Philadelphia Reflections

Parliamentary procedure(2)

Cartoon Fight

Although Parliamentary procedure started out as a way of reducing the number of cracked skulls in an angry group of arguing ruffians, it mainly did so by demonstrating how much more you get done, when you argue courteously. It really does work better if you have more logic on your side. Orderly, a courteous procedure is best. Furthermore, one topic at a time is also best, achieved only if the guys with other topics are confident the group will eventually get to their topic in its turn. And if you know the referee is neutral, will not allow a vote to be taken as long as someone still wants to speak. Or when the group is tired of the argument, it still can't quit until both sides have been heard, and the negative votes have been called for and counted. What emerges from these simple rules is an amazing discovery of the collective will of the whole group. If a large group of strangers convenes to discuss a topic, following these rules it is seldom that any doubt emerges of the collective opinion of the group. Right or wrong, the opinion of the group.

Shareholders

So if you want to determine what the medical profession thinks about abortion, or what the legal profession thinks about trial by jury, or what a whole nation thinks about going to war -- just choose representatives fairly, and let them conduct discussions according to Parliamentary Procedure. That's a democracy; that's a republic. That's a system many people have died to preserve.

However, during the 19th Century a different type of organization, the corporation, appeared. It gets things done, it makes prosperity, it is successful. But it has never adequately achieved a credible system for determining its own wishes. If every shareholder held one share and elected representatives democratically, the meetings of shareholders and directors might become little republics. But shareholders negotiate the price of their shares by bidding, and some people acquire many shares. If one person collects 51%of the shares, there is no further room for parliamentary dispute; the opinion of a majority of the shareholders is the opinion of one person. Because a corporation is a creation of government, it mirrors the process of government within what is called "corporate governance". We tend to follow the outward forms of parliamentary process even when in fact there is no substance to them. We thus can observe the amusing farce of the well dressed, well-mannered majority owner of a corporation -- smilingly and courteously listening to an angry shareholder with only one share, sometimes rising from the audience with a bull horn. Shout all you please, the man with the three-piece suit is going to have his way.

Runnymede,King John,

But corporations have become so large and successful, that to raise adequate capital they sell thousands or even billions of ownership shares. In those situations, which very nearly run all that matters in the country, a shareholder of a fraction of one percent of the outstanding shares may be able to control the corporation. A dozen of such people can band together and act as though they own the company completely. Ownership through mutual funds or index funds makes shareholder control even more remote. Quite commonly the shareholders lose control entirely, and the hired managers exercise effective control. A system designed to determine the collective will of the shareholders thus eventually reaches the point where the will of the shareholders can be ignored by the people they hired. In effect, the number of voters and the number of shares has outgrown parliamentary rules and procedures, and in fact, continuing to use that format leads to mischief. The hired employees occasionally arrange for salaries for themselves of hundreds of millions, or they can turn the corporation into a private charity, or even ruin it as an economic entity by careless slothful management. The legal term for this process is "imperfect agency", and the country seems to be getting annoyed enough to want to make some changes. But if it is intended to determine the will of the owners, someone will have to devise an agreed way of finding out what the will of the owners really amounts to. If we don't, we are going to have to reconsider clubs, spears, and swords. Welcome to Runnymede, King John, we have a matter we wish to discuss with you.

Originally published: Thursday, November 14, 2002; most-recently modified: Friday, May 31, 2019