RE: Ownership and Growth (Continued)

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

Sorry, my last message was sent somehow before I was finished.  I wanted to
go on to say:

However, stakeholder control will provide "connectedness" in very large
organisations.  This problem was overcome in Mondragon by enterprises
spinning off part of their operations into a separate but closely connected
enterprise when they employed more than 500 people.  The "offspring"
enterprises would automatically be come suppliers or customers and form
part of a "Relationship Association" or industrial group along the lines of
a Japanese Keiretsu.  Each group of a nest of individual closely connected
firms at Mondragon would then become connected into the MCC as shown in
Figure 16 of my 'New Strategies' paper
http://cog.kent.edu/lib/turnbull1/turnbull1.html  The much richer
connectedness of firms in a Japanese Keiretsu than found in 'Anglo' firms
investigated by Berle & Means and Jensen & Meckling is illustrated in the
Figure in my Stakeholder Governance article
http://cog.kent.edu/lib/turnbull6/turnbull6.html

Because OTC's described in the latter article and in my book create time
limits on the property rights of investors, there would be a strong
incentive for them to distribute most of their cashflows rather than
re-invest them internally.  So growth of OTC's would occur by them forming
"offspring" enterprises financed by rights issues to their investors and
stakeholders financed by dividend re-investment.  In this way OTC's would
change the "rules of the game" to create nests of closely connected
enterprises in a manner as found in Mondragon or a Japanese Keiretsu.  In
other words the re-investment decision of corporate cashflows would be
exposed to market forces rather than management discretions.  It would
create a boom in equity market transactions!  It would greatly improve
resource allocation to improve efficiency and so economic growth.  At the
same time it connect strategic stakeholders much more closely to the
enterprises in which they were employees, customers, suppliers or members
of the host community.  It would allow enterprises to be governed by those
who where most closely connected in an operational way and in way in which
stakeholders can add value.  Institutional investors, as fiduciary agents
have neither the incentive, knowledge or will to add value to their
investee enterprises.

The broadening of both ownership and control through OTCs thus provide a
basis to accelerate growth in at least two ways:
1. More efficient allocation of corporate cashflows through markets instead
of hierarchies.
2. Introducing active, knowledgeable, committed owners and controllers to
replace fiduciary agents watching agents.

As Louis used to say about all the manifold things that ESOPs could do "It
also makes your teeth whiter". 

Regards

Shann

At 05:48 AM 5/11/1999 , you [Michael Harrington] wrote:
>Alan has raised some tough questions and controversial issues here but I'll
>take a stab at them (MY COMMENTS IN CAPS)...
>
>
>-----Original Message-----
>From: IPGmail@aol.com [mailto:IPGmail@aol.com]
>Sent: Wednesday, November 03, 1999 11:40 PM
>To: ownership@cog.kent.edu
>Subject: Re: Ownership and Growth

Shann Turnbull
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