Re: Policy Proposal - Stock Quid Pro Quo for WTO and Gov't. Largesse

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

Dear Deb and other Homesteaders

I strongly support the idea of private stockholders paying for the economic
gains obtained by their corporations from public/government benefits
through a dilution of their ownership interest.  This principle is commonly
used by venture capitalists through the issue of options to personnel and
is widely practiced by large publicly traded corporations  through the
issue of stock options to their senior management.  Such ownership dilution
also occurs in corporate bailouts and reconstructions but the new stock is
typically issued to the financier or their nominee.

However, governments rarely seek such "Stock Quid Pro Quo".  A notable
exception was the US government bailout of Krysler Corporation.  (For the
benefit of us foreigners could you explain what ICC stands for?  My search
engines suggested a number of possibilities)

I have promoted the stock issue for government benefits idea in Australia.
In my current submission to our Government
http://www.aph.gov.au/house/committee/eewr/ESO/subslist.htm (Submission 15)
I have suggested that one basic step in this regard is to require all
economic legislation to becomes subject to an "Ownership Impact Statement"
to evaluate if it contributes to making existing stock holders richer or
democratising wealth.  Economists are obsessed with justifying government
largesse by the mantra of creating jobs and rarely look at how such
largesse also increases the wealth of stockholders.  Foreign investment is
also encouraged and often subsidized on the justification of it creating
jobs without considering the effect on wealth distribution over the longrun.

There are some technical and other issues you may wish to consider in your
proposal: 
 
1. You propose that  “Quid pro quo” means corporate common stock with the
greatest voting and dividend rights or preferred stock convertible into
such commo stock or its equivalent in cash.

This can lead to secondary and higher order Quid pro quo new stock issues
diluting lower order Quid pro quo stock dilutions.  This may be a problem
you are willing to accept but it provides the "investor" stockholders an
advantage over the newly created "stakeholder" stockholders nominated by
the government providing the largesse.  But is also disadvantages new
stakeholders who suffer dilutions of their newly acquired stock when
additional Quid pro quo issues of new stock are made.

You may wish to consider an alternative approach of corporations creating a
separate class of "stakeholder" stock.  Stakeholder stock would acquire
ownership and control rights from ALL other other "investor" stock on issue
by the corporation to the degree that a corporation obtained largesse from
the community, local, state, or national government or directly from
stakeholder constituencies such as the employees, customers and suppliers.
In in this way you separate out negotiations on the split between investors
and stakeholders and between the different stakeholder constitutencies.
For instance, employees might accept lower wages for a new allocation of
ownership and control rights to stakeholder stock with an appropriate new
issue of stakeholder stock to employees.  The employees would not then
suffer dilution from new Quid pro quo dilution of investor stock which they
hold under normal arrangements.

2.  The beneficiaries of the stock can be vital in making a corporation
competitive.  Your language suggests that each company may have a very
broad and institutional type ownership to introduce the problem of
fiduciary agents monitoring fiduciary agents.  "Watching the Watchers" as
Monks & Minow would say. This creates what Peter Drucker describes as
"Pension fund socialism" and NEGLIGENT ownership and control of
corporations which has become a political concern in the UK as described in
my attached 1,000 word article on the 'Politics of Governance' published
this month by the Corporate Directors Association of Australia.

 I would strongly recommend that you achieve very broad participation NOT
THROUGH EACH COMPANY BUT BY HAVING MANY COMPANIES INVOLVED WITH VERY
FOCUSED STAKEHODLER CONSTITUTENCIES WHO CAN ADD VALUE as described in
'Stakeholder Co-operation', Journal of Co-operative Studies, Society for
Co-operative Studies, 29:3, pp 18-52,  (no.88), Manchester, January, 1997.
http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=26238  No firm can exist
without its employees, customers and suppliers and so these become
strategic stakeholders.  Other stakeholders who cannot directly support the
existance of a business need to be limited to say 20 of the total
stakeholder stock.  Mondragon used a limit of 10% of profits to
non-stakeholders even though non-employee stakeholders had a majority
representation on the supervisory board of some of their co-ops.

