Guest post from Kent Greenfield. Author, ‘The Myth of Choice’; law professor at Boston College. This article is adapted from a more substantial essay in the Fall 2012 issue of Democracy: A Journal of Ideas and appeared previously on Huffington Post, 9/15/2012.
We progressives have been in quite a tizzy about Citizens United, especially since the 2012 election cycle was swamped with Super PAC money. Citizens United, you’ll remember, is the 2010 Supreme Court case saying that corporations have the same rights to engage in political speech as you and I do. In response, a number of progressives have proposed constitutional amendments to do away with corporate “personhood.”
Let me offer a different way to attack the case.
The reason why corporate political speech is so corrosive to democracy is that the benefits and prerogatives of the corporate form are marshaled to bolster the speech of a tiny sliver of the financial and managerial elite. The fact that corporations speak is not itself a problem; whom they speak for is.
Instead of amending the constitution to weaken corporate “personhood,” we should focus on changing corporations themselves so that overturning Citizens United would be unnecessary. We should use this historical moment to nudge corporations closer to what the Supreme Court assumed they are in its Citizens United decision — “associations of citizens.” While the constitutional effort is defensive and palliative, a campaign to redesign the corporation itself would be affirmative and transformative. To cure Citizens United, we don’t have to amend the Constitution — we need to rethink corporations.
Here in the United States, the law of corporate governance is among the most conservative and least democratic in the developed world. For example, U.S. employees have no role in corporate decision-making, and U.S. managers are not required even to gather information on the potential impact of their strategic decisions on communities, employees, the environment, or the public interest, except to the extent those impacts might affect shareholder value.
Compare this to the European model of corporate governance, which requires much more robust social obligation on the part of corporations, embodied not only in cultural norms but also in law. The duty to disclose information and consult with employees is much more robust, and many large European companies include labor representatives on their boards. Germany, for instance, requires that half the senior board of large companies be elected by employees rather than shareholders. And at least another 15 European countries have some kind of provision requiring “co-determination,” worker representation on boards of companies headquartered in their national territory.
These efforts have positive effects in terms of economic fairness – German CEOs, for example, make less than their American counterparts – but they are also seen as an important component of economic success. Germany is now the economic powerhouse of Europe. The CEO of the German company Siemens argues that co-determination is a “comparative advantage” for Germany; the senior managing director of the U.S. investment firm Blackstone Group has said he believed board-level employee representation was one of the factors that allowed Germany to avoid the worst of the financial crisis. (References can be found here.)
My argument is simply that progressives should consider a new kind of regulatory effort — building a public-interest element into corporate governance itself, creating the possibility that businesses become a more positive social force on their own.
What specific reforms are needed? First, the law of corporate governance should expand the fiduciary duties of management to include an obligation to consider the interests of all stakeholders in the firm, not just shareholders.
Second, company boards should be expanded to allow for the election of board members who embody or can credibly speak for the interests of stakeholders. Employee representatives would be fairly straightforward to elect — we could simply issue each employee one share of a special class of stock and have a number of board seats elected by that class. Community leaders in the localities where the company has a major presence could nominate a director; long-term business partners and creditors could be represented as well. We could even require companies to include a “public interest director,” whose special obligation would be to vet company decisions from the standpoint of the public.
Concern for stakeholders is becoming a mainstream idea. A recent article in the Harvard Business Review argued,
There’s a growing body of evidence…that the companies that are most successful at maximizing shareholder value over time are those that aim toward goals other than maximizing shareholder value. Employees and customers often know more about and have more of a long-term commitment to a company than shareholders do.
Requiring corporations to take into account the interests of a broader range of stakeholders in corporate decision-making will improve the quality of the decisions themselves. Group decision-makers that are homogeneous in perspective, experience, and values fall easily into groupthink — and there are few group decision-makers more homogeneous and whose mistakes are more costly than corporate boards.
More diverse boards will also have a longer time horizon, which will improve the substance of their decisions. That “short-termism” is a problem is one of the few notes of agreement among business commentators and academics. The problem is caused by the increasingly short time horizon of shareholders, who now hold their stocks, on average, for only about six months; as much as 70 percent of the daily volume is high-frequency trading where investors hold stocks for seconds. Management adhering to the interests of those shareholders thus ends up prioritizing short-term gains even if the result is long-term difficulties.
But the most important reason to make companies more pluralistic is to make corporations more reflective of democratic norms and principles.
As the governance of corporations begins to take account of the interests of their stakeholders, the public voice of corporations would reflect the voices of those myriad stakeholders. Corporate involvement in the political process would be less of a concern, because it would be more reflective of the range of stakeholders contributing to company success. It would be less “them” and more “us.” There is nothing inherently undemocratic in corporate speech, unless corporations themselves are undemocratic.
See also A Brief Comment on Greenfield’s Stakeholder Strategy by Stefan Padfield: ”…granting stakeholders a right of action to enforce the obligation helps negate a typical criticism of more traditional stakeholder statutes, which is that they primarily serve as a further defense for directors against shareholder suit but impose no offsetting accountability… requiring boards to disclose the substance of their deliberations as to each covered stakeholder could produce an independent benefit…”
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