The Imperative Need to Democratize Corporations

There are many large-scale trends that are visible in the history of the modern world. One of these is the slow and difficult rise of democracy, a laborious birth and development that took many centuries to reach its present state. The idea that all people, regardless of their class, religion, skin colour, sex, education, or wealth, are equal to each other and should have the same degree of influence – no more nor less – as everyone else over their country’s government is a radical idea that has been at odds with most of human history. There have always been some individuals, groups, or classes in all populous societies that seek, by gaining more than their fair share of political, legal, military, or physical power, to tilt the balance decisively in their favour. In the past, the greatest threats to democracy were alternative systems of government such as monarchy, tyranny, despotism, communism, and fascism, or the chaos of anarchy, brigandage, marauding, and warfare. Today, when these alternatives have been discredited or driven more or less to extinction, there is another threat to democracy – one that, in many cases, works its insidious harm from within.

I am speaking of the modern corporation, a nineteenth-century relic that, via the license of free trade, is extending its undemocratic reach to more and more parts of the world. Like capitalism, the corporation is based on the principle of the inviolability of private property. This is why capitalists so greatly hate communism and socialism – because their advocates simply ignored, while they repeatedly violated, this principle, in their quest to create their vision of the ideal society.

The long struggle to implement and develop democracy was motivated by the common experience that, when rulers have no regular contact with the people they rule, and especially when they associate exclusively with each other, they are much more likely to do things that benefit themselves but harm their subjects. This is a very common human experience – to think more of oneself and those one cares about, which generally are the people one associates with regularly and sees most often, while thinking and caring little or nothing for all the many other people and organisms that live in this world.

What is true of governments and rulers is no less true of corporations and their rulers. As corporations have grown in size, their owners and rulers have shown many of the vices, defects, and shortcomings that political rulers exhibited in the past. Moreover, as was true of the European nobility in the seventeenth and eighteenth centuries, who associated almost exclusively with each other while leading lives of extreme opulence, today’s corporate executives likewise associate almost exclusively with each other while they too lead lives of extreme opulence. In past ages, rulers and monarchs did not associate with the common people; similarly, corporate executives spend little or no time associating with the common workers in their corporate fiefdoms. The consequence has been that, just as with absolute monarchs in past ages, the common people, or in the case of corporate rulers, the ordinary workers in their company, mean little or nothing to them.

Already in the 1830s manufacturing enterprises of considerable size had appeared. The business world had ceased to be entirely one of enterprising individuals competing with each other, as Adam Smith largely conceived it. By the last decades of the nineteenth century business firms of massive size were employing ever larger proportions of the work force. Although the new corporate world celebrated the ideology of individualism more than ever, large structures were emerging that the sociologist Philip Selznick called “private government.” These private governments did not govern with the consent of the governed, and it has been impossible, in spite of a long history of efforts to do so, to integrate them effectively into a democratic polity. Competitive advantage rapidly swung against the individual farmer, mechanic, or merchant and in favor of larger and larger combinations of investors organized under law as “corporations.” The economic and legal doctrines of the free market no longer seemed unproblematic. The very term “corporation” had undergone a fateful transformation.[1]

There are important differences between a small company where the owners or rulers regularly see, meet, and talk with the workers,[2] and today’s massive corporations where the owners or rulers almost never see, meet, or talk with the workers, who become mere numerical figures whose economic properties, such as their productivity, hours worked, wages earned, and sick or injury time, are faceless, nameless, bloodless, and bodiless inputs in various mathematical formulas that the said owners or rulers use to evaluate them and decide which shall remain in their corporate fiefdoms and which shall be expelled.

This is the great paradox of modern democracy – that, within its borders, which are zealously defended against all foreign threats and enemies, it has allowed a tyrannical form of economic organization to flourish and expand, while these tyrannical entities increasingly encroach upon and cannibalize the political and legal systems that were set up, often with great toil, difficulty, thought, and sacrifice, to protect and serve all citizens, and not only the wealthy or powerful. In other words, the greatest threat to democracy today is not communism, fascism, or any other form of totalitarian government, but the economic form of tyranny that is the no-responsibility corporation.

“If we accept Jefferson’s argument, as I do, that the lack of forms of democratic governance within the economic sphere inevitably corrupts the forms of democratic governance in the political sphere, the choice that we make at this technological divide will affect far more than our individual workplace.”[3]

In the United States and elsewhere, the rulers of corporations have used the powers at their disposal – which in the United States are due to more than thirty years of government deregulation and the free-market fanaticism that presently predominates in business, corporate, financial, and government circles, as well to more than a century of faulty judicial decisions based on the autocratic declaration by a single U.S. Supreme Court Chief Justice named Morrison Waite that corporations are individuals in the eyes of the law, and therefore they are entitled to all the legal rights, privileges, and protections of U.S. citizens – not only to benefit the corporation and its no-responsibility owners, but to enrich themselves. The corporate board of directors, whose duty is to question, criticize, and control the corporate rulers on behalf of the shareholders, has become less effective in checking the rulers’ excesses and their determined efforts to enrich themselves as much as possible because many corporate directors belong to the same social class as the rulers, or they want to belong to it, and therefore the directors have the same goals and interests as the executives do.

