). But they don't try to tip the scales in favor of labor over capital, at least not in terms of decision making about the businesses themselves.
Now, this is all a fine narrative i've constructed, but it's really quite difficult to prove something like this. There's lots of confounding variables, and lots of stuff going on. China and the US both have much larger populations, for instance. China does have some labor regulations that I would consider draconian and a drag on productivity (you have to give 30 days of notice to fire someone, you can only fire people for certain legally specified reasons, and you have to pay severance). But in my view at least, that's a substantially smaller drag than something like work councils, but it's important to state that it is really hard to prove these things.
A possibly better measure of productivity is something called 'Total Factor Productivity'. Which sort of says: take the stuff your country produced, subtract the stuff it bought and the difference is your total factor productivity, i.e. how much value is your labor force adding to stuff. Here are the plots for the countries in question:
https://fred.stlouisfed.org/graph/?g=lbGq
In this chart, actually China isn't even growing. Only the US is. This might be due to weakness of their currency, but i'm not sure. It's complicated.
In summary, I think growth is super important, it really does lift people out of poverty, and I think these sorts of regulations will stifle it. When people look at say, Jeff Bezos being worth 160 billion, they think: How is that fair? We should take some of that money and give it to the poor and needy. But most of these attempts to do that aren't going to end up taking Bezos's money and giving it to anyone. They're just going to delete it from the world. The operation isn't a move, it's an erase.
Again, this statement assumes the conclusion of the debate. A drag on whom? You assume anything that costs shareholders is a drag, but the question we are discussing is just that: how important are the shareholders vis a vis workers and other stakeholders? (Also, shareholders don't live on an island - if society around them doesn't improve it will hurt their company too.)
In an economic sense, aggregate output is a poor measure of individual welfare. If you put Bezos and 9 people without homes in a room, the per capita income and wealth would be in the billions, but that does little good for the 9 people. The important economic numbers are individuals'; that's why inequality or distribution measures matter.
> When people look at say, Jeff Bezos being worth 160 billion, they think: How is that fair? We should take some of that money and give it to the poor and needy.
I don't hear anyone saying that. What they say is that conditions (laws, etc.) that result in massive benefits to only a tiny number of powerful people are bad conditions, and that we should change those laws, etc. so that more people benefit. They also say, we should invest more in the future and in the country as a whole, including in education and healthcare, and that will benefit everyone - rather than that tiny number of people putting more wealth (and power) in their pockets.
> Japan is actually exceptionally not productive
> [Japan's] GDP per capita is quite high
> I would attribute that more to a cultural bent ...
GDP per capita is usually the definition of productivity, output per input. Japan's productivity remains exceptional, even though it's growing slowly. We could discuss cultural bents, but we really don't know. We do know that they are exceptionally productive, at a rate over 400% of China's productivity, and Germany is even more productive, as are Northern European countries that, generally speaking, tilt even further from shareholder capitalism.
A drag on productivity. We're talking about productivity.
> In an economic sense, aggregate output is a poor measure of individual welfare. If you put Bezos and 9 people without homes in a room, the per capita income and wealth would be in the billions
Sure, but that's not the point of measuring productivity. The argument i'm making has two steps:
1. Productivity growth is reduced via these policies. I think the data i've provided offers at least some evidence for that.
2. When you reduce productivity growth, you harm everyone, in the medium to long term. Yes, if you take all the money and redistribute it equally today, more people will be better off than they were. You will increase the utility points of the universe. For today. But in 20 years? The society that didn't redistribute all the wealth will be better off.
> I don't hear anyone saying that. What they say is that conditions (laws, etc.) that result in massive benefits to only a tiny number of powerful people are bad conditions, and that we should change those laws, etc. so that more people benefit.
Those are equivalent statements, except that the version you're suggesting is just a bit worse for everyone than actually just taking his money and redistributing it. The policies you're proposing will actually stunt growth, long term. Stunting growth long term harms everyone, for the rest of time.
