Corporations

There, I said it, the 'c' word.

It has become one of the dirtiest words in the English language.  We all love to hate them and I am certainly in agreement that most of them are amongst the most evil things humanity has ever created.

Thing is though, I've recently had an epiphany and realized that everything that humanity has achieved over the last century or so would have been impossible without corporations as a method of social organisation.

Things like Jumbo Jets and silicon chips are just beyond the capabilities of individuals or small communities, they require some sort of over-arching social structure to organize and finance them.

I don't think this necessarily needs to be in the form of a traditional company.  The Linux kernel team are a good example of a non-traditional corporate structure, its management is arguably Linus' true genius.

The real problem is corporate governance, the dominant form of which is clearly broken and toxic and in need of killing with fire.

The gradual accumulation of voting rights by institutional investors over several generations has resulted in a small clique of professional Directors gaining control over the vast majority of publicly listed corporations.  Membership in the club is earned through patronage and nepotism.

This group exercises control over vast amounts of Capital whilst not actually owning any significant proportion of it.  It is the individual investors in the institutions in question that technically own everything but this group stands as their proxy in the governance of the corporations they have invested in.  They stock the boards of these companies with their own members who in turn do the same thing to the boards of any other corporations under their control.

It is hard to determine just how monolithic this clique is or how much of humanity's Capital has fallen under its control but it is impossible to deny its existence.

So how do we go about combating this trend?

We need to formulate a new paradigm of corporate governance that excludes this group and that is 'fitter' than the existing arrangements.

My proposals are thus:

Shares should be divided equally between capital investors, employees and society as a whole.  This later group is envisioned as some sort of charitable trust that is tasked with pumping one third of the company's profits back into the community that it exists within and which it cannot exist without.

I would also propose that 1% should be set aside as a founders share, leaving a nice round 33% for each of the other three groups, ensuring that those that are crucial to the birth of all companies always have a stake in what they have created without having a disproportionate percentage of the stock.  The founders share would have a permanent board seat and a veto power attached to it.  Depending on the type of company it might also be appropriate to attach preferential dividend rates to the founders share.

The investor class of shares would be designed as something that is not transferable but that can be redeemed at will for a fixed percentage of the total value of the company according to its most current accounts.  Investors are therefore rewarded appropriately for their investment whilst circumventing the speculative stock markets.

Under this scheme it is not possible to buy more than 33% of the company, it is not possible to oust the original promoters and by placing these restrictions in the Memorandum as unalterable articles they cannot be subverted at any point.  The employees and society at large have as strong a voice on the board as the investors.

Of course none of this is of any value unless a code of conduct is enshrined in the Memorandum of Incorporation.  Legally, in the UK, the board can be compelled to undertake any behaviour that is in the best interest of the shareholders by only 15% of them.  It is therefore imperative to ensure that the moral principles that are to be deemed 'best' for the shareholders are clearly stated at the outset.  This prevents profiteers from dictating policy to the board and similarly permits the shareholders to bring the board back to heel should they stray from the path.

What precisely those moral principles should be is a matter for another post I think.