1. Other people's money. The stock-market system, as it currently functions, lacks legitimacy for many reasons, but a central one is this: Americans typically hand over their savings to financial firms that, by their nature, are driven by self-interested profit objectives and serve other, larger clients (mainly corporations) in ways that directly conflict with the interests and values of the investors. The scandals have illustrated these conflicts of interest on a grand scale, but the fundamental problem can be resolved only with new financial institutions, not internal rule changes. Ordinary investors need freestanding investment firms that are trustworthy because they are beholden to only one group--the people whose money is at stake. A few exist; more are developing. Working Americans are, likewise, entitled to their own representatives, preferably elected, to oversee their pension savings--trustees who can influence the investment policies and resist the antisocial enthusiasms that sweep through corporate boardrooms and Wall Street. Why give your capital to the known egomaniacs?
2. Governance for whom? If the "shareholder value" doctrine is repudiated, it must be replaced with a broader understanding of the corporation's purpose, its obligations to the other constituencies like employees, communities and society at large--and their right to be heard on major policy decisions. Contentious questions will have to be settled on how to design such a realignment, but many of the best-run corporations in America have never forgotten the value of inclusiveness. They already operate, quite successfully, with an explicit culture of encouraging bottom-up participation in workplace decisions, even business policy. For the recalcitrant, reformers might propose a variety of modest steps. Every couple of years, employees (or other constituents) could participate in a vote of confidence on the CEO's performance, only advisory and with secret ballots, but a chance to vent and surface deeper problems. Or communities could have a formal right to petition the board about larger priorities. As Lerach's reforms suggested, companies could be required to maintain independent audits of their risk management and environmental behavior, regularly shared with the public. Is the company ignoring the law? What are the potential liabilities if it gets caught?
3. Maximizing long-term value. Corporate behavior has been deformed, especially during the past two decades, by the pressures to generate short-term gains, and pension funds often participated in the pressuring. The question needs to be asked: Do pension funds and other institutional investors violate their fiduciary responsibility to investors and the beneficiary owners of retirement savings--workers and their families--when they ignore the long-term consequences of how the money is invested? Fiduciary duty is defined by law quite narrowly--maximizing value for the beneficiaries--but many corporations maximize returns by doing damage to society and trashing the very things people need and value in their lives (safe workplaces, stable communities, a healthy environment). The original purpose of the corporation is maximizing wealth for long-term benefit, not for the next quarter, and that principle needs to be restored.
Business professors James Hawley and Andrew Williams elaborated a compelling new theory, in The Rise of Fiduciary Capitalism, that describes pension funds as "universal owners," since they invest in all the major corporations across the stock market and effectively own the entire economy. Therefore, their portfolios are directly injured by antisocial corporate behavior, and they will pay the cost, one way or another, of pollution or abusive operating methods even if it yields profit to a particular company. This perspective invites the possibility of a challenging lawsuit by inventive trial lawyers and renewed activism to persuade pension-fund managers to rethink the meaning of their obligations.
4. New ownership. Who really owns the corporation? The historic fiction that it is the shareholders has been badly tattered by recent events and open again to critical scrutiny. They own the certificates called "stock shares," but that's about it. In practical reality, executive insiders exercise the controlling powers of ownership, usually accompanied by a few financiers and large-bloc shareowners, and they decide what happens to the returns. So long as shareholders remain distant from the actual company and ready to dump their shares on short notice, it is illogical to imagine they will ever exercise wise and patient supervision. In fact, the destructiveness and inequalities generated by corporations are unlikely to be reduced until the steep pyramid of power is flattened, with the ownership distributed broadly among employees and other interested constituencies, including trustworthy community institutions.
Workers at every level have a unique, intimate knowledge of the firm that shareholders and even executives can never acquire. The employees also accept various risks on behalf of the company's future that, unlike the CEO contracts, are seldom compensated. Employee stock ownership (or cooperatives and partnerships) can lead to the creation of more democratic systems of management and more equitable distribution of the rewards. It is not that workers will always get things right, but that the power to determine a company's direction and purpose is shared more widely among many minds and voices. The operating values of employees ought to be more firmly anchored in the surrounding social context and, for that matter, in common sense. It is hard to imagine that worker-owners could do any worse than those recently fallen titans.