Re: HOMESTEAD: Do trusts make workers second class owners?

[Mbindnerdc@aol.com]

Very good paper.

I heartily agree with each worker shareholder having a direct voice, though I 
am not sure the one vote per share system is bad - although shares may be 
counted differently up here.  I would think that the worker trusts have quite a 
few shares, especially if dividends are reinvested.

I have a question.  Is the trustee appointed by the Union, by the government or 
by management?  I would hope the union appoints, or does so eventually, and 
that eventually the union trustee can count each share controlled for the 
workers as a vote to call a meeting.

With time, if social insurance contributions are invested in the trust (as I am 
advocating here in the States) the workers should hold a majority of shares.  
When that is the case, they can demand that profits be distributed by cost 
element - with profits attributable to plant and equipment distributed to the 
share holders (inclunding labor shareholders) and the profit attributable to 
labor and fringe costs distributed directly to workers - either in cash or to 
purchase additional shares.

Eventually, the workers could by out the capitalists, and hire management who 
will flatten wage scales and increase innovation.  Of course, this would also 
lead to a massive revision in work rules which protect worker jobs but hinder 
profit - though this is not necessarily a bad thing.  It would also lead to a 
lessening of the need for government regulation of both product safety and 
worker safety - as workers could be counted on to build a safer product and 
have a safer workplace.  Capitalists can damage the environment and put out bad 
products because they are diversified.  If your entire retirement is in one 
firm, you will make sure that firm is profitable, innovative and has a safe 
product.

Finally, the other reason to stick to one share one vote  is for the management 
of firms after the capitalists have been bought out.  Because of dividend 
reinvestment and the fact that shares would accumulate for older workers more 
than younger workers, older workers and retired workers (whose heirs would have 
to sell back their shares when the worker member dies) would control more 
shares.  This is good, as they are more experienced and with experience comes 
some measure of wisdom.  I know the young believe they have a monopoly on 
innovation - however it ain't necessarily so.

Peace out,

Mike Bindner


In a message dated Sun, 29 Jul 2001 10:43:22 PM Eastern Daylight Time, Shann 
Turnbull <sturnbull@mba1963.hbs.edu> writes:

>   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
> 
>   Shann Turnbull*
> 
>     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. 
> 
>   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
>   1253/30072001
> 
>     *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. 
>   
>   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  
>http://members.optusnet.com.au/~sturnbull/index.html  Papers at:  
>http://papers.ssrn.com/sol3/cf dev/AbsByAuth.cfm?per id=26239  with other 
>papers & book at  http://cog.kent.edu/library.html