3.  I strongly suggest that you do not use the language such as "the new
corporate citizenry to intelligently and collectively exercise their
concerns by electing some members of the boards of directors of the funds
that hold their stock.  What Oliver Williamson 1985:300 describes as
"interest group" management does not work with a unitary board.  To avoid
compounding conflicts of interest you need separate boards to create a
division of power, checks and balances and decomposition of decision making
labor (As found in Mondragon).  In his survey of worker ownership around
the world Paul Bernstein did not report a single employee owned firm which
was managed by a unitary board in his book on "Workplace Democratization:
Its internal dynamics".  I have attached another short article on this
topic with the title "Employee Governance" which I prepared for publication
by the AEOA but has not yet been published.  Any other organistion is also
welcome to publish it with appropriate acknowledgements.

4. You define
 “ Government largesse” means any tax deduction, abatement, grant,
government subsidized or guaranteed loan, license, lease, concession, or
contract, etc.

I support this definition but it may be too radical.  You may need to give
companies the option of obtaining deductions without diluting the owners on
the basis corporations pay higher taxes.  For example, depreciation and
depletion write-offs could be made conditional upon ownership write-offs.
In this way, ownership of any residual value (surplus values) in capital
assets could be transferred to stakeholders. Refer to my exchange of
postings with Thomas Brandt in the ESO Subnational discussion group
September 14-17 with the above point suggested in my last posting of Sept 17.

Your proposals provide a way to implement what I have described as a
Community Investment Code (CIC).  So this may explain why Norm Kurland
responded with "No serious and committed Kelsonian will embrace your
proposals".  However, this constituency is so small it should not provide a
basis to deter you.

My approach is to "let a thousand flowers bloom".  As a company promoter it
is always better to have a little of something than a lot of nothing.  So
let us see what ideas we can get moving to become "good currency" with
policy makers, governments, WTO, etc.  Let us not waste energy arguing
among ourselves. 

 It would be nice if you thought some of my comments were useful and took
some aboard but I will still support you if you do not.  I only wish Norm
would take the same approach as he has much experience, insights and
committment.

Best regards

Shann

At 05:02 PM 22/9/1999 -0400, Deborah Groban Olson wrote: 
Dear Homesteaders:

        This is the proposal I have referred to in my 9/21 email to Shann
Turnbull. It was originally buried in an email I sent Homestead that
included a long off-line discussion I had with David Korten, author of When
Corporations Rule the World and a leader of the International Forum on
Globalization. Please learn from my mistakes and put a meaningful subject
heading on any email from which you hope to generate responses. 

