Most people would cringe at the thought of a government controlled by a handful of individuals who base their decisions on what serves their own interests and only share as much of the nation’s resources with the citizenship to facilitate that end. Why then, are we so accepting of this structure as the status quo for businesses?
In this series of articles, we will review the current mechanisms by which corporations are run, look at an alternative to that model, discuss its advantages/disadvantages and examine some real examples of companies that have embraced this new method of Worker Coops.
Fiduciary Duty
In a conventional for-profit company, ownership lies in the hands of the shareholders, which usually does not consist of the employees, though some have implemented token stock ownership programs as an employee benefit. A corporation’s primary goal is to maximize profits for the ownership and increase the value of its shares. This is, in fact, a requirement under the fiduciary duty assigned to a corporation’s board of directors. In other words, the board is legally required to conduct itself for the best interest of the shareholders.
To put it another way, corporations are structured such that their leadership is legally bound to find the best way to make shareholders more money. This means everything is on the table when it can further that end, including paying employees the least amount it can get away with, cutting jobs, reducing the quality of the product/service to the bare minimum without sacrificing earning ability and only investing resources internally if it improves profitability somehow.
Based on this, you may wonder why a corporation would ever bother to do anything on behalf of its employees, like provide benefits, offer vacations or office perks. Sadly, these things are rarely the result of concern for the well being of the staff. It’s simply more profitable to provide a certain level of benefit to the employees in order to have a team with a sufficient skill set to operate the business. In other words, if a business knew that they could have the same staff without any of these programs in place, they just wouldn’t have them anymore unless they were required by government regulations like minimum wage, FMLA and PPACA.
Government Regulations
Without getting into the impact and origin of every piece of legislation that regulates how businesses and corporations may conduct themselves, it’s important to understand why these kinds of laws were written in the first place. Recall that industry in a capitalist marketplace will always look to achieve the holy trinity of faster, better, cheaper in order to gain more market share and earn higher profits. Also bear in mind that economic systems are essentially amoral, meaning they don’t have any moral or ethical requirements one way or the other. As a result, without any restrictions from another authority, industry has historically sought to maximize profits regardless of the moral/ethical consequences. Examples like child labor, slavery and monopolies are just a few behaviors that were only curtailed through legislative action.
In between these landmark occasions where governance serves the public interest on deeply rooted ethical beliefs, industry and labor lobbyists have played a cat and mouse game on Capitol Hill to gain ground for their respective constituents. This has created an enormously complex system filled with loopholes and selectively beneficial legislation. But why has this been necessary? Is there something that is inherently driving this tension between labor and management? The answer to that lies in the contradiction of incentives traditional corporations are built upon. In other words, because the corporation is only concerned with the bottom line of maximizing profits, it’s decisions and behavior can go against the interests of its employees, who turn to labor advocates to protect themselves.
Worker Cooperatives
What if instead of seeking to maximize profits and share prices, a corporation was required to maximize the net worth of all of its employees? To put it another way, imagine a corporation that was owned entirely by the employees who worked there. This would instantly align the goals of the corporation with the welfare of its staff because they would be the only shareholders. This concept has been deployed by thousands of companies employing millions of people in the form of Worker Cooperatives.
Cooperatives commonly divide ownership of the company among all of the employees, who all possess an equal vote in deciding what the company does and share in the profits it yields. These worker-owners usually elect a board of directors who may, in turn, hire management and acquire resources to help grow the business. As a consequence, the leadership of the company is accountable to the employees. It’s a challenging concept to grasp for many who have been habituated to the standard corporate model. However, it’s a system that should resonate with every patriotic cell in your body because it’s essentially based on the principles that most countries in the world have embraced as fair, just and in the interests of the people. Yes, that’s right, you’re looking at a democracy!
In our next piece, we will dive into the pros and cons of the worker cooperative compared to conventional corporations and whether they provide a viable structure for forming a successful business.
