The Last Owner

With the collapsing of our financial system and the subsequent and continuous massive federal bailout, "We The People" have to understand our system more completely to avoid future catastrophic failures. Currently those most responsible for this systemic failure are now the ones performing the autopsy. Those participants the financial media, politicians, and bureaucrats motives are too interested in a game of pin the blame on the donkey, or the elephant, or even best of all on the market. In fact, if they can succeed in pinning the blame on our market system, then ironically those who participated in this failure will be able to consolidate even more power to themselves.  

But at last it is not the market that failed us, we have failed the market. And failed it in a most fundamental way. In a way that "free market" Republicans naively ignore and in a way that Democrats and even "classic" media who's faith in government is almost childlike, may never understand. Understanding the market failure begins by reviewing the nature of property, and the role of government in protecting personal property. This is where John Locke began. This is where capitalism begins. This is where the understanding of our freedom begins. In it's simplest form property has been defined as the right a person has to the fruit of their labors. And the governments role once was defined as an obligation on the part of society to protect personal property. Government also supports the freedom of individuals to use and dispose of personal property as they choose. This is the most basic relationship between government and individuals.

How do corporations fit into this system? Under current law a corporation is treated as an immortal person. "Property owners" of the corporation are shareholders and corporate governance is controlled by a board of directors who appoint executives to run the corporation. A standard for both members of the board of directors and corporate executives is that they are incented with large amounts of corporate property in the form of "time released" stock. If the stock price goes up, they win big, if it goes down they only have excorbitant salaries to fall back on. Other owners of the corporation are large mutual fund holdings and small private shareholders. Both mutual funds and private shareholders tend to own a specific company for a very short time with commitment to ownership always just a mouse click away.

So how do these property owners behave with regard to corporation they own. With regard to executives the incentive packages are so extraordinary that it's like giving a reckless teenager the keys to the car. If they drive it fast and hard the thrill is the greatest. If they drive it off the cliff, they simply open up the golden parachute and let the car and passengers crash below. There is no incentive to just drive the car reasonably.

We might think the passengers...or other shareholders would provide that incentive right? But in fact, they also want the car driver to drive as fast and furiously as possible to have the good short term thrill because really they too have an easy parachute to jump out with if the car goes off the cliff. To shift the analogy, Mutual Fund property owners really behave more like squatters than property owners. A squatter really could care less about the property they reside on. They want to be able to use it without putting anything into it. Mutual Funds really have little long term interest in the condition of a corporation. So in terms of property ownership who has the long term interest of the corporation in mind? Who wants the corporation to survive and thrive not just for a couple of years but for a couple of decades? You know who, it's the one who wants a job until they retire, it's the employees; not the union employee, the real employee. Ironically the last tie between employees and formal stock ownership was severed with Sarbanes-Oxley a government regulation intended to improve corporate governance. Executives decided with Sarbanes-Oxley that stock options should only be used for executive incentives and so the last owner of the corporation is gone.

When the last shred of owner left, Lehman Brothers, AIG, GM, Chrylser, Ford, and multitudes of Corporate Americana were driven off the cliff. We can try to blame government regulations but really if any of these companies had true ownership this would not have been allowed it this to happen. Executives in each of these failed corporations knew they were building a house of cards but there job was to drive fast until they went off the cliff.

To save our free market system somebody must own the corporation. And the only people in a corporation who can really behave like owners because of how they are incented are the employees. This suggests that corporate governance must be changed. At the very least, employees should have a 25% voting block. Thus allowing employees to form a coalition with a good CEO, or to form a coalition against a poor CEO.

Converting the current corporation into this new form of corporation would occur through corporate tax breaks or as part of the current bailout of our American Car companies. Think of the change that might occur if instead of unions, the employees had a 25% voting right in the company.

Now is the time to create a positive change for the future. If you like this idea climb on board, digg it, reddit it, or write your Senator or Congressman.