The Uses of Diversity. David Ellerman

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      Ordinary consciousness often reflects the de facto company. The employees are often thought of as the members of the organization. Consider the following from a perfectly standard managerial accounting textbook:

      An organization can be defined as a group of people united together for some common purpose. A bank providing financial services is an organization, as is a university providing educational services, and the General Electric Company producing appliances and other products. An organization consists of people, not physical assets. Thus, a bank building is not an organization; rather, the organization consists of the people who work in the bank and who are bound together for the common purpose of providing financial services to a community. (Garrison 1979, 2)

      Garrison is talking entirely about the de facto company, not the company as it exists in law. Look at the books on the business shelves in your local bookstore. Find a book that uses some expression like “members” of the company. Chances are that the author, like Garrison above, is referring to the employees (including managers) of the firm, not the far-flung shareholders who are the legal “members.”

      As Anglo-American stock markets have spread shares far and wide, the idea that the stockholders are in any real sense the “owners” or “members” of a publicly traded company has become a sheer fantasy. There are several groups invested in keeping the fantasy alive. Many economists and lawyers have acquired their professional competence in mastering the legal model and the economic logic of exit behind it. Anything else falls short of the One Best Model. And there are the top managers who have mightily profited from the eclipse of the shareholders. They have every interest in keeping the fantasy of “shareholder capitalism” alive as the cover story for the reality of managerial capitalism—much as the nomenklatura of the Communist Party had every interest in keeping the fantasy of “People’s Democracy” alive.

      What Berle and Means described as the “separation of ownership and control,” John Maynard Keynes described as the “euthanasia of the rentier, of the functionless investor” (Keynes 1936, 376) caused by the public equity markets. This separation of ownership and control along with the unaccountability of managers and the resulting abuses has created the “corporate governance problem.” Who is to be the new legitimate members of the company? While a few wistfully hope for the resurrection of “responsible private owners” in the form of massive institutional investors run by portfolio-managing bureaucrats, others search the horizon for various “stakeholders” who together with the regulatory agencies and law courts might create a “new accountability.” But they are searching for legitimacy in all the wrong places.

      There already is a class of members who make up the firm, the de facto firm consisting of the people who work in it. In a company designed on the basis of the logic of commitment, they would be the legal members of the company. That would extend the virtues of the family firm and the family farm (both having de facto firm = de jure firm) to the large corporation.

      Many parties have their interests affected by a company, and better judicial and regulatory oversight is needed to protect those legitimate outside interests. But since the staff of a company are the de facto firm, they are the ones who could actually monitor the management of their company to address the corporate governance problem directly. “The only cohesive, workable, and effective constituency within view is the corporation’s work force” (Flynn 1973, 106).

      The British conservative Lord Eustice Percy put the matter well sixty years ago:

      Here is the most urgent challenge to political invention ever offered to the jurist and the statesman. The human association which in fact produces and distributes wealth, the association of workmen, managers, technicians and directors, is not an association recognised by the law. The association which the law does recognise—the association of shareholders, creditors and directors—is incapable of production and is not expected by the law to perform these functions. We have to give law to the real association and withdraw meaningless privilege from the imaginary one. (Percy 1944, 38; quoted in Goyder 1961, 57)

      To conclude, we cannot do better than quote the visionary corporate leader, Owen D. Young (1874–1962), founder of RCA, president and chairman of General Electric, and Time magazine Man of the Year for 1929:

      Perhaps someday we may be able to organize the human beings engaged in a particular undertaking so that they truly will be the employer buying capital as a commodity in the market at the lowest price . . . . If that is realized, the human beings will then be entitled to all the profits over the cost of capital. I hope the day may come when these great business organizations will truly belong to the men who are giving their lives and their efforts to them, I care not in what capacity. Then they will use capital truly as a tool and they will be all interested in working it to the highest economic advantage. . . . Then we shall dispose, once and for all, of the charge that in industry organizations are autocratic and not democratic. . . . Then, in a word, men will be as free in cooperative undertakings and subject only to the same limitations and chances as men in individual businesses. Then we shall have no hired men. (Young 1927, 392)

      Yes, then we shall have no more rented¹⁷ people.

      NOTES

      1. The duality that is more familiar in economics is convex duality (Rockafellar 1970). The dualities are related; convex duality is the integral or anti-derivative of series-parallel duality (see “Parallel Addition, Series-Parallel Duality, and Financial Mathematics,” chapter 12 in Ellerman 1995).

      2. Jane Jacobs (1992) develops a variation of the theme with the contrast between the exit-oriented commercial syndrome and the commitment-oriented guardian syndrome.

      3. In the correspondence between the tree search model and the options-characteristics model, the breadth-first strategy corresponds to treating characteristics as fixed so as to favor exit (from A to B or C), and the depth-first model corresponds to sticking with an option but trying to change its characteristics (from A to A1 or A2).

      4. The expressions “logic of exit” and “logic of commitment” are used by Kagono and Kobayashi (1994), who develop the two logics of organizational design by contrasting the American-style СКАЧАТЬ