From top: Corporate ownership protest, Washington DC; Michael Taft
There has been a decades-long debate over who actually ‘owns’ the corporation, in the sense of who actually ‘controls’ it.
We may have an answer.
Michael Taft writes:
To ask ‘who owns the corporation’ is to invite a simple reply: the shareholders. After all, don’t shareholders vote at AGMs, doesn’t the law state that shareholders own the company. Doesn’t the company have to act in the interest of the shareholder?
Seems straight-forward. But it’s not. In fact, it has been argued that no one owns the corporation. If this is the case the implications could be significant.
The Financial Times’ Peter Kay argues the ‘no-one-owns-the-corporation’ line:
‘If I own an object I can use it, or not use it, sell it, rent it, give it to others, throw it away and appeal to the police if a thief misappropriates it . . . But shares give their holders no right of possession and no right of use.
If shareholders go to the company premises, they will more likely than not be turned away. They have no more right than other customers to the services of the business they “own”. The company’s actions are not their responsibility, and corporate assets cannot be used to satisfy their debts.
Shareholders do not have the right to manage the company in which they hold an interest, and even their right to appoint the people who do is largely theoretical.
They are entitled only to such part of the income as the directors declare as dividends, and have no right to the proceeds of the sale of corporate assets — except in the event of the liquidation of the entire company, in which case they will get what is left; not much, as a rule.’
So who owns the company?
‘The answer is that no one does, any more than anyone owns the River Thames, the National Gallery, the streets of London, or the air we breathe.
There are many different kinds of claims, contracts and obligations in modern economies, and only occasionally are these well described by the term ownership.’
There has been a decades-long debate over who actually ‘owns’ the corporation, in the sense of who actually ‘controls’ it: managers or shareholders or a combination of both.
We can get a better handle on this if we recognise that the corporation is a legal fiction – a ‘legal person’ that enables the corporation to operate in the world (buy, sell, own, sue, go into debt, break the law, etc.). As such, this legal person is not ‘owned’ in the popular sense of the word.
Tom Powdrill quotes a Contexte summary of the revisions to the EU shareholders’ rights directives:
‘Shareholders do not own corporations: The directive will explicitly acknowledge that shareholders do not own corporations – a first in EU law.
Contrary to the popular understanding, public companies have legal personhood and are not owned by their investors.
The position of shareholders is similar to that of bondholders, creditors and employees, all of whom have contractual relationships with companies, but do not own them. ‘
Even if one insists on the ‘ownership’ paradigm, one has to admit that the character of ownership has changed – from individuals to institutions with ownership being measured in weeks (an average of 35 weeks as opposed to 1970 when the average share holding lasted seven years); and sometimes in seconds due to high-frequency trading.
In this sense we can understand a corporation as a ‘space’, a dense series of contractual relationships that includes management, shareholders, bondholders and creditors, employees, etc.; in other words, the totality of relationships with all the stakeholders.
This list can be extended to communities, the environment, nation-states, supra-national organisations (e.g. the EU), etc.
And how are these contractual relationships determined? In the apparent instance, they are politically-determined (legislation that gives certain rights to different stakeholders). Ultimately, they are determined by the power-relationships between these different stakeholders.
So what? It’s still the same ol’ corporation that we have known and loved since the introduction of limited liability. I would say there are at least two reasons why this matters. First, is the concentration of ownership, control and power.
The New Scientist published a comprehensive survey of global multi-national corporations. In the first instance they found a core of 1,381 companies which collectively controlled the majority of world’s large blue chip and manufacturing firms (what’s called the ‘real economy’ – that is, the non-financial economy).
However, when they dug further they found what they called a ‘super-entity’ of 147 inter-locking companies controlled 40 percent of multi-national companies world-wide. Most of these 147 super-companies were financial institutions.
Second, the relationships within and between multi-nationals are more and more determined politically.
France’s decision to give more voting weight to shareholders who hold on to their shares longer (in the hope of incentivising long-term commitment); the OECD’s and the EU’s moves on tax transparency; the role of stakeholders in corporate governance legislation – all these can be interpreted as moves to make the corporation more accountable both to society and the productive economy. All these are political decisions.
Ultimately, though, this all suggests a new, potentially more democratic perspective.
If the corporation is not so much owned but exists through a series of contractual relationships between stakeholders and participants, then we can see the totality of the corporation as a ‘social’ or ‘collective’ asset that operates within a complex market of economic calculation and the international division of labour.
Once we break with the concept of ‘ownership’ (though we will always use this in a popular sense) and understand it as one of ‘control’ – this begs the question: who controls the controllers?
This is a both a political and economic issue; it is a systemic one. It is about power-relationships both within the corporation (the balance between capital and labour being a primary one) and the relation of the corporation with the rest of society, including the environment.
So if no one owns the corporation then can we all own the corporation? It is a democratic issue; neither simple nor unsolvable.
Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront
In essence, we have to grow up and dump capitalism, it’s not working.
And adopt…?
non-profit based economy.
So something that won’t work.
Oh it does work. But it won’t be allowed to work.
how do you know it works?
Utter horsepoo. A pathetic attempt to undermine private property.
Of course when has a socialist ever respected the rule of law?
“Of course when has a socialist ever respected the rule of law?”
LOL.
Yeah just ignore the wholesale robbery carried out by so many white collar criminals, costing people and states billions in lost revenue and private savings.
Someday…oneday…
I swear….
I’ll get to the end of these posts withhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
Mr.Taft,
I follow your train of thought.
