Reforming governance

Much deserved hat-tip to James for pointing this Paul Hirst piece out to me. Here's a long excerpt, relevant to my kind of topics:

We live in an organizational society, yet the forms of control over large organizations both public and private have atrophied. This is most evident in the case of companies. Shareholders in Anglo-Saxon systems seldom exercise the political rights they do have, they exit if they are not satisfied and the secondary market in shares lets them do so easily. They also rely on the market to sanction company management. The notion of the republic of shareholders under the 1862 Companies Act in the UK, which made corporate status readily available for the first time, was intended as the primary means of protecting investor rights, but it has long been a fiction. Other stakeholders have no political rights and often no easy exit option through the market. Modern companies exhibit a clear divorce of ownership and control, where dispersed and indifferent shareholders leave policy to managers. It would hardly be possible to claim that corporate governance performs its political functions well, almost no aspect of the current system is satisfactory from passive shareholders, to weak non-executive directors, to compliant auditors. Yet corporations organized the major part of formal social life.

It is thus essential to consider the role of alternatives to corporate structures. Corporate careers do not breed democratic habits, but compliant and conformist personalities. Low institutional accountability within companies is coupled with the absence of an external challenge from alternative institutions. It is difficult to live outside the structures of hierarchical management or to find the equivalent of the nineteenth century “frontier”, beyond which one can escape. The presence of such alternatives is an essential check on the power of hierarchical organizations over people. They give people the option of exit and to the extent they are readily available temper the power of managerial hierarchies and the conformist norms they impose. Unions did this to some extent, but in the private sector in the UK and USA union density is low, and the current tendency of unions is to promote the further bureaucratization of work. Checking the power of management was once seen as part of “industrial democracy”, extending control collectively to workers, now it should be seen as part of the preservation of democracy in general, promoting the independence of citizens and giving them the experience of exercising authority themselves.

It is unlikely that any generalized reform of corporate governance is possible in the foreseeable future. The managerial class has too much influence and people will identify it with socialism. Promoting alternatives is by no means impossible, however. Thus promoting a strong small business and artisan sector gives individuals an alternative to big corporations and it encourages competition. Likewise defending and extending the mutual sector has the same effect, if mutuals are recognized a distinct institutions that need to be run on the basis of different goals to conventional corporations. This can only happen if public policy makes such alternative options attractive and ring fences them by protective laws. The scope for mutual initiative is considerable, but it depends on the revival of cooperative and mutual political movements.