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An Antidote to GATT: Stakeholders vs. Stockholders

 

 by Steven Hill

With NAFTA behind us and GATT in front of us, it's a sane response for working people to start feeling surrounded. There seems to be little to stop these steamrollers from running us over, as the workers of the world prepare to unite finally -- in the unemployment line.

But there have been stubborn pockets of resistance to free trade that have sprung up over the last few years. Particularly interesting have been those that have re-drawn the ideological battle lines in new ways. Free traders count on pitting disposable worker against disposable worker, state against state, country against country, rendering all like the helpless brazos at the end of the film El Norte pleading "take me, take me" to the callous foreman. The partial antidote to such autocracy has been to incite, not worker against worker as the corporations would like, but impacted communities and families against capitalist greed. With occasional assistance from state and local government, abandoned communities have had to devise new strategies to fight back.

The two cases of community resistance examined in this article are noteworthy for two reasons. Firstly, allies in this ideological realignment have sometimes come from odd, even suspicious, sources, including corporations like Westinghouse Electric and Scott Paper Co., the Pennsylvania Chamber of Business and Industry, Republicans in the Pennsylvania state legislature, and one solitary circuit court judge and local government officials in Michigan. This wide base of resistance is reflective of a Perot-style populist appeal that is laced throughout the anti-free trade and anti-capitalist greed battle cry. Like its historical antecedents, 1990s populism is a curious blend of left meeting right, of local politics versus national politics, and the right half of 1990s populism has paternalistically seized upon the theme of "The Community" for its own purposes.

Secondly, despite the importance of what these two episodes revealed for the purposes of building a grass roots base of support for fighting free trade, the progressive/left press almost entirely overlooked their occurrence. As a result, the left/progressive forces largely missed the opportunity to glean how a powerfully populist theme posing communities vs. capitalist greed might provide the foundations of a progressive strategy able to capitalize on the dislocation and havoc that multinational corporations have caused.

Case One: Pennsylvania Fires a Shot In December 1989 articles first appeared in the New York Times and the Wall Street Journal, alerting the capitalist world to a new anti-takeover corporate law proposed in Pennsylvania. For the next eight months articles and editorials appeared regularly in the capitalist press, including the Wall Street Journal, Forbes, Business Week, The Philadelphia Business Journal, and the New York Times, reporting about, and in most cases vociferously condemning, this bill. Forbes called it "socialism Pennsylvania-style," Business Week labeled it "a dangerous game," and the New York Times opined that the anti-takeover statute was the "sorriest example of state intervention." The mighty wallet of the financial world, including the United Shareholders of America, corporate raiders like T. Boone Pickens, the chairman of the Securities and Exchange Commission, and institutional (mutual and pension fund) investors like the $60 billion California Public Employees Retirement System, condemned the anti-takeover bill and threatened federal lawsuits as well as a boycott of Pennsylvania.

What did this law do, that it struck such a nerve? And who was it designed to protect?

There were four provisions to the law, the first two of which were designed to clamp down on corporate raiders by limiting the voting rights of any shareholder who acquired company holdings of 20% or more, and by forcing corporate raiders to surrender short-term profits realized from unsuccessful hostile takeover attempts. Investors called these provisions "welfare" for corporate managers, saying it would "entrench inept management at lazy local companies" (Forbes), invite "economic inefficiencies that could undermine competitiveness," (Business Week) and other capitalist nightmares.

Adding insult to injury, from a capitalist stand point, a third provision of the Pennsylvania law guaranteed severance pay for dislocated workers and the continuance of existing labor contracts once a hostile takeover bid had begun. This part of the bill attracted significant support from organized labor. "We feel corporate raiders are cannibals who financially attack healthy companies," said Bill George, then-secretary-treasurer of the state AFL-CIO.

But perhaps most interesting, from a progressive standpoint, was the fourth provision of the Pennsylvania law that allowed corporate directors who are weighing takeover bids to consider not only the stockholders' interests, but also those of employees, customers, suppliers and the company's surrounding community -- the stakeholders, as they are called. Business Week said this provision "undermined a key concept of capitalism: a board's fiduciary duty to shareholders." Translated, this meant that the law took away some influence from the stockholders, the absentee owners who often live hundreds if not thousands of miles from the community, and gave that influence to those who lived in the community in which the corporation was based. This provision was a step toward, not nationalizing multinational corporations, but instead communitizing them. Not surprisingly, this provision resulted in the epithet "socialism" being hurled disdainfully at the Pennsylvania state legislature.