> GDP per capita is usually the definition of productivity, output per input. Japan's productivity remains exceptional, even though it's growing slowly
Ya, but it's growth that creates progress. Improving productivity is how we lifted billions of people out of poverty over the last century. We didn't do it by redistributing wealth. We didn't do it by slowing down growth. We did it by making a pie so big that even if you only have a tiny slice, you're still doing pretty well. And the bigger the pie gets, the smaller the slice you'll need to have a very comfortable life. This is the promise of capitalism.
Think about all the things that used to be the purview of the rich alone. Transportation, safety, healthcare, clean food, clean water, shelter, banking, access to information and education. All of that is the result of compound economic growth caused and created by capitalism.
> We do know that they are exceptionally productive, at a rate over 400% of China's productivity, and Germany is even more productive, as are Northern European countries that, generally speaking, tilt even further from shareholder capitalism.
Again, growth is the only thing that matters. If you want to predict civil unrest, social problems, revolutions and unhappiness generally, you look at the derivative of productivity, not productivity itself.
I think (and I may be wrong) you are assuming that "captialism" == the rules of the last 30ish years, that they are somehow optimal for productivity, and that therefore any change to them must yield something suboptimal. But they are just some options among very many (including the options before Reagan) and much of the U.S. economy isn't technically 'capitalism' anyway.
> We did it by making a pie so big that even if you only have a tiny slice
That's not especially accurate; income distribution inequality was much lower for most of U.S. history than it is today. Also, if you look at the actual history, the U.S. was much more highly regulated, had much higher tax rates, and provided more benefits to its citizens (such as better education) during the period of its highest growth, roughly the 50s and 60s. The U.S. constantly expanded services to its citizens throughout the 20th century.
I'm defining capitalism as essentially private property rights + contract enforcement. I'm not a libertarian absolutist, I think there's room for quite a few regulations. But i'm, in general, skeptical of them by default. I think that externality pricing (e.g. if you damage public property such as the environment, you ought to pay at least enough to fix it) is extremely important, and I think that the way 'natural property' (such as land) has been distributed is highly unequitable, and we'd be much better off with a [Land Value Tax](https://en.wikipedia.org/wiki/Land_value_tax) to replace most of the forms of taxation that we have now as a way of at least partially offsetting that inequitability, while maintaining ideal economic efficiency.
I'm also a believer in a strong social safety net, but one designed from an economic perspective, to minimize efficiency loss. I'm no expert, but I think it ought to have essentially two components: raise the minimum standard of living (via either a universal basic income, or a government jobs guarantee) and some form of "rare high cost variance smoothing insurance" (mostly thinking of health here, but other things too, potentially). That is, health insurance that pays only for extreme (cost-wise) events. Healthcare is a complicated issue though due to the fact that incentives get weird and misaligned with cost reduction in various places (it may be worthwhile to make checkups free, because it will reduce the probability of say, cancer progressing to a later stage where care will be more expensive, but if people pay for it themselves, they won't go as often, and it'll end up costing society more). So, I accept that there are quite good arguments for fully socialized healthcare, but I think there are also strong arguments on the other side, though they usually aren't very well articulated in the common media.
> That's not especially accurate; income distribution inequality was much lower for most of U.S. history than it is today. Also, if you look at the actual history, the U.S. was much more highly regulated, had much higher tax rates, and provided more benefits to its citizens (such as better education) during the period of its highest growth, roughly the 50s and 60s. The U.S. constantly expanded services to its citizens throughout the 20th century.
I'm not sure how that conflicts with the statement of mine that you quoted. We absolutely achieved what we have today by growing the economy. You are right that we also provided many social services. And i'm all for that. I'm not really sure why people focus so much on inequality. Inequality can increase simply because the top goes up. Does it make you worse off if someone else is richer? When Jeff Bezos' fortune increases by 10 billion, are you and I poorer? I suppose in some emotional sense, maybe, but that doesn't really seem relevant to policy. I see no problem with inequality, per se. It'd be easy to eliminate inequality: kill the rich and burn their money. But would anyone be better off for it?