The greatest losers in this dramatic power shift have been the workers, those who contribute by their labour to the creation of the wealth that is increasingly being siphoned off by their companies’ rulers and no-responsibility owners. Increasingly, with the weakening of unions, they are being reduced to the same voiceless and powerless situation in which workers toiled – and were often overworked, oppressed, and exploited by their employers – a century or two ago.

Democracy did not work very well when the interests and concerns of only a tiny portion of the people were represented by the country’s legislative body. Similarly, the corporation’s controlling body of its rulers and board of directors likewise doesn’t work very well because they represent only a tiny portion of all the corporation’s workers, namely, its executives. This is not to say that I am in favour of a pure democratic system where each worker would have the same influence on the corporation’s decisions as an executive. The fact that the workers contribute nothing in terms of financial capital to the company should also to be considered.[4] But neither should this be the sole or primary criterion in determining the political hierarchy of the corporation, for this is to permit a despotic form of corporate government, where the owners and corporate rulers have all the power and the workers none, which is the cause of many of the problems caused by corporations all around the world. It is not at all surprising that this archaic governing model suffers from many of the vices and defects of monarchical and other forms of non-democratic governments in the past.

In 1858, Abraham Lincoln made a famous speech that was later called his “House Divided” speech. In arguing that a divided house cannot stand, he was referring to the fact that, at the time, the United States was divided into two parts, one part where slavery was permitted, and the other part where it was prohibited. In a similar manner, I declare that a democratic country cannot remain democratic if it allows a tyrannical corporate system to dictate more and more of the country’s laws, regulations, and social behaviours, all in the name of preserving competition and what has been mistakenly called the “free market.” There are only two possible outcomes of this struggle: either we, the people, democratize corporations, or we will increasingly become subject to the rule of the tyrannical entities that are no-responsibility corporations, which are, through free trade and globalization, rapidly extending their rigid, selfish, and no-responsibility model of corporate control and dominance over the entire world.

The corporate ownership model, which absolves all the company’s shareholders from any responsibility for the company’s actions and debts, encourages some of the worst features of human beings, such as by unleashing their unbridled collective greed. First of all, it violates the important principle that “What you see is what you know and care about,” so that many corporate rulers do things and make decisions that harm others, including even their company’s workers. Second, by diffusing responsibility among a usually large number of anonymous owners who generally don’t know or associate with each other, it destroys any sense of responsibility on their part for the harms that the corporation which they collectively own causes others, including innocent people in distant countries, while it absolves them of any legal responsibility for its actions and debts.[5]

There are many corporate rulers who have convinced themselves of the falsehood that they are the primary creators of the world’s wealth, and therefore they entirely deserve the extravagant compensations they receive. These arrogant individuals would do well to remember that, in the past, many monarchs believed that they received their mandate to rule directly from God, and that their societies would crumble without them, neither of which mistaken views is accepted by anyone today.

Let us consider a simple question: of the two groups of employees – a company’s executives and its other workers – which group is more important to the company? Although executives may crow about their vital or strategic necessity to the company they work for, the plain fact is that without the company’s many workers – which in the case of a very large corporation number in the tens or hundreds of thousands – it would, quite simply, have no product or service to sell, and therefore it could not earn any money. And neither, by themselves, would the executives be able to do all the work that is done by the other employees. In team sports, although the importance of the coach or manager, along with one’s many assistants, is widely acknowledged, it is the athletes who contribute the most to the team’s success, and therefore receive the highest salaries.

If you are one of those people who will object that the workers are expendable, in the sense that they could be replaced, more or less easily, by other workers, I reply that this truth also applies to the executives, most of whom are also expendable, and therefore can be replaced by other executives. This is shown after they leave the company, for there are few instances where a company’s performance declines precipitately as a result of the departure or retirement of a particular executive.

The relative importance of these two groups of employees is clearly shown by the total aggregate salaries they earn. In pretty nearly all companies, it will be found that, collectively, the ordinary workers earn far more than the executives. And yet, this large group of workers, who together constitute more than 99% of the total employees of any large corporation, has absolutely no power or influence on the decisions that are made by their company’s executives. If corporations were considered as governments, then they would be put in the category of non-hereditary absolute monarchies or limited dictatorships, since the executives’ power over their fellow workers is limited to the ability to fire them, and deciding things like how much they earn, how many hours they work, and whether they receive any other benefits.

