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[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index] HOMESTEAD: Do trusts make workers second class owners?
My 1253 word article below argues that the use of share plan trusts in Australia makes workers second class owners. This raises three questions that I seek answers: 1. Is this the case in the USA and the UK? 2. Can leverage ESOPs be designed without a trust in the USA and the UK? 3. Are there examples of leveraged share plans without trust? Reforming capitalism with worker owners
Worker ownership has the potential to tame the forces of
globalisation. However, worker ownership established through
shares held in a trust can exacerbate the alienation introduced by
globalisation. Beneficiaries of any trust are not recognised by
either the constitution of their employer as one of its owners or by
corporation law as a member of the company. Share trusts increase
the alienation of small owners. Shann Turnbull* Big shareholders can use trusts and nominee companies to hide their identity without loosing their ability to appoint directors and control corporations. Both stock exchange rules and the law condone this practice that creates covert capitalism. It means that the public may not know who is most accountable for appointing or not retiring directors and so the behaviour of corporations. This undermines democracy because publicly traded corporations control so much of the economic, political, social and environmental agenda. The problem with globalisation is that democracy is made even less relevant with alien agendas being introduced by foreign interests. To eliminate covert capitalism, corporate law should require all public companies to publish on their web site the names of all individuals participating in the ownership and control of their shares. Worker owners should insist that share plans record them as direct owners with their name on the share register and not as beneficiaries of trust. As beneficiaries of a trust, the ownership and control rights of workers depend upon how the trust is managed and administrated. With share plan trusts, the trustee may be a company or one or more individuals. Their appointment and pay is mostly at the grace and favour of management. So any discretions of the trustee will favour management. Trustees may adopt procedures that can deny the rights of workers to have their views heard as an owner. For workers to requisition a meeting of shareholders the Corporation Law requires at least 100 shareholders to petition the company. If the shares are held in trust, then the law only recognises the trustee as a single shareholder to deny workers using their numbers to make directors accountable. So the belief that workers can obtain “substantially the same rights as if they own the shares directly” as may be required by the Corporate Regulator is not practical. Even if workers were direct owners with their name on the register of shareholders their voice may not heard at shareholder Meetings. This is because directors control the conduct of meetings and so who is recognised to speak and for how long. Chairpersons commonly act unethically by entering into debate before the chair that it is their job to adjudicate. While the corporation law allows this unethical behaviour it does requires “reasonable opportunity for members as whole” to be heard at meetings. However, this provides the chairman discretion to avoid worker members and their union representatives. In any event the legal obligation of the chair is so vague that it would be pointless to try and rectify the matter after the meeting by spending money on lawyers. Trustees who have undertaken to vote at shareholder meetings as instructed by their worker beneficiaries may take the same sort of approach. For example, the Trustee may not cast votes for the worker owners in a valid manner and when they are counted it is management who determines how they are counted. To tame the forces of globalisation and remove neglect, abuse and even exploitation of workers and other small shareholders by directors and management, the conduct of shareholder meetings needs to be removed from management. The fundamental reason for having an annual statutory meeting of shareholders is for directors to present the accounts, become accountable and stand for election. However, the procedures adopted to make directors accountable are determined by themselves rather than by the shareholders. This is an intolerable unethical conflict of interest and an operational nonsense condoned by company law. Its time to revisit the motion put forward in the Australian Parliament in 1997 to require all publicly traded corporations to appoint a Corporate Governance Board appointed on a democratic basis of one vote per shareholder rather than the plutocratic basis of electing directors on one vote per share. It would be a member of this “Watchdog” board that would chair meetings of shareholders to allow directors to become properly accountable to investors. The need for two or more boards is a fundamental requirement for any significantly worker owned company to be competitive and sustainable. World surveys have revealed that no non-trivial worker owned industrial firm is sustainable with a single board. One reason why unitary boards are not viable is the instability created by the conflicts of interest that arise when directors can hire and fire the workers that elect them. Trustees of share plans carry out quite a different role to watchdog board. Even if workers democratically elect the trustees it can still result in worker owners being second class owners. One reason is that trustees can be sued if they do not carry out their fiduciary duties to maximise economic benefits rather than political, social and environmental concerns which may have a higher priority with some worker owners. If an offer is received to take over the workers company at a price directors recommend then the Trustee could be legally obligated to accept the offer even if the workers wanted it rejected to secure their jobs. The preservation of local ownership and control is an important contribution that worker ownership can make to tame the forces of globalisation provided that direct name on the register is used in share plans. Share plans provide a basis to "buy back the farm" and allow Australians to regain control of their economy and our unique lifestyle, which is the envy of the world. Direct participation by ordinary Australians in the ownership and control of business provides a way to reduce the growing alienation in society that is disenchanting voters and providing support for the minor parties. Direct ownership of business by workers also provides a way to reform capitalism by: 1. Providing a basis for workers to call shareholder meetings to expose and control share plan abuses practiced by some executives. 2. Providing unions a compelling basis to represent their share holding members to counter the excessive payments that directors pay executives and themselves. 3. Workers obtaining the right to resist directors entrenching their own interests by nominating and electing directors, auditors and making other changes in the way corporations are governed. 4. Avoiding trustee ownership with the obligation of trustees to over-ride the social, political and operational interest of worker owners. 5. Providing a role model to counter the current covert forms of capitalism with many owners hiding their identity and share trading dealings behind trustees or nominee companies. 6. Creating shareholders that are much more informed and committed to support the operations of a company than institutional investors and day traders who are only interested in financial results and mostly neglect to participate in corporate governance. 7. Creating shareholders that can contribute to making businesses more productive and responsible than many institutional investors who are have conflicts of interest in making corporations accountable when corporations provide a valuable source of income. 8. Providing a supplementary tax-free dividend income that can continue even if workers become incapacitated or retire. 9. Widely distributing ownership to provide a third way to work or welfare for distributing the wealth of nations. 10. Distributing national income to avoid the dead weight cost of government in re-distributing income through taxes and welfare and the associated social alienation that this produces. oooOOOooo
*Shann Turnbull introduced ESOPs to Australia in 1975 when he wrote
Democratising
the Wealth of Nations and organised their US inventor, Louis
Kelso to visit. He is a founding member and former President of the
Australian Employee Ownership Association. 1253/30072001 Shann Turnbull Ph.D.
P.O. Box 266 Woollahra, Sydney, Australia, 1350
Ph: +612 9328 7466 office; +612 9327 8487 home; Fax: +612 9327 1497;
Life long E-mail: sturnbull@mba1963.hbs.edu
Alternate:sturnbull@optusnet.com.au
with other papers & book at
http://cog.kent.edu/library.html
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