> I think there are also strong arguments on the other side, though they usually aren't very well articulated in the common media.
I'm a little surprised to read that! The arguments for the other side are not only well articulated, they have won the day for generations.
> I'm not really sure why people focus so much on inequality. Inequality can increase simply because the top goes up. Does it make you worse off if someone else is richer?
It's not that someone else is richer (a common false stereotype spread by people on the right about people on the left, that they are crazy people who hate the rich and want to make everyone poor). The problem is that a great number of people are not benefiting, and if they aren't benefiting then what is the point? It also doesn't make them better off that Bezos is richer.
In the end, the goal is helping individuals, not aggregate money in the economy. The latter tends to help the former, but not without careful policy.
Ah, yes, you're right. This is the crux of our disagreement. So, I believe in the strong social safety net for two reasons:
1. It is fundamentally ethical to raise the minimum standard of living.
2. It also allows us to remove the pseudo-safety nets from corporate governance. I want to give people a UBI so that they don't have to work, and then eliminate the minimum wage. If Amazon wants to pay people $2/hour to stock shelves and not give them bathroom breaks, that's great. If those people have meaningful options, then they're free to make that choice for themselves, and either nobody will work for them, or if people do, they truly will be ok with that arrangement.
I want to empower workers by giving them options, rather than by refereeing companies. The sort of utopian vision that I have is one where everyone receives cash payments such that they can live decently without working, and has some form of variance smoothing for e.g. healthcare, so that they are not tethered to their jobs in any way. Then we'd have a truly competitive market in labor, where companies really compete to keep people, because people have meaningful options.
I think that kind of economy would be insanely productive. It'd be easy for someone to quit their job and start their own business, because there'd be very little risk to doing so. There'd be less friction in starting and operating a business, because it'd require less government oversight.
> It's not that someone else is richer (a common false stereotype spread by people on the right about people on the left, that they are crazy people who hate the rich and want to make everyone poor). The problem is that a great number of people are not benefiting, and if they aren't benefiting then what is the point? It also doesn't make them better off that Bezos is richer.
Ya, so I think that gets to it. It's not about inequality of state it's about inequality of growth. I would prefer to let Bezos get rich by whatever extreme form of capitalism he wants, and then tax him to pay for a safety net.
In other words: Bezos is really good at making money. So let's let him do it. Giving workers input into that process is just going to make him worse at it. He'll make less money. Let's let him make all the money, and then find a way to share in the profits ex-post.
That's very interesting. Denmark, IIRC, does or recently did have a similar political deal between employers and employees: Low restrictions on the labor market in return for high unemployment insurance. The effects were similar to what you describe: Employees with more freedom, not being tied to jobs, able to take risks, and a much more liquid labor market. (If you're interested, I think the article was in Foreign Affairs maybe five years ago, but no promises.)
I've always liked that concept but didn't think of taking it to the extent that you're suggesting. I'd still put some limits on it, but that's a very interesting idea. Thanks.
I'll add that I'd define the safety net as providing food, shelter, healthcare, and all the education they can make use of (with something like a GPA minimum to prevent waste of that resource). At this point in history, with the incredible wealth of advanced economies, nobody should face shortages of those things.
Good talking to you.
No, it would make the federal government the public chartering authority of large corps, which was a role states have had and used to take more seriously than they do now.
> It's too radical and won't go anywhere, even with Democrats
It's true that the neoliberal wing of the party that has been dominant since the early 1990s won't like to much, but the neoliberal wing recently has seen a number of incumbent office holders go down to primary challengers from the progressive wing. The neoliberal wing’s support in the Democratic electorate isn't nearly as strong as their current strength in office would suggest, and some of them are no doubt starting to realize that.
> It reads like establishing progressive bona fides.
Whatever else it is, it's definitely part of both setting g the ground for platform debates and establishing personal position leading in to 2020.
What would make that Constitutional? It's not an enumerated power.
