Mehra - Blog Post "Funky 14"

  In Private Government, Elizabeth Anderson contends that most modern workplaces function as private governments under which the people unfree. This blog post aims not to dispute the fundamentally unfree nature of the people under these private governments. Rather, I aim to highlight a potential disanalogy between dictatorial private governments and modern corporations, or at least emphasize the increasing complexity of this analogy, through the role of shareholders. 

First, it is important to briefly summarize the structure of the “private government” that Anderson puts forth. In her view, “the dictator [of the private government] is the chief executive officer (CEO), superiors are managers, subordinates are workers” (39). The language of “dictator” is certainly strong; Anderson somewhat qualifies the unitary action of the dictator by acknowledging “The oligarchy that appoints the CEO exists for publicly owned corporations: it is the board of directors” (39). The CEO has mostly unqualified authority to rule his or her private communist government. 


However, it is critical to note that Anderson understates the role of the board of directors and neglects to mention the role of shareholders. Emphasizing the different ways that business practices are influenced does not undermine Anderson's idea that workplaces are private governments where workers are unfree.  However, in understanding the role of the board and shareholders in corporate governance for public companies, Anderson’s portrait of the CEO as a dictator is made less convincing. Anderson fails to recognize the more democratic (though by no means completely democratic) means of influencing corporate governance that is widely exercised. 


The board of directors (BoD) does not merely elect the CEO, but has great oversight over upper-level management, dividend policy, goal setting, handling some disputes, and more. The BoD is composed of individuals both from within and outside the company. Most important, the BoD is meant to represent the shareholders: the individuals not necessarily within the company that collectively own often significant portions of the company.


 Ultimately, the CEO has to answer to the BoD, and the BoD has to answer to shareholders. In fact, the shareholders may even elect and replace the BoD (sometimes by proxy vote). The BoD are a fiduciary to the shareholders, and the BoD are personally liable to the shareholders. In sum, consider this the “BoD argument” and the “shareholder argument.” For the BoD argument, the board can decide that they do not like the direction that a CEO is taking a company, and the policies they have implemented in the past, and fire that CEO. For the shareholder argument, the shareholders may disapprove of the board members according to their governance and vote to change them, resulting in changed company policy. A much broader set of people than Anderson suggest have an indirect influence on company policy (that employers are subject to). Even without further evaluation, this should somewhat qualify the unchecked power that Anderson offers the CEO (and company superiors) have. While not explicitly democratic, a large population of shareholders external to the company have a voice in the direction and policy of a company, challenging Anderson’s portrait. 


To be sure, take the example of Bill Ackman and the Canadian Pacific Railway (CP). Ackman would be considered an “activist investor.” Simply put, Ackman held a meeting for shareholders and staged a proxy vote that replaced seven directors on the BoD and removed the sitting CEO, which in turn, greatly changed the company’s direction (and their stock price). There are many analogous examples.


So, the portrait of the CEO as a mostly unchecked dictator put forth by Anderson is not quite right. Just as we elect Senators who will vote on particular issues and appoint particular officials, shareholders have a direct voice and vote regarding the people who will influence a company. While there are clear disanalogies between democracy here (namely, you must be a shareholder to hold a voice) Anderson’s portrait oversimplifies the power structure of corporations, which in turn influences corporate governance and the lives of the "governed" workers.

Comments

Paul Hurley said…
Does the typical CEO ultimately have to answer to the Board, and does the Board typically have to answer to the shareholders? In theory, Vladimir Putin has to answer to his parliament, which has to answer to the people, but because Putin controls the press, confiscates the money of political opponents, and kills and jails those who stand against him, theory is undermined in practice. Much of the Board is made up of management beholden to the CEO, and to managers of other corporations that do business with the CEO, and well over 90 percent of slates of Board members run unopposed. Nor do the owners -- shareholders -- typically even think of themselves as having an oversight role. They are simply speculating on the performance of the companies in which they invest. Perhaps the CEO is held accountable in other ways, but is the accountability structure to which you appeal more like a healthy democracy, or more like Putin's Russia?
May 3, 2021 at 8:43 PM
Tara Mehra said…
Certainly not a healthy democracy (especially considering that people must own shares in order to vote, and the more shares someone has, the more power). Probably more like Putin's Russia, or even China, but my point is more that CEOs and BoDs can somehow be checked (which Anderson does not fully address) even if not by a representative part of the population. I do believe that it's ultimately problematic that the people who have a voice represent an oligarchy of sorts. In pointing out this accountability structure, I aim to show not that the CEO is held democratically accountable or that the workers are free. Rather, by offering this portrait, I hope to offer a lens into how CEOs might be held accountable and different ways that the company policy can be influenced-- even if undemocratic or illegitimately. For example, knowing that this structure is in place may offer a means to discuss how certain popular social factors may end up influencing who is employed and the policies of a company.
May 3, 2021 at 9:28 PM
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