Successfully Reshaping the Ownership Relationship by Reducing 'Moral Debt' and Justly Distributing Residual Claims: Evidence from the Scott Bader Commonwealth and the John Lewis Partnership

Abstract

We examine the issues relating to the most appropriate form of firm ownership structure that will maximize the firm's value to society whilst maintaining a more sustainable market value. We argue that the maximization of firm value to society may be more readily achieved through a closed corporation type formation, such as employee owned corporation or partnership similar to Scott Bader Commonwealth or John Lewis Partnership, rather than an open corporation with large 'moral debt' claims, conflicts of interest, and agency costs. The four main perceived theoretical arguments against a closed corporation are: The horizon problem; the common-property problem; the non-transferability problem; and the control problem. Our analysis demonstrates how the Scott Bader Commonwealth and the John Lewis Partnership successfully overcome these theoretical issues and thus may be considered to be more efficient and more morally just than an open corporation.

Keywords: open and closed corporations, employee ownership, residual risk-bearing (ownership) and decision-making (control), residual and `moral debt` claims, agency costs, distributive justice, maximizing the firm value to society, stakeholders and shareholders.

JEL Classification: G30, G32, G34, G39, D31