Are Shareholders Owners?

The concept of stakeholder interests in the corporation - interests that aren't directly involved in the ownership or business operations of the corporation - tends to turn me off. Usually that's because it's framed as a way to reform, rather than expose and understand, the motivations of the corporate form. Notions of corporate social and environmental responsibility strike me as ludicrous; they seem like so much handwaving and consumerist pandering rather than redefining how the corporation shall act (which is mandated by law to focus on profit maximization). However, I'm intrigued by the argument put forth by Dave Pollard in his recent post, Can the Corporation Be Saved?:

Corporations were originally invented to allow people to raise money for large ventures. Without the opportunity for substantial return, and limited liability, investors would not advance funds where there was considerable risk. But soon, ownership of 'shares' was confused with ownership of the business. Then, thanks to an incompetent legal error, corporations were granted the rights of 'persons' -- the right to sue, to lobby, and to otherwise use the collective wealth of the company to influence legal, political, economic and social affairs far beyond protecting the security of the original investment. At this point, the sole objective of the corporation became to satisfy the shareholders insatiable demand for higher returns and lower risk on their investment, at any cost to the real 'owners' of the enterprise -- the employees and the community who granted the corporation the privilege of existence.

I find this concept interesting not because I think the State's grant of privilege to the corporation's shareholders is legitimate. Rather, what intrigues me is this idea that shares may not actually represent "ownership", per se, in any moral sense. What if shares in a corporation represent something else - say, only a certain amount of the corporation's profits - and, therefore, the entire "stakeholder" population (i.e. the public) has rights in directing corporate activities?

Such an idea cuts to the heart of what the corporate entity actually is, and it forces people to look at it squarely. It is reminiscient of a debate in which I engaged on the LeftLibertarian2 list earlier this year in which we ventured close to this topic (it is a long thread, but here's a starting point). At issue was the moral nature of the corporation - can they exist at all without the State's backing? I argued that the only corporate form that would be "legitimate" would be one that third parties (read, the public) willingly agreed to recognize consistently; in other words, the corporation only exists and has permanence to the extent that people treat it as a coherent entity, and not because some authority declares it so. This makes the corporate form a market (and social) phenomenon rather than a fiat declaration of privilege. Indeed, what is a government charter if not a direct reflection of an interest group's inability to secure their fellow man's consent to do business in a particular form?

Pollard's argument raises an interesting angle in the fight against privilege: if corporations are founded based on privileges granted by the government on behalf of the people at large, then shouldn't the public have the ultimate say in the corporation? Let's assume for a moment that governments do represent the public interest. Of course, regulation and punitive dissolution are means by which the corporation may be governed according to the public interest, but why stop there? Why not allow the public to exercise the full scope of their grant of privilege and participate directly in corporate decision-making?

Now, obviously, this is not my preferred path - I'd prefer for privileges granted by artificial institutions to be regarded as what they really are: hot air. But this could be common ground upon which minarchists and political reformers might unite with left libertarians and anarchists to redefine the tone of the public conversation about corporations. For too long, the corporation's fundamental status has been a given, and it's time to challenge it.

There are other issues that still must be addressed, of course. For example, I think the inability of the totally free market to enable the aggregation of capital necessary for large scale enterprise is instructive. It implies that small scale organization is most amenable to individual responsibility and liberty, and that it is through large scale enterprise - either in the form of government or business - that the idea of a public interest morphs from a solid consensus of interacting neighbors to a vague, sprawling, amorphous abstraction that any interest group can usurp on their own behalf. The problem of limited liability and third parties is another example of a corporate issue yet to be adequately addressed. We would do well, in my opinion, to return to the notion that any socially useful endeavor springs for the consent of individuals, not the invocation of privilege and agency.

However, when we talk about challenging the meaning of holding shares in a corporation, we alight upon an unique and to-date underutilized path to achieving this kind of public conversation. After over a century of operation as a relatively unmolested quasi-state, it's time to take a second look at the corporation. Those who challenge the government's assertion of authority and privilege should extend their analysis to the political economy in general and the corporate form in particular. The questions about the legitimacy and mechanics of the corporation vis a vis the public interest have never really been answered and have languished in a vague, overlooked area of the "social contract" for far too long. The doctrine of stakeholder interests relies too heavily on another joint stock venture of the ruling class: the State. A movement that could reassert the public's primacy over corporations as individuals and as human beings could tap into the same dynamics as the movement against the State, which has always been the trustee of last resort for the oligopolies and their top-down, regimented economy. To bring these two themes together - anti-corporatism and anti-statism - would be the ultimate challenge to the growing fascism of American society.

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Written on Saturday, October 20, 2007