If we want to find examples of governments that behave in the manner in which some corporate rulers have behaved in the United States in the past few decades, and especially in the period prior to the 2008 financial crisis, one would have to go to countries in Africa and other places where the people are poor, where corruption is rampant, and where the ruler is a despot. In such places, the government rulers do not work primarily for the good of the people, but for their own selfish ends, and it is common for government rulers and other employees to keep for themselves both government revenues and foreign aid that were intended to help the people. In other words, these selfish rulers use – or abuse – their position primarily to enrich themselves at the people’s expense.

There are many African despots who, just like the rulers of American financial companies, have behaved recklessly by expropriating government revenues for their private use, while bringing their countries into financial ruin, all the while admitting no wrongdoing. In recent decades, some corporate rulers have exhibited the same megalomania, as exhibited by an exaggerated sense of their self-importance and a brazen lack of any sense of moral responsibility for their actions, as African despots.

The belief that corporate rulers will rarely or never do bad things, that they will treat and pay their workers well, and so forth, because of market competition and an overriding concern for their reputation, and therefore they do not need to be watched, regulated, and punished, is nothing more than free-market nonsense. One might as well suppose that monarchs, dictators, despots, and tyrants in past ages would also have behaved well and rarely done bad things, while they treated their people well, in order to maintain a good reputation, a naive belief that has only rarely been justified by historical events. The saying that “Power tends to corrupt, and absolute power corrupts absolutely,” which is usually applied only to political rulers and governments, also applies to corporate rulers, as is evident in the United States and elsewhere whenever and wherever there are no effective checks on the abuse of corporate power.

In the United States, there is much talk of the shareholders’ revolt, which began several decades ago, and was spurred by outrage at what were perceived to be corporate executive abuses and inflated salaries. However, shareholders suffer from the same shortcomings, in terms of concern for the workers and others, that many executives do, since the vast majority of them neither know nor care about the company’s workers, who produce the things that enable the company to earn money and, hopefully, a profit. When a dispute arises between shareholders and a company’s executives, it is usually over how the company’s revenues will be used or its profits divided. In such disputes, the workers remain unheard, unheeded, and unconsidered by both the corporation’s owners and rulers.

One of the reasons why Abraham Lincoln was a great leader is because he never lost his concern for the common people. Even during his presidency, he regularly met with those Americans who came to see him in the White House. Unfortunately, leaders like Lincoln are the exception rather than the rule, as anyone who has studied history knows.

The aim of unions was to give the voiceless and powerless workers the ability to negotiate, as a collective body, with corporate owners and rulers. But apart from the fact that many unions have been weakened or eliminated by the massive transfer of factory production to poorer countries where there are no unions, thereby eliminating many jobs that were once held by unionized workers, union leaders were never integrated into the company’s executive. This fact – that they were not informed of the executives’ decisions, nor were they privy to the information about the company which the executives or board of directors had – accounts for the fact that the relations between union representatives and corporate executives and directors have often been acrimonious and confrontational.

Another problem is that, when union representatives become full-time positions, they can exhibit the same defects as many corporate rulers if they become separated and distant from their electorate.

As time has passed and the trade-union movement has become bureaucratized, the leadership tend to look upon themselves as corporate executives. They spend so much of their time in paneled, air-conditioned offices that they have lost touch with the rank and file. They do not realize the degree of discontent in the ranks.[6]

Because of the important difference between small and large companies – the fact that, in a small company, the owner or manager regularly meets with the workers, while this is usually not the case in large companies or corporations – I propose that any large company, numbering, for example, over 500 employees, must have on their executive or board of directors at least one representative who is elected by the workers. This representative must be a full-time worker, just like the workers that he or she represents. As the number of employees increases, a second and perhaps a third representative should be added, in proportion to their numbers.[7]

The change that I am proposing already exists in some countries, such as Germany and Sweden, which have placed workers’ representatives in their executive or governing boards.

Another model is that of codetermination, in which labor representatives sit on the board of major companies, a system practiced quite successfully in many German firms. In fact, many of Germany’s big companies have works councils in which management, workers, and even civic leaders collaborate on determining schedules, furloughs, pay, expansion plans, and even the products that a factory might make. The idea is for management and labor to work together on issues before they become problems.[8]

This corporate operating model is based on the obvious fact that a corporation can have effects both on its workers and the society in which it operates, and hence, it should not be allowed to make decisions that benefit its owners and executives, while it causes harm to others with impunity.