I am currently working on an article for the American Prospect web site on
the ICC aspects of the
>> >> >> WTO and its world government constitutional ramifications. The
>> >> >> essential point is that throughout US histsory, the ICC has been the
>> >> >> engine of increased federal power and decreased state power,and that
>> >> >> civil society must retain ultimate authorithy over the interests of
>> >> >> commerce.  In some cases, like the New Deal legislation, the broad ICC
>> >> >> reach has been a good thing. But the New Deal was created in response
>> >> >> to enormous agitation in the streets for social and economic justice.
>> >> >>
>> >> >>         In response to your request for specific proposals, that might
>> >> >> be discussed at your Globalization Teach-in, following is an excerpt
>> >> >> from a proposal I am only now sending out to the COG Homestead
>> >> >> discussion group. It has not yet been reviewed or discussed by the
>> >> >> others. It is a concept that could be used in international trade
>> >> >> agreements or charters or in national or regional constitutions or as
>> >> >> legislation.
>> >> >>
>> >> >>         It is not a COG position. At present it is solely my
>> >> >> responsibility. I began working on it based on conversations I had
>> >> >> with Bill Greider on solutions to the problems he outlined in his
>> >> >> book, One World Ready or Not, the Manic Logic of Global Capitalism.  I
>> >> >> highly recommend his book for both problem exposition and an outline
>> >> >> of some solutions.
>> >> >>
>> >> >>         My proposal is still in development.  I hope to have in a more
>> >> >> useable and publishable form as of the November 30 events.  Please do
>> >> >> not publish it without my consent, as I would like to further refine
>> >> >> it. However, a rough draft  is:
>> >> >>
>> >> >>         " One of several proposed solutions to the problem of capital
>> >> >> concentration is: broad individual ownership of productive capital by
>> >> >> the general population, derived from future retained earnings, NOT
>> >> >> expropriation of existing wealth. This particular proposal is one of a
>> >> >> number being discussed on-line at the Capital Ownership Group/ virtual
>> >> >> conference center at http://cog.kent.edu in the “Industrial Homestead
>> >> >> Policy",open to the public.
>> >> >>
>> >> >>         (This group is discussing several proposals related to the
>> >> >> WTO. In various ways they all deal with requiring corporations to
>> >> >> distribute ownership to employees, local communities and/or the
>> >> >> general public in exchange for benefits they get from either trade
>> >> >> agreements or governments. COG invites participation from others who
>> >> >> are interested in serious discussion about creating proposals,
>> >> >> implementation strategies and vehicles. COG’s primary concern is to
>> >> >> develop an ongoing coalition to create a viable alternative to the WTO
>> >> >> model that meets the needs of people in the developing and the
>> >> >> developed world. We want to create policy proposals around which
>> >> >> people's organizations can coalesce and organize.  COG is building an
>> >> >> on-line library and welcomes articles and links to other websites.)
>> >> >>
>> >> >>
>> >> >>  Stock Quid Pro Quo Proposal
>> >> >>
>> >> >> 1) Intent: Stock to workers, citizens and labor-venture funds as quid
>> >> >> pro quo for government largesse
>> >> >>
>> >> >> The intent of this proposal is to reverse concentration of capital,
>> >> >> provide a stream of income for all citizens, and give citizens a voice
>> >> >> in governance of major corporations.
>> >> >>
>> >> >>           a)      Use existing government largesse to businesses to
>> >> >>           require distribution of capital to citizenry at large.
>> >> >>           b)      Create a diverse electorate within corporations as
>> >> >>           political hegemony transfers from nation-states to global
>> >> >>           corporations.
>> >> >>           c)      Create new private, stock fund entities, modeled on
>> >> >>           the Canadian Labor Venture Funds, to manage these assets in
>> >> >>           the collective self-interest of the citizen-shareholders.
>> >> >>           d)      Use the citizen-shareholder funds both to educate
>> >> >>           the citizen-shareholders and to help them wield their market
>> >> >>           power in the interests of local communities.
>> >> >>
>> >> >> 2) Proposed Language
>> >> >>
>> >> >> This is rough draft model language for amendment of national
>> >> >> constitutions, model state or local legislation, might serve as a
>> >> >> “green light subsidy proposal” in international trade proposals such
>> >> >> as the Multilateral Agreement on Investment (MAI), the North American
>> >> >> Free Trade Agreement (NAFTA), the Free Trade Agreement of the Americas
