The ability of mankind to exploit the world's resources has been immensely facilitated by the creation of large corporations, capable of marshalling enormous resources, sometimes on a global basis, to drive growth forward. These large companies have not only facilitated this process, they are one of its drivers. They need growth to satisfy their shareholders. In a capitalist economy, companies can be compared to bicycles (or, less kindly, sharks) - they require forward momentum to preserve their wellbeing and equilibrium. Their need for ever increasing profit and search for scale fosters consumerism, as companies urge customers to spend more money so that they can increase their sales quarter by quarter.
Madoc Batcup is the author of Companionism: why companies need democracy as much as countries (Exposure Publishing, 2007)
The consequences of this relentless dynamism, especially when it operates (as today) on a global scale, include the disequilibrium that now threatens the world with recession and millions of its inhabitants with dispossession. The problems of policy and management that the current financial crisis presents are severe, but a neglected aspect of the circumstances that have helped create it is precisely the power and size - indeed the very nature - of the corporate behemoths that dominate the economic and social landscape (see Tony Curzon Price, "Corporate liability and social interest", 25 July 2007).
This article argues that the problem of corporations underpins many of the world's discontents, and proposes that reforming them offers the best hope of redress.
A return to source
Today's large corporations can dwarf all but the largest of countries, employing many thousands of people and having millions depend on them indirectly for their livelihood. Their social and environmental role is often discussed, but their key "internal" feature is often overlooked: they are wholly undemocratic. True, the expression "shareholder democracy" is routine; but it is also misleading - for the process of company decision-making is very far from "one person, one vote". It is in fact the purest form of plutocracy ever created by mankind, and one which no civic society has ever tried to institute.
Why is this important? There are two core components to the creation of wealth - labour and money. In civic society in democratic countries, the requirement of wealth as a prerequisite to voting has long been abolished as the principle of every citizen's equal right to a vote was extended. However, in commercial society (where companies operate) it is "money" rather than "labour" which gets the vote. The governance of companies is therefore based on a principle that is diametrically opposed to that of the civic societies in which many of them have their headquarters.
Also in openDemocracy
on corporations and democracy:
William K Black, "Corporate super-predators" (14 May 2003)
Nick Robins, "The East India Company: the future of the past" (12 September 2006)
Stephanie Blankenburg & Dan Plesch, "Corporate rights and responsibilities: restoring legal acountability", 10 May 2007)
Tony Curzon Price, "Corporate liability and social interest" (25 July 2007)
Grahame Thompson, "Responsibility and neo-liberalism" (31 July 2007)
Ann Pettifor, "Globalisation: sleepwalking to disaster" (11 December 2007)
Simon Zadek, "Accountability's global thread" (14 January 2008)
The word "company" derives from the Latin cum panem (with bread) - denoting a group of people who share bread together; the word "companion" still carries this connotation. A return to the roots suggests that in principle modern companies or "commercial societies" (an expression reflected in the French Société Anonyme in French, the German Aktien Gesellschaft, and the Japanese Kabushiki Kaisha) are not in principle so different from civic societies; and that, therefore, the democratic principles fought for so tenaciously in the civic sphere may be applicable in the commercial sphere.
Commercial corporations (which share a common root with municipal and charitable corporations), had historically been limited in purpose, and often their charter required renewal. But once companies acquired "legal personality" - were permitted to undertake almost any activity and became potentially immortal - they increasingly came to resemble the civic society which had formed them.
As shareholding became more institutionalised, the ultimate individual shareholders lost their "vote", as their intermediaries - pension funds or insurance companies - acted on their behalf. In practice, such investors seldom know what to do with their votes - their only responsibility is to secure maximum profit. This renders corporate governance very difficult, with shareholders having limited control over management. Yet the sham of shareholders' meetings continues to be acted out, even though in large companies - except in the most exceptional circumstances of management incompetence or greed, or particularly effective and well-supported "shareholder activism" - there is little practical influence they can bring to bear.
As companies become larger and more powerful they exert an increasing influence on civic society. Their sole motive of profit is a significant factor in shaping the priorities of democratically elected governments. Large corporations are the key movers in the economy, and thus a major determinant in the electoral success of politicians. From party funding to policy-shaping, from priority-setting to policy-implementation, large companies are increasingly and intimately involved in the democratic process - without being properly accountable.
Modern democracy and its institutions are increasingly influenced (and distorted) by corporate empires, whose interests and concerns have little to do with the rights and empowerment of citizens. Democratic institutions have shown themselves to be increasingly incapable of taxing - let alone monitoring or holding accountable - their unruly corporate creations. The taxation problem is increased by the mobility of capital, the availability of alternative sources of investment and the flexibility and speed of financial-market transactions. All these factors are important elements too in the market turmoil of 2007-08 which is still unravelling (see Ann Pettifor, "Globalisation: sleepwalking to disaster", 11 December 2007).
The scope of democracy
Democracy is a form of political governance. But it is also a principle, an idea about the best way for a society to order itself. In this sense, democracy needs also to be the foundation of its decision-making processes - especially in its most important and powerful institutions.
How would this apply to corporations? In essence, once a company reaches a certain size, it could adopt the same model of representative democracy that exists in the civic sphere. A company, after all, embodies the labour and the capital invested in it. The right of shareholders to vote at the company's annual general meeting (AGM) - but not property rights - could be transferred to the employees of a company on the principle of one person, one vote. As in a representative democracy where the citizen votes for others to carry out the business of government on his or her behalf, the employees at a company's AGM would be able to vote on whether they had confidence in the way the directors were managing the company. The shareholders would retain their dividend rights (possibly with some minimum dividend as a percentage of profit); if they were dissatisfied with their return they could sell their shares. None of the economic benefit of the shares would accrue to the employees.
In order to ensure that early-stage entrepreneurship is not stifled, the transfer of voting rights would take place on a graduated basis. This would also reflect the fact that the relationship between staff and management tends to be closer and more informal in a smaller company, and that often there are opportunities for staff to move to a different company if this is unsatisfactory. Moreover, small companies have a less powerful social impact than their larger counterparts. In order to accommodate these considerations the voting rights of shares could transfer in stages from shareholders to employees.
At each stage, the directors would need to balance the satisfaction of the employees with the need to provide an adequate return to shareholders so that the company could continue to access the capital markets. This dilemma would echo that of any government wishing to remain popular and also to balance its budget.
This new system of corporate democracy - reflected in the title of my book Companionism: why companies need democracy as much as countries - would both return the company system to its source as a way to mobilise human endeavour for a common purpose and to offer a much more positive identity to the people involved: not employees, but companions.
Such an arrangement has the potential to motivate all those who work in companies to scrutinise the decisions taken by the elected board, and in turn galvanise the board to take into account the interests of its "companions" by considering issues other than those of pure profit. In turn, this will make democracy more real to millions of people who feel disempowered in the workplace; and increased accountability in the workplace would be an inspiring example for engagement in the political democratic process as well.
The first weeks of 2008 have been marked by fears that both capitalism and democracy are in crisis. Perhaps democratic capitalism - "companionism" - offers the ingredients of an answer.