How? There is nothing in the proposal that puts a government entity on the board. Corporations are already subject to the law and regulations, of course, so changing rules doesn't effectively change the role of government.
And, I guarantee, the Office of United States Corporations will be able to change the corporation's charter and direction via guidance, regulation, and oversight without the board's assent (or consent).
"Executive Chairman" is just the closest role I could come up with, but it's more like dictator or decider. Its "vote" is the only one that matters. (I'm sure there'll be some sort of administrative law court with the DoC that'll serve as appeal but it's got the same problems that all ALCs face.)
> I guarantee, the Office of United States Corporations will be able to change the corporation's charter and direction via guidance, regulation, and oversight without the board's assent (or consent).
Could you provide a substantial basis for this prediction?
If it already has that authority, then what is this law that Warren is proposing? My understanding is that it's a whole new sort of authority. Although there is a pending law in California that gives it the power to regulate board constitution, government is not currently able to do what the act allows.
Or are you saying that there are laws that govern corporations therefore the government can do anything arbitrarily? If so, that's not really how things work.
> Could you provide a substantial basis for this prediction?
I suspect that I couldn't offer anything that you would accept. "General public benefit" is the one that most obviously suggests future malleability à la the "general welfare" clause of the Constitution.
To be clear, absence of evidence isn't evidence of absence, but I'm just looking for what I can learn. If someone can't cite chapter and verse on HN, it doesn't make their point wrong, just temporarily inconclusive.
> If it already has that authority, then what is this law that Warren is proposing?
I'm not sure what you mean. Are you saying that government does not have authority to regulate corporate behavior? My point is that they obviously do, and that a change in the rules is not a change in the fundamental power.
Okay, I guess I've been burned in too many discussions by disingenuous people so I was reading in a motive that wasn't there.
For a great example, think of the broadcast licenses and the FCC. Initially, they were just registrations to allocate spectrum. Over time, policies were put in place like the Fairness Doctrine, which added actual content requirements; diversity ownership; or diffusion of ownership requirements. This was all done through the renewal process, which is probably the mechanism by which the rechartering would occur.
> I'm not sure what you mean. Are you saying that government does not have authority to regulate corporate behavior? My point is that they obviously do, and that a change in the rules is not a change in the fundamental power.
The American government does not have the authority to regulate corporate behavior in the manner that Warren is proposing. That is why she is proposing this law.
You're saying that government has this power, which is true because "government" can do anything to anyone anytime. The twentieth century has demonstrated the limitlessness of government power.
But that's an equivocation. We're discussing the American government, which cannot do anything to anyone anytime.
states are the canonical governmental unit in the US, so it makes sense that they manage corporate charters. the federal government should be primarily concerned with interstate and international affairs.
one could argue that corps are interstate and international organizations, but that’s only because we’ve allowed them to be. there are benefits to megacorps, like cheaper products, but there are also costs, like wage depression.
but i still think the primary problem is size, not corporate charters. solve the size problem and all the ills that warren addresses would go away along with it.
so, (1) get rid of corporate welfare (like debt tax shields), (2) cancel corporate personhood (remove corporate money from politics), and (3) instill a more progressive tax system (with more effort to account for externalities).
Do you have a source for this? The conventional wisdom is that larger firms are more productive, and tend to pay more as a result.
larger firms are more productive through a variety of mechanisms, not least of which is pricing power in the labor market. economies of scale and scope (like process standardization and automation) is a primary reason firms are more productive, and also has the added effect of putting downward pressure on labor costs.
That aside, I'm sorry but you're just wrong about this. The data is pretty unequivocal: larger firms have more scope for investments in process, technology, and tools that lets them operate more efficiently. In the example of Wal-Mart, they run an ultra-efficient supply chain that minimizes breakage, makes sure popular goods are available for purchase, etc.