>> >> >> (FTAA) and other similar international agreements on investment and
>> >> >> trade, or as an addition to the UN Charter or in other international
>> >> >> agreements such as a policy direction for the United Nations
>> >> >> Commission on Trade and Economic Development (UNCTED).
>> >> >>
>> >> >>  “In exchange for government largesse (from every level of government)
>> >> >> to businesses require governments to provide a quid pro quo at fair
>> >> >> market value to the common weal.”
>> >> >>
>> >> >> 3) Definitions of these terms (perhap in enabling legislation):
>> >> >>
>> >> >>  “Commonweal” means private or public entities, including
>> >> >> non-governmental trusts, employee trusts, community trusts, stock
>> >> >> funds, investment funds, co-operatives, for-profit and non-profit
>> >> >> corporations, and other entities provided they met specific tests of
>> >> >> bona fide interest in protecting the long term economic, social,
>> >> >> ecological and/or cultural interests of the local citizens. When
>> >> >> developed in greater detail this definition shall provide mechanisms
>> >> >> for responsible parties, such as labor-venture funds (such as those in
>> >> >> Quebec and Manitoba fashioned under the Canadian labor-venture fund
>> >> >> law), community development financial institutions, credit unions, and
>> >> >> other certifiably locally controlled financial institutions to hold
>> >> >> the quid pro quo stock responsibly in a manner that would encourage
>> >> >> public markets to continue to invest in these companies and
>> >> >> communities.
>> >> >>
>> >> >>  “ Government largesse” means any tax deduction, abatement, grant,
>> >> >> government subsidized or guaranteed loan, license, lease, concession,
>> >> >> or contract, etc.
>> >> >>
>> >> >>  “Fair market value” has its current definition under the US Internal
>> >> >> Revenue Service and the US Tax Court ( or similar institutions in
>> >> >> other countries or within international trade law, if such a concept
>> >> >> exists therein and is as well developed as the US tax law concept.
>> >> >>
>> >> >>  “Quid pro quo” means corporate common stock with the greatest voting
>> >> >> and dividend rights or preferred stock convertible into such common
>> >> >> stock or its equivalent in cash.
>> >> >>
>> >> >> 4) Intended Effects?
>> >> >>
>> >> >>      a)      Deter government units from competing with each other for
>> >> >>      corporate location by means that undermine local economies.
>> >> >>      b)      Build a diverse stock portfolio for every citizen over a
>> >> >>      generation.
>> >> >>      c)      Create a source of non-wage income and a vote in
>> >> >>      corporate decision from a diverse citizenry.
>> >> >>      d)      Create means for the new corporate citizenry to
>> >> >>      intelligently and collectively exercise their concerns by
>> >> >>      electing some members of the boards of directors of the funds
>> >> >>      that hold their stock.  The majority of the board members would
>> >> >>      need to meet fiduciary competence criteria and the funds would
>> >> >>      have to carry fiduciary insurance. The boards of these funds
>> >> >>      would hire professional managers.  Some of these funds could be
>> >> >>      pension type and others could be more like mutual funds or IRAs.
>> >> >>      Individuals would have the ability to move their funds every five
>> >> >>      years to a similar type of fund (i.e. pension money might have to
>> >> >>      move only to other pension type funds).  Thus the funds could be
>> >> >>      assured of patient capital, while individuals would have some
>> >> >>      ability to vote with their feet, and some ability to use their
>> >> >>      own capital to create new businesses, buy homes, educate
>> >> >>      children, etc.
>> >> >>
>> >> >> 5)      What Next?
>> >> >> Use these proposals as a program (or part of a larger program) around
>> >> >> which to organize diverse constituencies concerned with capital
>> >> >> concentration and loss of local control by labor and local
>> >> >> governments, and as part of the civil society agenda for trade
>> >> >> negotiations promoted by citizen groups."

I look forward to your comments.

Deb Olson
>
Attorney Deborah Groban Olson
Principal
Shared Equity Strategies, Inc.
3163 Penobscot Bldg.
645 Griswold St.
Detroit, MI 48226
(ph) 313/ 331-7821  or 964-2460
(f) 313/ 331-2567     or 964-4065

dgo@EsopLaw.com
www.EsopLaw.com
www.Shared-Equity.com

ESOP and stock plan professionals, providing legal, financial and
administrative guidance to create and maintain employee stock ownership
plans and other forms of equity compensation.

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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
Outside Australia, replace first "0" with "61" after international access code
Life long E-mail: sturnbull@mba1963.hbs.edu
http://www.mpx.com.au/~sturnbull/index.html