Re: Employee ownership "dream"

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

I would like to boost the faith of Thomas Brandt and perhaps many others in
regards to investors agreeing to transfer ownership without a guaranteed
return.

1. Equity investors always invest without a guaranteed return because this
is what defines equity!

2. Investors will never rely on obtaining any cash after their time horizon
to justify an investment.  Any cash received after their time horizon must
by definition represent surplus incentive or what I call surplus profit, a
concept not recognised by economists.  It is surplus profits which compound
the concentration of wealth.  The investors time horizon is never beyond
the "foreseeable future" which is typically less than ten years to obtain a
return of both their principal and the profit to provide the incentive to
risk their principal.  Investors heavily discount their future cash flows
at a compounding rate for the opportunity cost of missing out on fixed
interest and much more certain returns today and then discounted the future
again for the risk.  Because of this it only takes a very small certain
incentive today to offset the right to obtain uncertain cash returns
forever after say ten years.  This makes tax incentives for ownership
transfer much more efficient for Democratising The Wealth of Nations then
those used for ESOP's.  On the other hand, individuals do not discount the
value of future cash flows needed to sustain their life as there is no
opportunity cost for them in using the cash for anything else!!!!!  Thus
while surplus profits have no expected value for investors by definition,
they can be very highly valued by stakeholders to sustain their life.

3. There are many examples of equity investors committing funds to limited
life investments such as betting on events, theatrical productions, films,
R&D, patents, mining, joint venture arrangements, especially in foreign
countries.  Many infrastructure projects are now financed on the Build Own
Operate and Transfer (BOOT) basis such as the Hong Kong and Sydney Harbor
tunnels like the old US Turnpike companies in the 18th century which had to
remove their tolls after a certain period.

4. Professional equity investors, especially venture capitalists, commonly
give up significant ownership rights in any event, to management and other
key stakeholders to safeguard and promote their investment.  This loss of
immediate ownership could be reduced if long term stakeholder ownership was
provided to create a win-win outcome for both because of the differing time
preferences for ownership cash flows as noted in point 2 above.

On the other hand there is no limit to human greed and Kelso rejected the
idea of limiting the greed of investors.  As a lawyer he considered
property rights as unalienable.  Kelso had little option to entertain my
views on this matter for fear of alienating his clients on who he dependent
for his cash flow.  He publicly announced his rejection of my ideas at a
meeting of the ESOP Association in Washington D.C. in 1991.  Mahatna Gandhi
was also a lawyer but realised both the inequity of property rights and
their power to exploit people and the environment.  He developed the
concept of "Trusteeship" where owners hold property in trust for its
stakeholders.  My proposal for stakeholder property rights based on
ecological principles provide a way to operationalize the Gandhian concept
of Trusteeship.

Regards 

Shann

At 05:35 PM 14/9/1999 -1000, Thomas Brandt wrote:
>I appreciate Shann Turnbull's extensive comments on my "dream" piece.  His 
>ideas
>have been inspirational for me ever since I first learned of them ten to 15
>years ago.  And he is correct that my summary reference to his ideas does not
>reflect his own thinking with total accuracy.  There are several reasons for
>this.
>
>While I fully agree with the desirability of including stakeholders other than
>employees in efforts to broaden capital ownership, I did not mention this
>explicitly because I was limited to 1150 words by the publication for which 
>this
>was written.  This meant I had to choose my words carefully in order to
include
>all the ideas I wanted to include re: increasing employee ownership.  The 
>notion
>of broader stakeholder ownership is also implicit in my suggestion that unions
>form mutual funds consisting of EO stock.  But I think that increased employee
>ownership alone is going to be a hard sell locally, much less broader
>stakeholder ownership. 
>
>Re: outside vs. local investment; I realize his concept would apply to both. 
> My
>direct reference to his ideas only mentioned outside investment because 
>Hawaii's
>dependence on external investment is a very polarizing issue here and I
see Mr.
>Turnbull's idea as a way to narrow this divide.  Elsewhere in the article I
>mention that EO tax incentives for all businesses--whether locally-owned or
>not--could help to capture more profits locally no matter which businesses
>succeed.   
>
>Mr. Turnbull also pointed out that nowhere does he say what I suggested, i.e.
>investors should receive tax breaks to transfer ownership to stakeholders only
>after the initial investors/owners have realized a fixed rate of return.
He is
>right.  I guess in this instance my faith is weak.  I find it hard to believe
>that investors would agree to transfer ownership without such a guarantee 
>(but I
>hope I'm wrong).  Furthermore, I thought such a guarantee would help to 
>maximize
>the odds that businesses will still be viable when stakeholders take over.  In
>other words, only businesses which had proven their ability to generate the
>necessary return on investment would be transferred to stakeholders.  Let me
>know if you feel my thinking is faulty.  
>
>Mahalo and Aloha!       
>

Shann Turnbull
P.O. Box 266 Woollahra, Sydney, Australia, 1350
Phone: 02 9328 7466 office; 02 9327 8487 home
Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
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Life long E-mail: sturnbull@mba1963.hbs.edu
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