Whereas half the time when I go into a non-chain grocery, they're out of, or otherwise not stocking the thing I want, they're closed, the item isn't in the right place on the shelf, it's hidden in the "back room", a supplier is late, or there's some other problem. Sure, some of this is due to bargaining power, but Wal-Mart also operates at a scale where they can afford to invest billions in sophisticated merchandising systems. As software people, we should understand what a difference this stuff makes to business.
Small firms pay worse because they simply don't make as much, given the same level of sales, as large firms do. The argument is a complete strawman. Lower, less-efficient firms don't have the gross profits (price - cost of goods sold) to be able to afford higher wages, even if they wanted to.
Because Wal-Mart has the profits to be able to afford to pay full time workers a living wage, but instead of paying a living wage to all full time employees they scoop the profits, and shift that gap to taxpayers.
I think most people agree, that if an employer has the profits to pay full time employees enough so they employees are not eligible for food stamps the employer has that obligation. Where the profits exist, businesses should be required to reimburse the government/tax payers for at least the cost of food stamps. Why should tax payers subsidize the food for employees, and their families, of public companies when the profits exist? The worst part is Wal-Mart publicly claims they can’t afford to pay their employees a living wage to the extent they won’t be eligible for food stamps...well it’s simple math walmart profits less the total amount of benefits the employees take...wow the money is there.
I'm not so sure that most people agree. (For example, I do not.) It seems that if most people agreed, we might be closer to a world where it was policy or law (another form of conditional minimum wage, perhaps).
I don't buy the concept of "living wage" but that's not even what's at issue. I just think it's folly to blame Wal-Mart employees for availing themselves of a legally available social benefit program.
I don't care where a person is politically. The private sector's job is profit maximization, not social welfare. There's this growing school of thought in the US that thinks it's the private sector's duty to "Take care of people". I'm not sure how we got it into our head that that should be the responsibility of private businesses. We have a government for that. It seems absolutely bonkers to start messing with the fundamental machinery of corporate law if the goal is social welfare. It's like seeing the thermostat is broken in the house, so we take a wrench to the engine of the car. It makes no sense to me whatsoever.
It would seem to me the growing school of thought is it’s the taxpayers duty to “take care of corporations”.
It’s not the taxpayers job to buy Wal-Mart employees and their families food.
How can you conclude that an employer paying its employees enough so the don’t qualify for food stamps is “social welfare”? Food stamps in and of themselves are social welfare, the fact the employees qualify become corporate welfare.
"I'm not sure how we got it into our head that that should be the responsibility of private businesses."
Well, why do you believe that it's our duty to subsidize labor costs for Wal-Mart?
"It's like seeing the thermostat is broken in the house, so we take a wrench to the engine of the car. It makes no sense to me whatsoever."
I'm sorry, but I absolutely cannot agree with any basis for that comparison. Why is it bonkers to tell a company, "Hey, make sure you're paying your full time employees enough so that the government does not have to pick up the slack." Especially one so big and profitable as Wal-Mart. Wal-Mart has exactly no excuse whatsoever to not pay their employees enough to not need food stamps.
I don't believe in singling out Amazon, Walmart, or <pick a company> as being "too profitable" and thus justifying that they, and not all companies, must pay a higher minimum wage.
It's a form of labor cost externalization that directly undermines a worker's purchasing power.
How can one not single out Walmart when more Walmart employees get food stamps than any other company, walmart directly receives $14B in revenue of this taxpayer money, and Walmart lobbies to keep these laws in place (and writes them).
The average joe minimum wage worker doesn’t have a level playing field and is less likely to successfully lobby the government to up minimum wage as Walmart is successful in lobbying to increase SNAP benefits in a given year.
It’s not a minimum wage issue it’s that Walmart is the beneficiary of taxpayer money ($14B/year) not to mention the indirect benefit of taxpayers having to subsidize the Walmart workforce (which other companies don’t necessarily receive period)
I don't think it's "counter intuitive" to single out a specific business for targeted policy; I rather more simply think that it's "wrong".
Individuals and businesses/groups ought not be targeted by governments for differential policy treatment, IMO. That's an improper use/abuse of power.
