When Labor Has a Voice in Corporate Governance

Posted: 18 May 2004 Last revised: 12 Feb 2014

See all articles by Olubunmi Faleye

Olubunmi Faleye

Northeastern University - Finance Group

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Vikas Mehrotra

University of Alberta - Department of Finance and Statistical Analysis

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Abstract

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

Faleye, Olubunmi and Morck, Randall K. and Mehrotra, Vikas, When Labor Has a Voice in Corporate Governance. EFMA 2004 BASEL MEETINGS. Available at SSRN: https://ssrn.com/abstract=498962 or http://dx.doi.org/10.2139/ssrn.498962

Olubunmi Faleye (Contact Author)

Northeastern University - Finance Group ( email )

Boston, MA 02115
United States

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Vikas Mehrotra

University of Alberta - Department of Finance and Statistical Analysis ( email )

School of Business
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-2976 (Phone)
780-492-3325 (Fax)

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