Red-baiting aside, there was overwhelming support for the Pennsylvania bill. The support was best explained less by political or economic ideology than by populist local politics. Pennsylvania was a state whose industries had been particularly hard hit in the 1980's by corporate raiders, take-overs and investment capital. An unlikely alliance of politicians, business executives, organized labor and significant grass roots support viewed the bill as a means of protecting local jobs and communities. Weighing in as supporters of the bill were corporations like Westinghouse Electric, Scott Paper, Armstrong World Trade, and Aluminum Corporation of America (ALCOA), the Pennsylvania Chamber of Business and Industry; as well as the most powerful labor organizations in the state, including the United Steel Workers and the AFL-CIO. The bill passed overwhelmingly in both the Republican-dominated state Senate and the Democratic-dominated state House, and Governor Robert Casey signed it into law in April 1990.

Besides the stakeholder provision, and the unusual alliance that pushed it, the Pennsylvania bill was intriguing for one other reason: it pitted the directors, managers, and CEOs of corporations against institutional and pension investors and shareholders, exposing a crack in the alliance of the capitalist edifice. At at the same time the bill also pitted rank-and-file union members against union retirees and their pensions, threatening intergenerational labor solidarity. These paradoxical trends bear watching as the economic tensions of free trade increase, since they may be precursors to shifting alliances. In an era of free trade, where investors and pension fund beneficiaries are seeking to maximize their pension investment, is it possible that labor may not be able to count on its own retirees for solidarity and support? And is it possible that workers and organized labor may occasionally find allies in corporate managers, who are tired of being "greenmailed" by corporate raiders and then taking the heat for chopping jobs in their local communities?

To be sure, each part of the alliance that pushed this bill had its own motives, some of them contradictory. And there was undoubtedly some truth to the charge by investors that this law substantially removed stockholder oversight from corporate managers and their performance. From a progressive or anti-capitalist standpoint, this was by no means a perfect law, since the "rights" granted to stakeholders could not be exercised by the recipients themselves, but rather by "benevolent" corporate managers acting paternalistically in the stakeholders' interest. But the theme of local politics -- of protecting communities, stakeholders and jobs -- prevailed because it had widespread Perot-style populist appeal. Pennsylvanians were mad as hell at Reagonomics and the takeover boom of the 1980s, and they weren't going to take it any more.

The Pennsylvania plan struck a capitalist nerve in the financial and investment community, and that was surely a sign that the Pennsylvania plan should have been closely studied by progressives. The prevailing forces tapped into a genuine populist revulsion with the takeover boom of the 1980s, and in doing so mounted a campaign that drew together organized labor, Republicans, Democrats, and state business leaders. The populist theme of protecting communities from the excesses of capitalist greed rightly belongs to a progressive and socialist tradition, the legacy of Eugene Debs, Robert La Follette and others. Yet the progressive media and organizations ignored this seminal event playing out in Pennsylvania.

Threats of federal lawsuits by the United Shareholders of America and institutional investors against the Pennsylvania law never materialized, and the controversy eventually died down. The law has been in effect for four years, and despite the initial hysteria and red-baiting, its effects have been mixed and uncertain, depending on whom you talk to. But the Pennsylvania law introduced a truly radical notion -- that of the rights of stakeholders -- into the fray of corporate-community relations. And it exposed a populist vein of widespread community and bipartisan discontent with capitalist greed, waiting to be tapped into by those clever enough to frame the public discourse and to propose doable solutions in such a way as to win that popular support.

Case Two: One Judge's Stand Several years later this populist discontent once again stumbled upon a rallying focus. On February 9, 1993, for a brief hiccup of history, a warning shot was fired across the bow of the U.S.S. Corporate Greed. Michigan Circuit Court Judge Donald Shelton issued a court order blocking General Motors' plans to pick up and relocate its Ypsilanti assembly plant to Arlington, Texas. Judge Shelton ruled that G.M. had promised "continuous employment" when it asked Ypsilanti for $13.5 million in tax abatements for the plant in 1984 and 1988. He said that a "gross inequity and patent unfairness" would occur if G.M. "is allowed to simply decide to desert 4500 workers and their families because it thinks it can make these same cars a little cheaper somewhere else."

