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The Expanding Universe of Shareholder Capitalism

The Expanding Universe of Shareholder Capitalism

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Thursday, 07 February 2019 01:18 PM Current | Bio | Archive

Ivy League law professor Lynn Stout founded the nonprofit Ethical Shareholder Initiative to revolutionize share voting in a way that will drive a sustainable corporate ecosystem.

Stout also authored the book "The Shareholder Myth." But on April 16, 2018, she died of cancer at 60 years old.

Stout’s final literary work, "Citizen Capitalism: How a Universal Fund Can Provide Influence and Income to All," was celebrated last week at the Cornell Club of New York in Manhattan.

Co-authored by Sergio Gramitto and Tamara Belinfanti, the book breathes new life into a timeless concept.

The authors offer a visionary but practical proposal to provide a guaranteed minimum income -- it not only avoids creating a new government program or increasing taxes, but also gives the entire citizenry more influence in the economy.

If President Trump were to in some way adopt the Universal Fund described in Citizen Capitalism, how would it change the way Americans work and Invest?

Americans would be able to work and invest at least as freely as they do now. Unlike various Universal Basic Income proposals, the Universal Fund fits in with capitalist ideals – it does not rely on government funding, and also does not rely on government-directed redistributions of wealth.

How do dividends factor in to this proposed Universal Fund?

The Fund would pay periodic dividends which would start small but would hopefully become significant. The Fund is designed to grow over time because you’re not allowed to sell, divest, bequeath or put a lien on your share. A good comparison is the Alaska Permanent Fund. When it started off, it was fairly minimal. Today, each citizen is getting somewhere between $1,000 to $2,000 annually. In estimating the dividends that the Universal Fund would pay, we take the average dividend yield for the past few years. We assume 2.25% for stocks in the fund portfolio. Assuming 225 million people sign up, a $1 trillion fund generates $100 per person annually; $10 trillion: $1,000; $30 trillion: $3,000.

How does a Universal Fund like the one described in Citizen Capitalism impact shareholder value?

Currently, because of the way most shares are held and voted, the market skews in favor of encouraging short-term gains and practices which in many cases actually negatively impacts the long-term health of the corporation and its long-term value creation. There’s every reason to believe that the Universal Fund can make corporations more sensitive to the interests of average citizens while creating more long-term shareholder value. A Universal Fund would incentivize corporations to focus more on long-term value creation and processes such as research and development. It could also create a shift in favor of sustainable business methods and other practices that corporate shareholders, workers and other stakeholders’ value.

What fatal flaws in the corporate governance system would this Universal Fund address?

In the book we spend a lot of time detailing the relationship and incentives across key corporate players – the board, institutional investors, fund managers, individual shareholders, proxy services and hedge funds- and why embedded incentives and norms have created a system that seems skewed towards a short-term mindset, serving a niche group of shareholding interests and not necessarily the interests of everyday citizens and individual shareholders. The Universal Fund is designed to provide a counterweight to short-termism, expand participation in capital markets, offer a stream of returns to participating citizen-shareholders and give citizen-shareholders a direct voice in corporate governance

Leader misconduct incidents are up 22% annually, according to MSCI’s ESG Controversies database. For example, CBS Chief Les Moonves resigned, Wynn Resort's CEO Steve Wynn was terminated without severance pay while Harvey Weinstein was arrested and his film production company bankrupted. What the three CEOs have in common is employee allegations of sexual harassment. How does such a Universal Fund mitigate the risk of so-called #metoo occurrences?

The book came together before the #metoo movement but increased citizen engagement in shareholder elections would tend to make corporate boards more responsive to concerns about anything citizens care about. It makes sense that citizens' concerns about sexual misconduct within the corporate leadership would fall into this category, and in fact there's pretty good evidence already for it. Corporate boards with Universal Fund shares may therefore be somewhat more likely to take steps to mitigate the risks of these occurrences.

The retirement savings gap in the U.S. ranges from about $6.8 to $14 trillion, according to the National Institute on Retirement Security. In what way would this Universal Fund address the retirement crisis and affect long term care?

In exchange for participating in the Universal Fund, every citizen-shareholder would get an economic right to receive a proportional share of returns distributed by the fund and a political right to vote the shares of each company’s stock held in its portfolio. Returns distributed by the fund would be a source of supplemental income, which could be put towards savings or used to meet everyday expenses including those related to health care.

Juliette Fairley is an author, lecturer and TV host based in New York.

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JulietteFairley
In exchange for participating in the Universal Fund, every citizen-shareholder would get an economic right to receive a proportional share of returns distributed by the fund and a political right to vote the shares of each company’s stock held in its portfolio
expanding, universe, shareholder, capitalism
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2019-18-07
Thursday, 07 February 2019 01:18 PM
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