Homestead - Arguments AGAINST My OWN Policy Proposal - Stock Quid Pro Quo for WTO and Gov't. Largesse-with some responses

[Deborah Groban Olson <dgo@esoplaw.com>]

Dear Homesteaders:

        There has been very little discussion, of late in this section.

        I am relaying the objections made to my proposal because I think they 
have
merit, and because I am still interested in developing a version of this
idea as a viable policy proposal. 

        Julia Markus has proposed using this idea in a situation in Canada. She
promised to email us her proposal soon.  The community trust holding the
stock in her proposal is modeled on the Canadian Labour Venture fund format.

        The objections mentioned below come from discussion about my Stock Quid
Pro Quo for WTO and Gov't. Largesse proposal (see 9/22/99 Homestead email
in Archives) with Walter Kamiat of the AFL-CIO Housing Investment Trust and
Building Investment Trust and Damon Silver of the AFL-CIO legal department,
when I was at the Center for Working Capital's Capital Stewardship
conference. (That conference was intended to acquaint pension trustees with
more methods of being pro-active about corporate governance as investors.)

        Walter objected to the idea of requiring stock as a quid pro quo for
government largesse for the following reasons:
        1) Many of the government subsidy programs currently in effect help the
poor  or other disadvantaged groups. For example,  low income housing
subsidies) even if those who receive them are rich (e.g. developers).
Municipalities currently negotiate to get as much low cost housing (for
example) as possible based on the tax credits, etc. they can offer. If the
local government had to take stock in the developer as part of the price of
the deal to enable use of the tax credits, it would simply add more cost to
the deal. The outcome would be fewer houses than now for the same amount of
tax credit.
        2) Subsidy programs have been designed and revamped over many years to
meet the needs of a variety of interest groups. Each of these groups is
likely to find that our quid pro quo proposal cuts into the economics of
their program. It is a tax on their program or the projects funded by their
program.        3)  Stock is too amorphous to pin down and get real value for 
the
exchange. ( I think the US Tax Code has provisions, such as the
requirements to provide "best common" for ESOP stock, that can overcome
this problem.)
        4)  Stock value can be undermined too easily to make it worth trading
subsidies for.  (Perhaps, as developed below, we should trade government
largesse other than subsidies for it.)
        5) What good is a non-controlling stock interest? (Partial answer:
sometimes dividends, voting rights and the right to act as minority
shareholder dissenters. The Canadian Labour Venture funds take
non-controlling interets in the companies they invest in. Do they protect
their interests with warrants? Perhaps the answer is to require put-options
for this stock similar to ESOP put-options.)

        Walter continued with a broader attack on the idea as both too broad and
too narrow. He said, "If you want to attack the basic structure of capital
ownership, why do it by narrowly tapping government subsidies. Why not
require payment of taxes with stock, or something similar? I have
considered that idea. My concern is that if it were voluntary, you'd only
get stock payment from companies whose stock is worthless. If you required
it you'd run into 5th Amendment "taking of private property" problems.

        I like the idea of pinning broadened ownership of corporations directly 
to
the benefits they get from government, beyond those available to all
citizens. Corporations owe their very existence, their rights to limited
liability protection for their stockholders and their ability to live
perpetually, directly to government. Hot media companies owe their millions
to their relatively cheap licensese to use the government controlled air
waves, etc. 

        One solution to Walter's objection to tying stock payment to all forms 
of
government largesse would be to limit the types of government largesse to
which the stock quid pro quo would be tied. For example, it might be tied
to all government licenses, commercial contracts, and subsidies for job
creation, but not to subsidies for health, education, and housing. 

        The quid pro quo policy should cover as broad a geography as possible. 
If
it is local, regional or state legislation, it will be very difficult for
many jurisdictions to enact it without making themselves less attractive by
comparison to their neighbors who do not have such legislation. (Although
some very popular spots, seeking to limit growth,  might be able to do so.)
However, if federal legislation, the US or other federal constitutions
required the stock quid pro quo provision, it would cease to be a matter of
competition between neighboring jurisdictions.

        One of the key features that attracts me to the use of ESOP, CSOP, and
GSOP as mechanisms is that these funds do not attempt to redistribute
property currently held by individuals. They are means of altering
allocation of future gains.  These concepts may dilute control and future
profits of current owners, in ways similar to increased taxes, but they do
not take away current use of that property by current owners without their
consent.

        Norm Kurland and others have raised concerns about the use of an
institution such as a Labour Venture Fund to hold and administer the stock
for local citizens. I think a fund structure could be developed, based on
the Canadian model, that mandated appointed representatives from the
financial and labor communities, and at large members elected by the
shareholders. One of the Canadian features we should explore is the size of
the funds and sub-funds in Quebec. The Quebec Solidarity Fund has smaller
funds called Solides, in areas the size of counties. They invest in and are
controlled by bodies comprised of representatives from their geographic
area. Our stock quid pro quo model could borrow from that. This would allow
the quid pro quo funds to hire knowledgeable staff to oversee governance,
investment and other shareholder issues on the stock held. The
representation of shareholders on the board would provide a voice by
employee/citizen shareholders in the policies and practices of the fund.

        Please respond with your comments on these or other alternative ideas
about how to acomplish the end of broadening ownership. Please also let me
know if you are interested in pursuing this idea, but find it too
cumbersome to deal with this many ideas in one document. If so, suggest a
structure that might work better.

Very truly yours,


Deb Olson


Deborah Groban Olson
Project Co-ordinator
Capital Ownership Group Project
Ohio Employee Ownership Center
Kent State University
c/o Shared Equity Strategies, Inc.
3163 Penobscot Building 
Detroit, MI 48226
(313) 331-7821 or (313) 964-2460
(f) (313) 331-2567
email: dgo@esoplaw.com
web site: http://cog.kent.edu