Saturday, October 1

About the legal project of business democratization

Faced with the insufficiencies and weaknesses of the really existing democracy, the conviction is growing among broad sectors of the left and trade unionism, but also of the academic world, that in order to improve it, it is an essential element to advance in the democratization of the company: particularly in the great dimension, which largely determines the evolution of the rest. The very abundant failures of the dominant business model —presided over by the sovereignty of the majority shareholders— contribute to this conviction, as does the existing empirical evidence: aside from cooperative work —in which all kinds of results can be found, but also very positive—, the legislation promoting the participation of labor in the governance of the existing company in many European countries, of course, too moderate, has not led in any way to the collapse of their companies, and we would like them to be as efficient, solid and productive in Spain, neither to higher levels of conflict nor to higher costs of capital or long-term damage to shareholders.

Along with all of this, a wide range of theoretical current that radically questions the microeconomic arguments on which the supposed superiority of the shareholding company model is based, to defend instead a theory of the company that solidly argues the greater fairness and efficiency of the participatory business governance models (in the first place , by the workers, but also by other essential participants in the activity of the companies).

Many of us consider, in this sense, that there are sufficient reasons for the initiative proposed by the second vice-president of the Government, Yolanda Díaz, to include it in the planned revision of the Workers’ Statute (and in a new Institutional Participation Law to be negotiated with the social agents) the demand for a democratization of the company centered on the participation of workers’ representatives in the governing bodies, thus developing (after the frustrated attempt of the PSOE bill to that effect presented by Ramón Jáuregui in 2002) the article 129.2 of our Constitution.

But in order to move forward with the legal initiative and, even more so, so that it can take root in practice and be effective in reality, good reasons are not enough: among other things, it is necessary – as has been Ramón Jáuregui himself pointed out more than once— Have the appropriate participatory culture and sufficient social and political strength to overcome powerful opposing interests. But for this it is necessary —as Gabriel Flores recalled a few months ago in a very consistent article— to advance in the consolidation of a productive structure that enables a labor market with lower levels of inequality, precariousness and polarization and greater negotiating capacity, so that encourage participation. All aspects that may require prior reforms that are not easy in areas that can decisively condition the success or failure of the legal project. The task, therefore, is not simple, nor can it be considered fulfilled with the simple approval of a technically correct law.

Going deeper into this complex field of additional requirements, the determining importance that the financial sector may have in this regard cannot be ignored, particularly in larger companies, which should be the priorities in the democratization project. Both large banks and large investment funds (mainly foreign) are currently among the main shareholders and debt holders of large Spanish companies, with positions —especially in the case of investment funds— of extreme volatility and minimum commitment over time in the companies in which they invest or finance. A situation in which legal reforms that seem inconvenient for their interests can lead to disinvestment and debt sales processes that are seriously damaging to the affected companies.

It cannot be forgotten that many of the financial entities that most influence large companies, and particularly the investment funds (inherently short-sighted due to the pressure of their shareholders), increasingly promote the companies in which they reach investment positions or debt holders important to orient their management with short-term criteria, dragging on many occasions —every day more— the banks that purchase corporate debt in this direction. They are thus instigators and clearly co-responsible for a highly financialized business model (highly leveraged, influenced by financial criteria and oriented to immediate results) that generates general damage that is becoming more obvious and more serious every day: firstly, for the medium-sized companies themselves. and long-term, to the extent that the permanent search for the maximization of immediate profit and shareholder value is leading to strategies that are seriously harmful to growth, strength, efficiency and corporate sustainability: unbalanced increases in dividends, systematic repurchases of shares, obsession with cost reduction —almost always salaries in the first place—, weakening of investment, complicity of senior managers through variable incentives that creepily widen the pay gap, frequent resort to bad practices of all kinds in the business —with the generation of negative externalities growing as a systematic cost reduction strategy—and a long etcetera. Behaviors that, of course, have ended up seriously affecting national economies, contributing significantly to the growth of inequalities, to the weakening of global investment and, therefore, to productivity and economic growth, as well as to the accumulation of social costs that have to be borne, gratuitously and painfully, by large sectors of the population or paid for by the State.

It is a management model that business democratization, even if it is limited only to labor participation in government bodies, would clearly make it more difficult (in fact, it seems much more mitigated in countries where there is a greater compulsory participation of labor in the government). corporate governance). It is not difficult to imagine that workers will always defend a longer-term and more socially responsible orientation in their companies: because they depend much more on the permanence of the company than the majority shareholders and investors (who have an easy exit and a much higher volatility). older) and because they are also more interested than these in the company behaving responsibly where it operates, because they live there, are more committed to their environment and are more affected by negative externalities.

In this way, there is no doubt that the legal participatory initiative will not only face the opposition of employers and large shareholders, but also that of the financial markets, which may hinder it through the imposition of higher capital costs. and financing for companies that are more conducive to assuming the law with greater coherence (and indiscriminately in the national economy, trying to cause a general disincentive to the implementation of the law).

For all these reasons, and among other issues, it would be advisable to propose reforms prior to or in parallel with the democratizing legislation that can mitigate the difficulties that the financial sector may exert against it. Very especially, I simply point out three:

1. Firm intensification of the penalization of voting rights in the boards of directors of the most unstable shareholders (to a large extent, the most short-term financial entities); penalty that has been timidly included in the recent amendment to the law on capital companies to encourage the long-term involvement of shareholders.

2. Tax incentives for investment and financing of companies that apply labor participation in corporate governance more consistently.

3. Privileged public financing lines for the financing of this type of company: something that can never be done optimally without a powerful public bank specialized in business financing, like the one that other advanced countries have and that was so foolishly dismantled in ours . For this reason, the demand for a strong public bank is inseparable from the aspiration to more democratic companies.

None of this is impossible, much less economically unfeasible. But, certainly, it increases not a little the already considerable intrinsic difficulties of the aforementioned legal initiative, aggravating its complexity and the obstacles that can hinder it. The government’s announced —and exciting— legal initiative should not forget or underestimate them.

Economists Without Borders does not necessarily identify with the author’s opinion and this does not commit any of the organizations with which it collaborates..

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