Chapter 7: Waking Up
The Principle of Enlightenment:
Because all persons are created equal, the economic rights of employees and the community are equal to those of capital owners.
We have an old model of the corporation that equates it with a tangible object like a railroad or factory. This was more true in capitalism’s early days. Today corporations are far less tangible, though our models remain tied to the old view of them as physical property. When we allow shifting groups of speculators to control a community of people from afar as we do with corporations today, it is conceptually similar to the kind of control England maintained over the American colonies before the American Revolution.
Enlightenment is seeing old customs with new eyes and questioning traditions. It is time to recognize that all human beings have equal economic rights. This shouldn’t take away the economic rights of shareholders; property rights of shareholders can remain in some measure, but need to now accomodate the property rights of employees and the community.
Immanuel Kant once wrote that we must treat all humanity “never simply as a means, but always at the same time as an end” and in this sense, employees and the community are not simply means through which to generate wealth for others. For this reason, Corporate Social Responsibility is not enough when it says “treat employees well because then stockholders will prosper.” Employees and community are each ends in and of themselves, not simply a means to better stock prices. Even socially screened funds like Domini Social Index have the implicit assumption that investor returns are the paramount measure. Ultimately, we must assert that other measures of prosperity matter too.
Ultimately it comes down to one problem: the power of wealth. Feminism benefited from agreement on the power of men as its central issue. Today’s social problems similarly need to focus on the root problem of wealth discrimination.
This is not to say that the wealthy are the enemy. They are, for the most part, no more evil or greedy than others. The goal is not to demonize, but to open eyes.
Respect for the right to attain wealth is integral to the American psyche. Most people want to acuire wealth someday – and the possibility should remain open. Our focus now must be on opening real opportunities for wealth generation to a broader spectrum of society and reducing the tendency for wealth to concentrate in just a few hands. The solution is not communism. Communism aimed for equality of outcome, when the more proper remedy is equality of opportunity. By seeking to eliminate private property altogether, it eliminated incentive, which is why it didn’t work. The goal isn’t to do away with wealth, but to redesign a system that gives illegitimate power to wealth.
The language we use matters. Calling stockholders “owners” gives them a claim of sovereignty. Calling them “investors” is a bit more accurate, although as Kelly outlines earlier, “speculators” may be an even more appropriate term. Phrases like “employees are our greatest assets” also play into the same old feudal mindset of stockholders owning employees, just as lords once owned serfs.
Financial statements are the most powerful “language” we have. Today employee income is scattered across our financial statements as various cost items. It would be useful to develop a supplemental “employee income statement” to aggregate all financial flows to employees. With this in hand, it would be much easier to compare employee compensation to employee productivity to better ensure fair compensation.
Just as we look to employee productivity, we might also develop a clearer understanding of stockholder productivity by summarizing all income to shareholders in a way that more accurately shows the tremendous outflow to investors each year in things like dividends and stock repurchases. This kind of report might help boards reconceptualize shareholders as investors, rather than owners, and help them reassess what is a reasonable rate of return to them. By better surfacing outflows to investors and employees, it might help boards question whether it makes sense to continue booking all retained earnings as stockholder equity or whether some portion of it might be set aside for a new entry: employee equity. Similarly, a community income statement would show corporate taxes, jobs created and other benefits weighed against the firm’s costs in infrastructure, subsidies and externalized costs.
Kelly then looks at alternative measures of prosperity such as the Calvert-Henderson Quality of Life Indicators and the Genuine Progress Indicator. She also looks at efforts to encourage more standardized corporate disclosures on environmental and social impact such as the Global Reporting Initiative and efforts like the Corporate Sunshine Working Group, aimed at enforcing mandatory disclosures.
Information is a critical step to exposing problems in a new light – and seeing things in a new light is what the enlightenment is about.
|Chapter 1: The Sacred Texts|
|Chapter 2: Lords of the Earth|
|Chapter 3: The Corporation as Feudal Estate|
|Chapter 4: Only the Propertied Class Votes|
|Chapter 5: Liberty for Me, Not for Thee|
|Chapter 6: Wealth Reigns|
|Chapter 7: Waking Up|
|Chapter 8: Emerging Property Rights|
|Chapter 9: Protecting the Common Good|
|Chapter 10: New Citizens in Corporate Governance|
|Chapter 11: Corporations Are Not Persons|
|Chapter 12: A Little Rebellion|