When Labor Has a Voice in Corporate Governance
Posted: 18 May 2004 Last revised: 12 Feb 2014
Labor has a large contractual claim on a firm's cash flow. Labor equity ownership gives employees both a fractional stake in the firm's residual cash flows and a voice in corporate governance. Relative to otherwise similar firms, labor-controlled publicly traded firms invest less, take fewer risks, grow more slowly, create fewer new jobs, have worse free cash flow problems, and exhibit lower labor and total factor productivity. We therefore propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than towards, shareholder value maximization.
Keywords: Codetermination, ESOPs, firm objectives, corproate governance, stakeholders, labor unions
JEL Classification: G3, l2, J54
Suggested Citation: Suggested Citation