Would you like to run a business in an environment where the government is free to single you out for differentially hostile treatment?
No one talked about that but you. You know that is not what we're talking about; we're talking about the shitty wages WalMart pays, which requires you and I to subsidize their labor costs.
"Or employing them to make them less bored, more purposeful, and to have more money than if they were unemployed?"
This is a complete non-sequitor. They are subsidizing their labor costs by not paying enough, and requiring their employees to turn to public assistance. That is shitty, and pure evil, as is anyone apologizing for that practice.
"Would you like to run a business in an environment where the government is free to single you out for differentially hostile treatment?"
I wouldn't run a business in that manner, and so I honestly do not give a flying fuck about the feelings of any business owner that would be upset at that. As far as I'm concerned, those people deserve to have their business and money confiscated from them in order to repay society for what we've had to do for them.
Uh, this post (about 5 up-thread and not by me) talks about/seems to complain about the money Walmart receives for selling food to SNAP recipients:
If we lived in a democracy...we live in a Constitutional Republic, the will of the people is often ignored. Another example might be marijuana legalization, where polls clearly show a majority of people want the federal laws changed, yet here we are.
Curious how you arrive at the conclusion tax payers should have the obligation to subsidize food for the employees of publicly traded companies, where the companies have the profits to keep said employees off taxpayer funded welfare.
Sure if the profits aren’t there I understand, it’s probably better the employees eat, keep their jobs and the company stays in business...but when the profits are there?
If they pay too little, they don't get enough workers. If they pay enough, they do. Long-term profitability / cash flow / available capital/debt all affect the corporations ability to continue to pay wages, so in that sense they set a ceiling.
In terms of the government assistance, that is largely unrelated to the employer(s). There is a government program that determines person X is eligible for assistance and person X takes advantage of that program. It is not required that corporations pay an amount such that person X becomes ineligible for the program. For all I know, the eligibility rules take into account family size, student loans, health situation, alimony, or any number of other factors that are literally not the business nor concern of the employer.
An employer hires a worker to do a job. They pay that worker, after which point, the sides are square. The fact that a worker is or is not eligible for that program represents a subsidy to that citizen. If the company fired them or they quit, they'd still be eligible for that subsidy (in most cases). It's the decision of society to support its members, and I don't accept the translation to "it's a subsidy of the employer" as being a lossless one.
Enacting rules to ensure that companies need to pay more for employees who are on/near welfare or other government programs will likely have a negative effect on hiring those very workers, most of whom are presumably in a fairly precarious situation economically.
Do you want Walmart hiring Biff and Muffy, who are not on assistance because of their family situation, rather than hiring Joe and Mary, who are each single parents trying to earn money to lead their kids out of poverty?
Walmart bears direct responsibility for these laws, they lobby for and write them.
Food stamps, renamed SNAP, is a $70+B a year program and 20% is spent at Walmart.
Walmart public statement:
“Our business operations are subject to numerous risks, factors, and uncertainties, domestically and internationally, which are outside our control. These factors include... changes in the amount of payments made under the Supplemental Nutrition Assistance Plan and other public assistance plans, [and] changes in the eligibility requirements of public assistance plans.”
If the concern of a sub-thread is Walmart lobbying for self-serving programs for general consumers, I agree with that as a concern, but it's no damn different than the epi-pen people arguing to stock epi-pens in schools by policy, the AED manufacturers campaigning to have AEDs installed all around, etc. I thought this sub-thread was concerned with Walmart employees being on government support programs and that being Walmart's problem to alleviate.