At issue, similar to the Pennsylvania case, was the rights of the community, of the stakeholders and jobs, versus the rights of private corporate and investor wealth. In his ruling Judge Shelton not only prevented G.M. from closing Willow Run assembly plant, but he also asserted the rights of the "common welfare" and placed them on a par with the rights of private profit. Judge Shelton acted on the understanding that the economic pain and social consequences of unfettered corporate decision-making had become too costly to leave unchecked. In his ruling, Judge Shelton stated:

"The relationship of government and industry...is necessarily one of conflict, for it is the purpose of government to provide for the common welfare of all and it is the antithetical purpose of an industry to strive solely for the profit of its owners...Industry is a source of many of the jobs in our nation and it may well be that our nation needs a new relationship of trust and cooperation between government and industry...But such an effort must be national in scope and must be a real partnership, not one in which industry simply views government as another opportunity to increase profits."

Except for articles in the Nation (April 1993) and Z Magazine (July-August 1993) the progressive media ignored this event as well. The judge's heroic decision was on shaky legal ground, and certainly was not one that ingratiated himself to those influential powers that oversee the upward careers of judges. It was a propagandistic home run pitch, from a progressive standpoint, yet the progressive forces barely stepped up to the plate. Naturally, General Motors immediately appealed the decision. As expected, in August 1993 the Michigan Appeals Court reversed Judge Shelton's decision, and the state supreme court declined to review the appeal. GM closed the plant and took its jobs to Arlington, Texas. The appeals court's decision was hailed as a victory by the corporate world, since it struck a blow to other municipalities' attempts to prevent major employers from pulling up stake and leaving town.

"Communitizing" the economy These two cases in Pennsylvania and Michigan, properly understood and interpreted, still could serve as rallying points for progressive strategies designed to help communities fight back against corporate disinvestment and autocracy. This struggle between communities and corporations has been happening all over the United States. Replace G.M. with Boeing, Hormel or Pittston, and Ypsilanti with Seattle, Austin MN or the coal mines of West Virginia. In search of "ideal investment climates," beholden only to stockholders who live hundreds and even thousands of miles away, jobs have taken flight with little concern for the decimation wrought to host communities and the stakeholders who live there. New strategies are desperately needed to give communities the tools to fight back.

The fundamental issue at stake in an era of NAFTA/GATT free trade -- played out in the battle of the stakeholders versus the stockholders -- is one of economic partnership between community and private business. Whether acknowledged or not, there is an inherent relational exchange -- a partnership -- between employer, employees and their communities, whereby the employer avails itself of the human and natural resources of a particular community in exchange for offering jobs. But when the employer is a monstrous multinational corporation, beholden to absentee stockholders who care only about quarterly profits and their dividend checks, the exchange becomes one-sided. Workers, indeed whole communities, are reduced to a state of dependency so that even the mere threat of corporate flight or disinvestment is usually sufficient to squeeze out of them concession after concession.

Pushed by the anguish and fear in their communities, certain state and local governments have begun taking baby steps in the direction of legally codifying the rights and jurisdiction of the stakeholders of the corporations. Anti-takeover statutes and voting restrictions on large shareholders have now been passed in 23 states, though none of them are as sweeping as the Pennsylvania statute. Louisiana, Ohio and Texas, as well as some municipalities, have passed laws requiring disinvesting companies to financially compensate abandoned communities and municipalities. Called "exit fees," these reparations are intended to assist in the diversification of the local economy, the re-training of workers, and to provide badly needed funds to the social services necessary to help unemployed workers get over the hump. Actions such as these that "communitize" corporations need to be strengthened and deepened.

The German Approach Despite the state and local efforts cited above, the concept of stakeholder rights remains fuzzy and mostly unknown in the U.S. Those who find the concept appealing may sharpen their focus a bit by looking across the Atlantic to Germany. In the German coal and steel industries, each firm has a supervisory board (called Aufsichtsrat), half of whose members are appointed by management and the other half elected by the workers. Ironically, this semi-democratic economic structure was imposed on German industry by the victorious British after World War II as a way of punishing German industrialists for the support they had given to Hitler.