It’s interesting but what is the point?
What are you hoping to achieve?
– Mourinho
Mourinho – I’m hoping to develop this in the future but one of the points is that the modern corporation has in one sense outgrown what we consider ‘private property’ – at least property held by shareholders. It is also intended to show that questions of ownership can be divorced from actual market operations. If so, this can open the door to greater stakeholder participation (e.g. employees) without impacting on market efficiency or allocation. Indeed, I would argue that greater ‘democratisation’ of production and enterprise activity leads to greater efficiency. This democracy is not about ‘expropriation in the classical sense since – if there are no owners – who or what exactly are we expropriating. Would be interested to read what you think might be achieved from this analysis.
Hi Michael, slightly tangential question:
what are your general thoughts on Theresa May’s initiative?
Will there be legal barriers in Ireland to implement same?
“Shareholder votes on executive pay will become binding and companies will be required to have shareholders and workers represented on their boards in an effort to make big businesses more accountable, May will say in a speech Monday, according to e-mailed extracts.”
http://www.bloomberg.com/news/articles/2016-07-11/may-pledges-corporate-crackdown-as-osborne-courts-wall-street
It is a step in the right direction and goes to show the growing acceptance of the social character of the corporation. There is no bar to introducing similar measures here. Many multinationals operate European work councils and there are limited provisions in the semi-state sector. Overall though Ireland ranks poorly in this whole area.
thanks Michael
I always understood that companies were incorporated with the permission of the state which is why they must describe their basic activities in the articles of incorporation.Wasn’t the original idea that companies were given certain rights to perform socially useful functions (widely defined ! ) and therefore the ultimate owners were the state or sovereign.This is explicit in finance with banking licences , financial passports etc..
Of course real control becomes harder in a globalized ( for capital anyway ) world .
When companies are run by the people who own them, especially family run operations*, they tend to be more responsible and have more pride in what they do. They also tend to be more ethical because they can’t hide behind faceless shareholders who can abdicate responsibility for the consequences of corporate greed.
*One large supermarket chain might be an exception to the above.
You mean like Digicel? They do quite a lot for disadvantage regions in the caribean.
Good point Tish.
LOL @ Rotide. Top table at my imaginary BS dinner party.
I notice Tish doesn’t double down on failure/wrongness/savage burns like her trolling partner in crime, Moist. Which is a pity because it’s hilarious to read.
Congrats Rotide, magical internet point for you.
Walmart? Family owned and run. Not exactly a model.
And Dunnes Stores. In fact, your argument is a load of feces.
Costco on the other hand, treats it’s staff as actual people, pays them a living wage, more stable hours, health insurances, this encourages trust between employees and employer, fosters employee engagement and loyalty, 50% less staff turnover than ‘We own your soul’ Walmart
they don’t sell sextoys ( big earner for Amazon ) but they do sell guns . family values .
The first Taft column I haven’t skimmed in a while and there’s no discernible point :(
I wants me money back.
“So if no one owns the corporation then can we all own the corporation?”
Ehh, no? You said a corporation was treated as a person in law. Would the above phrase make any sense at all with ‘person’ used instead of ‘corporation’?
https://en.wikipedia.org/wiki/Salomon_v_A_Salomon_%26_Co_Ltd
Whether we accept private or social ownership the problem of the legal person remains. Which is some jurisdictions distinguish between persons and natural persons.
was going to post this point!
didn’t see any mention of the separate legal person and the veil of incorporation. So a poor column this week
They don’t have corporations in North Korea. “Problem” solved.
Of course they don’t have food either.
They do have corporations in North Korea. Do some basic research.
And all “family” run. By the nice Mr Kim.
exactly.
http://atimes.com/2016/02/what-do-shareholders-own/
There was also a TED talk on this subject which is interesting.
http://www.ted.com/talks/james_b_glattfelder_who_controls_the_world
Who controls the corrporation runs it, and in many instances ignores the shareholder
Look at the running of the Irish co-operative business sector.
Who owns the government? My singular vote makes no difference. I cannot just rock into Leinster House or up to the Aras, ill more likely than not be turned away. And yet we all buy into the idea of collective democracy and accountable government (not matter the problems that exist with it). Ditto collective shareholding of private companies. If management do not feel they have to follow shareholders wishes, that’s because shareholders are not using their 1-share-1-vote powers effectively.
+1
An excellent, thought-provoking article Michael. For many years I had laboured with my Junior Cert Business Studies ideas that corporations were indeed ‘owned’ by their shareholders.
On the workers’ councils ideas, a few thoughts:
Conceptually, they work well in medium to large firms in niche, high-value added firms in stable markets producing goods for export. This characterises the economy of a lot of Germany, France, and northern Italy.
It is very clear who the competition is, what their cost base is like, and how relative market share is performing. Both owners and workers have clear signals about firm performance and if a period of restraint is needed or largess is justified.
The problem is that this type of firm barely exists in Ireland. We have MNCs who are more in competition with other branches of the same firm globally. There is no culture of engagement with organised labour in these firms.
The rest of the Irish private sector is small and low productivity and I doubt could support any kind of structured engagement between owners and workers about the strategic direction of the business.
However SOME kind of economy-wide wage bargaining mechanism might be a good thing for maintenance of national competitiveness. We all know what happened the last time though. In particular the inability of social partnership to deliver co-ordinated pay reductions in 2009 (despite massive collapse in demand, falling consumer prices and mortgage interest rates) was a massive failing, and probably led to tens of thousands more unemployed than necessary.