Kroger's ability to achieve sales, earnings and cash flow goals may be affected by: labor negotiations or disputes; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, including non-traditional competitors, and the aggressiveness of that competition; Kroger's response to these actions; the state of the economy, including interest rates, the inflationary and deflationary trends in certain commodities, and the unemployment rate; the effect that fuel costs have on consumer spending; volatility of fuel margins; changes in government-funded benefit programs; manufacturing commodity costs; diesel fuel costs related to Kroger's logistics operations; trends in consumer spending; the extent to which Kroger's customers exercise caution in their purchasing in response to economic conditions; the uncertain pace of economic growth; changes in inflation or deflation in product and operating costs; stock repurchases; Kroger's ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; Kroger's ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans; the ability to execute on Restock Kroger; and the successful integration of merged companies and new partnerships. Kroger's ability to achieve sales and earnings goals may also be affected by Kroger's ability to manage the factors identified above. Kroger's ability to execute its financial strategy may be affected by its ability to generate cash flow.
Because that means that Wal-Mart is not paying their employees enough, which means that you and I have to subsidize them. I don't know about you, but it angers me quite a bit that one of the largest and most profitable companies in the country cannot pay its employees enough to be able to eat.
"This is really the fault of poorly-written policy."
How? How is not entirely the fault of the company that has complete control over how much they pay their employees?
"It blows my mind why people blame Wal-Mart and not the folks who developed the legislation of those policies."
Because Wal-Mart is entirely responsible for how much they pay their employees.
states that fall for short-term thinking (like giving factories tax-free deals) will continue to fall behind, but with reforms like these, the people can start holding their politicians accountable for crappy deals that don't really benefit the citizenry.
I don't think this solves the problem at all.
You don't need to be in the pocket of big corporations to want to have their high-paying jobs in your state.
Most of the cities and counties that give TIFs to walmart et al. are not in the pocket. They're just behaving rationally given the structural incentives they're being dealt.
The Warren proposal addresses corporate money in politics. It's not a total solution, perhaps, but it's also more concrete than most alternatives, and doesn't rely on either abolishing the defining feature of the corporate form or tossing out core political speech protections of the First Amendment, which are problems of the alternatives that aren't so vague as to be meaningless.
the framers of the constitution very well understood that smaller governmental units are more responsive to, and less detached from, their citizens than larger ones, and as such, they created a carefully balanced distribution of power. the federal government was not meant to be 50 times larger than a state government, but rather, roughly equivalent in size and power, but with different responsibilities.
why give that up and let power concentrate in the hands of a few washington politicians? what do you gain as a citizen?
As for what I stand to gain, I'd say it's an end to the race to the bottom that I pointed out in my initial comment. No more would there be banks running to whichever state is willing to gut it's consumer protection laws. What good is it being in a state that respects consumers if the credit card companies are going to set up in South Dakota or Delaware and impose those rules on me?
The framers never imagined that kind of commercial reach.
The federal gov't was designed to address such issues when they were proven to be significant, by those very framers, even if the framers themselves did not anticipate the specifics. That is what the commerce clause is about, among other things.
No, they aren't.
They are no more canonical than the federal government.
> the federal government should be primarily concerned with interstate and international affairs.
While it may not be a perfect test, the applicability standard in Warren's proposal does a good job, IMO, of limiting applicability to corporations that are significant players in interstate and international commerce, not businesses that are primarily of concern for their state of origin.
> cancel corporate personhood
Juridical personhood is the central defining feature of the corporate form; “cancel corporate personhood” means “abolish corporations”.
if we remove corporate personhood, will businesspeople then all of the sudden become less motivated to create companies and incorporate them so they have the opportunity to make money? i'm quite skeptical of such a claim.
the corporate veil is unnecessary, just like the capital gains tax advantage, for promoting business. it's only encouraged bad behavior and protected incumbents, rather than supporting new innovation.
Incorporation doesn't create the opportunity to make money—or even the opportunity to combine with others to do that—partnerships can do both.
Incorporation is special because it creates a separate legal person—corporate personhood—who is the target of legal action against the business enterprise, and for whose liabilities the investors have limited legal accountability.
Part of the issue is that these separate "persons" aren't actually able to be held accountable. When corporations do something illegal by, say, killing people out of neglect, they aren't imprisoned (shut down temporarily) or executed (dissolved).
They are held accountable through lawsuits. Do you seriously contend that when a company kills someone out of neglect, they face no accountability? They are sued individually and through classes to the tune of millions (and billions in some cases).