In addition, since 1952 all limited and joint stock companies in Germany with over 500 workers have had Aufsichtsrat supervisory boards with one third worker representation. Then in 1976 a controversial law called the Codetermination Act was passed, bringing this quota of worker delegates up to 50 percent in all firms with personnel of more than two thousand. The Aufsichtsrat do not interfere in the day-to-day running of the company but must approve major policy decisions, especially those with human resource implications. When combined with powerful worker councils located at virtually every German job site, the Aufsichtsrat system obliges managers to confer extensively with employees and unions. The Aufsichtsrat can use its influence quite powerfully, and is one of the reasons that German workers have the highest wages, the shortest working hours, the finest benefits, and one of the strongest labor movements in the world.

This is not to say that the Aufsichtsrat are perfect, by any means. In all but the coal and steel industries, the worker representatives must include the senior employee of the firm, who tends to side with management; and instead of a neutral chairperson -- who often casts the deciding vote -- the non-coal and steel Aufsichtsrats are chaired by a shareholder, who also sides with management. The worker delegates are usually outvoted, and by no means is the German model of Aufsichtsrat one of true co-determination between labor and management. But the framework is there, waiting to be improved upon by fighting for higher worker representation, a neutral or favorable chairperson, and a broader range of decision-making capability.

Progressive grass roots strategy Despite the passage of NAFTA, the anti-NAFTA mobilization that took place was modestly impressive, having brought together the widest grass roots coalition since the Persian Gulf War. Workers, organized labor, environmentalists, churches, social justice and human rights advocates, Ralph Nader, Jesse Jackson, the Citizens Trade Campaign, the Sierra Club, and yes, even Ross Perot and his United We Stand Americanos, all joined forces, albeit too little too late. Still, the remnants of this coalition may be tapped for the purposes of pressing grass roots initiatives that trumpet more loudly the theme of Communities vs. Greedy Capitalism and Stakeholders vs. Stockholders.

The example of the Pennsylvania legislature and Ypsilanti town officials notwithstanding, our elected representatives ordinarily can not be counted on to lead this campaign. The political process is, by and large, corrupted by the very wealthy corporations and investors the communities would try to regulate. So why not end-run the legislatures with voter initiatives, at both state and local levels? The issues could be crafted to have wide voter appeal, attracting votes from the anti-NAFTA coalition from the left to the right. What's more, as voter initiatives they could become campaigns around which to mobilize entire communities, gathering signatures and educating about the effects of global free trade and corporate disinvestment. Win or lose, such initiatives would have the power to educate, motivate, and galvanize an entire community like few other strategies.

Supervisory boards, "exit fees," and anti-takeover laws are just the beginning. Once we begin to think in terms of worker representatives participating in corporate decision-making, as in Germany, then other remedies become immediately obvious. For instance, why shouldn't elected community stakeholder representatives sit as equals on the company board of directors, alongside stockholder and worker representatives? This would be an improvement on the German Aufsichtsrat, forming a three-way economic "separation of powers," much like the tri-partite balance of power delegated to the executive, legislative and judicial branches of the U.S. political system. And since corporations are such dominant players in our communities, why shouldn't voters help elect the corporate CEOs, the "executive" branch of these crucial institutions that operate with so very little community oversight?

Similarly, organized labor has been banging its head against the wall of a Senate filibuster to pass a striker replacement bill. But why wait for Congress? State initiatives could accomplish the same thing, and at the same time build a groundswell of labor activists and supporters as organized labor mobilized their membership base. Organized labor's money and resources would be better used fighting locally and at the state level with voter initiatives to accomplish their objectives.

In an era hell-bent on free trade, it is essential that states and communities pursue strategies solidifying the legal framework of stakeholder rights. With occasional assistance from state and local government, and where these are non-cooperative from state and local voter initiatives, abandoned communities can effectively "communitize" multinational corporations. Progressive activists and media will be at the forefront of this struggle if we can pull together the fragments of anti-NAFTA and pro-community sentiment into a campaign with a coherent vision predicated on pitting communities versus corporate greed, and stakeholders versus stockholders. What's more, there seems to be a widespread base of popular support for such policies.

[Steven Hill is the western regional director of the Center for Voting and Democracy. He is co-author of "Reflecting All of Us" (Beacon Press, 1999). He lives in San Francisco. For more information, see www.fairvote.org or write to: PO Box 22411, San Francisco, CA 94122.]

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