It is precisely the failure to ensure that all of a company’s workers are represented on the executive committee or board of directors, and not just a tiny handful of them, that has led to the many problems which are due to the dominant tyrannical corporate governance model. One of the main reasons why there are so many misunderstandings between corporate rulers and owners and their powerless and voiceless workers is because there is no regular contact or dialogue between the two groups. This is no different from the situation that existed in absolute monarchies in the past, where rulers had no regular contact or dialogue with their subjects. The only way to maintain good relations between a corporation’s rulers and the workers’ representatives is if the latter are integrated into the corporate decision-making process. Thus, they must be kept informed of all important developments and decisions that are taken or proposed by the company and allowed to attend the executive meetings. It is only by working together that they will be able to do what is best for the corporation and all of its workers, and not just a tiny portion of them, as is presently the case.

As this rule will apply to all companies, no single company will be disadvantaged by this change, provided it is adopted by all countries. Hence, any country that refuses to adopt it or, if it is adopted, refuses to enforce it should be subject to a boycott or economic sanctions, for otherwise it will encourage companies to shift their operations to that country in order to continue operating in the tyrannical manner in which many of them presently do.

Of course, this proposal will be fought tooth and nail by most corporate rulers and owners as an intolerable infringement and interference in the affairs of privately-owned companies. But the long and difficult road to democracy, including equal rights for all people, was likewise marked by adversity, numerous difficulties, and sometimes bloody conflicts, in order to wrest power from the privileged few for the benefit of the many. If we want to continue living in truly democratic societies, and not mere empty shells whose legal and political systems are in reality controlled by tyrannical corporations, then the difficulty of the endeavour should not discourage us from taking up the struggle.

It is time for the people of the world to rise up and stand united against corporate tyranny, as our forebears rose up and defeated or overthrew the tyranny of monarchy, communism, fascism, racism, and other forms of totalitarian or non-democratic government. We must cease listening to the many advocates of free-market capitalism, those knavish and scurrilous aiders and abettors of corporate tyranny, who have urged non-interference and giving free rein to corporations as the surest way to reach the promised land of economic plenty for all. This free-market utopia is just as much a delusion as the one envisioned by the communists and socialists, for it begets a system that primarily rewards the wealthy at the expense of everyone else. It is only by standing up to corporate tyranny that we will be able to break free from the bonds of corporate serfdom, in which more and more of the world’s population is increasingly being subjugated and enslaved.

 

[1] The Good Society by Robert N. Bellah, Richard Madsen, William M. Sullivan, Ann Swidler, and Steven M. Tipton, pp. 70-71. Alfred A. Knopf, New York, 1992.

[2] Incidentally, it is these kinds of small companies, and not the giant multinational corporations that presently control much of economic production worldwide, that Adam Smith studied when he developed his ideas on economic production and the virtues of competition and specialization. It is also these small and medium-sized companies that are the primary engines of job creation, unlike large corporations, which often use highly automated production processes. However, due primarily to unbridled price competition, the continued existence of these job-creating companies is becoming increasingly precarious, whether they are driven out of business or bought and restructured – meaning made to operate according to prevalent corporate practices, which is an instance of enforced conformity in the economic sphere – by large corporations.

[3] The Good Society, pp. 100-101 (“Madison and Jefferson in the Workplace: Technological Change and the Ethos of a Democratic Society” by Charles R. Strain).

[4] However, it is important to remember that the vast majority of corporate rulers, or executives, as they prefer to call themselves, have also contributed no financial capital to the company they work for. And yet, they are given extensive control over the company, to do with it what they will, with fewer and fewer rules, restrictions, and punishments to check their behaviour and, more importantly, their greed and misbehaviour. Only a free-market fanatic would argue that this system cannot be improved for the good of all people, or that it should not be changed, curbed, or occasionally interfered with by the government under any circumstances.

[5] Of course, the stock price of a corporation that faces lawsuits may go down, which will have an indirect effect on the shareholders. But the fact remains that the shareholders are not responsible for paying these and other costs of the corporation they own. Moreover, some companies that have faced large lawsuits, such as tobacco companies, have nevertheless remained profitable both for their owners and rulers.

[6] Coming of Age by Studs Terkel, p. 90. The New Press, New York, 1995.

[7] In the case of very large corporations that have tens or hundreds of thousands of employees, how many worker representatives they should have in their executive is not a matter that can be determined a priori. Too many of these representatives will, of course, have the undesirable effect of giving too much power to the workers, thus making it difficult to make decisions, such as cutting jobs, that many be needed to ensure the corporation’s survival or profitability. However, many large job cuts in recent decades, not all of which have been necessary, have occurred primarily because of the undemocratic nature of corporations, for these savings have primarily benefitted the corporate rulers and the corporation’s no-responsibility owners.

[8] Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar, chapter 4. Crown Business, New York, 2016.