They are able to be. Government just chooses not to do so.
> When corporations do something illegal by, say, killing people out of neglect, they aren't imprisoned (shut down temporarily) or executed (dissolved).
They can be, and have been (the latter more often than the former.)
It's not about opportunity for profit, but protection from loss. When Elon Musk rolled some of his money from the Paypal exit into Spacex he did it knowing that if it fails, he would only lose what he put in. You are talking about a situation where the only two options are take no risk, or risk everything. Do you really think that this wouldn't discourage people from starting a low probability of success business?
However much I might wish otherwise (because federalism is bad and anti-small-d-democratic), the 10th amendment explicitly gives all remaining/non-prohibited powers to States and not to the US. I kind of feel that makes them more canonical as a matter of law, even if that's not how we typically experience policy.
I can see no reasonable definition of “canonical” for which that is relevant to the claim that the states are “the canonical governmental unit” in the U.S.
If you mean “responsible for functions not specifically assigned by the Constitution”, sure, but that's not what “canonical” means, and in any case the regulation at issue is arguably squarely within the scope of the Commerce Clause authority, so it would be a dubiously relevant claim even if canonical meant that.
I wasn't arguing anything about whether this regulation at issue is within the scope of the Commerce Clause, if you read my prior comment carefully.
That's actually exactly a point it's proposal is intended to highlight.
1) Corporate charter at the Federal level. General incorporation laws gave rise the incredible growth that powered the economy since their inception specifically because the isolated the ability of politicians to have undue influence over them.
Do you want to see companies have to react to every whim powerful senate and house members have? perhaps appointees in the commerce department decide that something isn't up to snuff one year? the political influence will be so great that corporations will be hiring new and more politically connected players which will include those who are directly tied to individual politicians just to curry favor.
2) giving 40% of the board to the employees? which employees? does that mean contracted and out sourced as well? do you really want to experience the impact this will have on the market when stock holders find their loss of influence leads to less overall wealth for all? watch the 401k investments take that hit.
3) these limits while sounding nice would not favor start ups that hit it big and may result in further restructuring of benefits and increase executive pay to compensate. there are already many rules afoot that limit the exercise of options.
4) the political contribution rule simply means that politicians will simply have a greater lock on their office and power than they currently do now. combined with the idea that employees at many larger companies would sit on the board would allow union dominated employers to keep money limited to the politicians who have the most influence. effectively cementing the two party system even further.
5) welcome to the whim and politically driven decision factory. that nonsense rule basically opens up every decision to legal challenge.
these rules are designed to give politicians in Washington power they don't have over corporations. you think cronyism is bad now, just watch what happens when politicians in powerful committees get this level of influence. it won't be to protect the little guy, it will be to protect the wealth of politicians and those connected to them both politically and by blood.
tl;dr this all about empowering politicians even further and locking down the two party system into place. where corporations become even more in bed with the very politicians supposedly there to regulate them. you think its bad that many in politics go on K-street, well they will have guaranteed spots on Wall Street too and your investments will pay for it
The American public is angry. They feel, and justifiably so, that someone has been screwing them for decades - that the lot of ordinary working people has gotten worse, while economists and the media rave about the booming economy and the rich are clearly getting richer. This anger expressed on both sides of the political aisle in the form of quasi-third party insurgency candidates - Donald Trump and Bernie Sanders. They might have radically different solutions, but they touched the same nerve. "Make America Great Again" is exactly how they feel - that something terribly wrong has happened to America, and radical steps are needed to fix it.
The "neoliberals" of the center-left Democrats are discredited and in eclipse. The way candidates get ahead right now is through loud denounciations of corporate greed. And while Trump's xenophobic demogogue act works for the moment at distracting the anger away from Wall Street (for his supporters anyway), it wouldn't be that hard for the next demogogue to target that anger at Wall Street instead.
And if that happens, Senator Warren's bill might be cold toast compared to the revolution that comes.