The search for better ways to Distribute the fruits of American Capitalism has some looking to Europe for Inspiration. Germany offers a Model of how Corporate Governance could be revamped to give American Workers a bigger say over what happens to Company Profits.

A Law that took effect in 1876 formalized what had been common practice at many German Companies as far back as the 1920s. It dictates that a Corporation with more than 500 Employees, a Third of Supervisory Board Seats must be filled by Directors Elected by Workers, a share that rises to One-Half for Companies with more than 2,000 Employees.

The German System, known as Co-Determination, allows Employees to have a Say in Working Conditions, such as Contractual Terms and Pay. It also gives them a Voice in how Profits are deployed, like a New Research and Development Center vs. more Shareholder Dividends.

At the Root of Co-Determination is the Idea that Companies should Balance the Interests of the various Stakeholders, a Group that includes: Equity Owners, Workers, Customers, and the Local Communities. That was also the Ideal in the U.S. until the early 1980s, when under the Influence of Economist Milton Friedman is was supplanted by the belief that Corporate Managers' Sole Responsibility is to Maximize Returns for Shareholders. That Single-Minded devotion tp Stockholders has been cited as a Factor in the Stagnation of U.S. Wages.

In August, Democratic Presidential hopeful, as of Today Presidential Candidate, Senator Elizabeth Warren (D-MA), unveiled the Accountable Capitalism Act (S.3348), which draws from the German Experience. The Plan would Allocate a Minimum of 40% of a Company's Board Seats to Directors Representing Workers. The Requirement would Apply to U.S. Domiciled Corporations with More than $1 Billion in Annual Revenue.

The Accountable Capitalism Act

- Requires very large American corporations to obtain a federal charter as a "United States corporation," which obligates company directors to consider the interests of all corporate stakeholders: American corporations with more than $1 billion in annual revenue must obtain a federal charter from a newly formed Office of United States Corporations at the Department of Commerce. The new federal charter obligates company directors to consider the interests of all corporate stakeholders - including employees, customers, shareholders, and the communities in which the company operates. This approach is derived from the thriving benefit corporation model that 33 states and the District of Columbia have adopted and that companies like Patagonia, Danone North America, and Kickstarter have embraced with strong results.

- Empowers workers at United States corporations to elect at least 40% of Board members: Borrowing from the successful approach in Germany and other developed economies, a United States corporation must ensure that no fewer than 40% of its directors are selected by the corporation's employees.

- Restricts the sales of company shares by the directors and officers of United States corporations: Top corporate executives are now compensated mostly in company equity, which gives them huge financial incentives to focus exclusively on shareholder returns. To ensure that they are focused on the long-term interests of all corporate stakeholders, the bill prohibits directors and officers of United States corporations from selling company shares within five years of receiving them or within three years of a company stock buyback.

- Prohibits United States corporations from making any political expenditures without the approval of 75% of its directors and shareholders: Drawing on a proposal from John Bogle, the founder of the investment company Vanguard, United States corporations must receive the approval of at least 75% of their shareholders and 75% of their directors before engaging in political expenditures. This ensures any political expenditures benefit all corporate stakeholders.

- Permits the federal government to revoke the charter of a United States corporation if the company has engaged in repeated and egregious illegal conduct: State Attorneys General are authorized to submit petitions to the Office of United States Corporations to revoke a United States corporation's charter. If the Director of the Office finds that the corporation has a history of egregious and repeated illegal conduct and has failed to take meaningful steps to address its problems, she may grant the petition. The company's charter would then be revoked a year later - giving the company time before its charter is revoked to make the case to Congress that it should retain its charter in the same or in a modified form.

Warren's Proposal is Designed as a Correction to a Trend that has been drawing increased Scrutiny. Publicly Traded Companies in the U.S. have been devoting more and more of their Profits to Share Buybacks and Dividends. Given that less than Half of U.S. Households own Stocks, the chances that Workers will Benefit when their Employer Succeeds Improve markedly when Profits are plowed back into the Company.










NYC Wins When Everyone Can Vote! Michael H. Drucker