David Korten | May 23, 2024
The global interdependence of modern society requires that we work together in historically unprecedented ways to secure the wellbeing of all in every aspect of life. More than four centuries ago, we invented the legal instrument of the corporation as an institutional form to bring large numbers of people together around a unified purpose.
This instrument was originally created to pursue new opportunities presented by the imperial era of the time. Its specific form was consistent with the wishes of the imperial rulers then in charge.
The context has now changed dramatically. We have a continuing need for institutional forms that facilitate large scale cooperation. But we must rethink and redefine the corporate form in ways appropriate to our current needs and circumstances.
As defined by The American Heritage Dictionary, the corporation is:
"An entity such as a business, municipality, or organization that involves more than one person but that has met the legal requirements to operate as a single person, so that it may enter into contracts and engage in transactions under its own identity."
Corporations can take many forms. These include for-profit businesses, governmental entities, and private non-profits. If it is a for-profit business, its ownership shares may be privately held or publicly traded.
A corporation can centralize and monopolize control of virtually unlimited assets in the hands of individual owners who control the voting shares. Or it can localize and distribute the powers of ownership among many thousands of stakeholders with a natural concern for the wellbeing of the community in which the corporation operates. The Mondragon Cooperative in the Basque region of Spain is a leading example of the latter.
To discuss and address such foundational options in a meaningful way, we must give them conceptually meaningful names.
The World Economic Forum brings together the world leaders of business, government, and civil society to dialogue on global issues. Klaus Schwab, its founder and executive chairman, calls attention to an essential distinction between Shareholder Capitalism devoted to maximizing corporate profits and Stakeholder Capitalism devoted to the wellbeing of all stakeholders in the communities in which the corporation does business.
Advancing a global economy on the community stakeholder model is for Schwab a defining life cause. His foundational distinction is readily applied to the corporations that make up a global economy, thus giving us names for two specific corporate types.
- Imperial Shareholder Corporations are structured to maximize profits under control of and for the personal benefit of hyper-wealthy owners. They support authoritarian rule.
- Community Stakeholder Corporations are structured to distribute and localize power to secure the wellbeing of communities in which the corporation does business. They support deep democracy.
Imperial Shareholder Corporations trace their history back to the tradition and structure of the English East India Company, a corporation created and managed to exercise monopoly power in service to an imperial agenda. Such corporations can give enormous power to those who control them.
The history of this currently dominant corporate form traces back to1600, when Queen Elizabeth I granted a group of private investors a legal charter giving them an initial 15-year monopoly on all English trade with India and East and Southeast Asia. This original corporate charter created the English East India Company, which later became the British East India Company.
As it amassed human, financial, and military resources in service to the British Empire’s colonial expansion and exploitation, the British East India Company came to virtually rule India from the early 18th century until the British Crown dissolved it in 1858. For further detail, see this account of “How the East India Company Became the World’s Most Powerful Monopoly.”
At one point this company commanded a private army of 260,000 soldiers, twice the size of Britain’s standing army at the time. Beginning in the early 1620s, the British East India Company became active in the global slave trade, transporting slaves from Africa to provide conscripted labor for the company’s operations in Asia. It imported tea from China for sale in Britain financed by illegal opium exports to China. When China rebelled against the opium trade, the British government responded with war ships. Britain’s victory led to the British takeover of Hong Kong.
A few owners of contemporary Imperial Shareholder Corporations use their control to align their corporate assets in service to the wellbeing of the communities in which they do business. Yvon Chouinard, founder of Patagonia outdoor recreation clothing is a leading example. Unfortunately, these are exceptions. And maintaining a commitment to community service is difficult for an Imperial Shareholder Corporation. Owners inevitably become incapacitated and die. New owners may not share the previous owner’s social commitment.
A Community Stakeholder Corporation organized as a worker/community cooperative distributes ownership among many owners who live in the communities in which that corporation does business and who share a natural concern for the wellbeing of those communities. In the cooperative model, each owner owns one share and has one vote. That share can only be sold back to the cooperative for sale to another qualifying community member. This corporate ownership structure is equitable, democratic, aligns decision makers with community wellbeing, and is well secured against external takeover.
We have many examples of relatively small businesses converting to worker-owned cooperatives. I am not aware, however, of any example of the conversion of a major Imperial Shareholder Corporation into a Community Stakeholder Corporation. The need to change this becomes increasingly urgent. Just in the consumer goods economic sector, transfer of brand ownership in recent years has consolidated the ownership of more than 550 familiar brands in the hands of the controlling owners of just 12 companies.
The Community Stakeholder Corporation is an institution essential to the wellbeing of modern society. By contrast, Imperial Shareholder Corporations are an illegitimate institutional form from an imperial past we must now put behind us. It is time to break them up and convert them to worker/community ownership as part of a larger agenda of equitable wealth redistribution.
Bear in mind that human institutions are human creations. Their only legitimate purpose is to secure and enhance our human well-being. If an institution is not fulfilling this purpose, it is our public duty to transform or eliminate it.
We now witness growing calls to break up corporate conglomerates to restore some semblance of market competition. Not only must these corporations be broken up to restore market competition. We must also convert the individual companies to structures that assure ownership is shared and deeply connected to a commitment to the wellbeing of the communities in which they do business.
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