Agendas for Reforming Corporate Governance, Capitalism and Democracy

Abstract:     
Corporations that are governed on a one-vote per share basis create a plutocracy. This undermines democracy as corporations govern most economic activity in nations. Because of this and unexpected corporate failures, significant political constituencies demand that government increases the scope of corporate regulations. This undermines the dynamism of capitalism. When shareholders do not vote or provide directors with their votes, directors become responsible only to themselves, thus creating autocracy. Dictatorships are created when Chief Executives control the appointment of their directors, as occurs with most public or private corporations around the world. Democracy is also undermined when corporations lobby governments with more resources than citizens.

Plutocratic governance is reinforced by the ability of corporations to overpay investors with surplus profits. This is one of 14 agenda items raised in this paper for considering improvements in the economic operations and social desirability of corporations. The science of governance identifies the need to involve stakeholders to achieve self-governance. Besides reducing government regulation to strengthen capitalism, self-governance enriches democracy.

A tax policy is suggested to provide the incentive for shareholders to voluntary change corporate constitutions to transfer surplus profits to stakeholders to supplement the gap in pension incomes as the population ages. To support the political and social legitimacy of large corporations, controlled by one share one vote, democratically elected shareholder and stakeholder forums are proposed in addition, to privately manage conflicts and improve operations. Improvements in the efficiency and reliability of corporations and the capital markets are envisaged while reducing the cost of government.

Keywords: Capitalism, Corporate Governance, Democracy, Plutocracy, Surplus profits, Voting

JEL Classifications: D7, G3, H32, L16, K22, P1

Working Paper Series