Board of Directors II

 

Take The “A” Train

Hurry, get on board, it's comin'
Listen to those rails a-thrumming
All aboard, get on the "A" train
Soon you will be on Sugar Hill in Harlem

Who is getting on a Corporation’s Board?

The Board of Directors of a Corporation should represent ALL of the Corporation, not merely the shareholders of the Corporation. The shareholders own the ASSETS of the Corporation, but they are NOT the Corporation. The Board of Directors should therefore include the representatives of the shareholders, but it should also include others.

A Corporation is a special legal entity chartered by a state (including our federal government which is a group of United States). That Corporation protects the assets of the shareholders from being commingled with the assets of the Corporation, i.e. Limited Liability. If the state provides this protection, then it has an interest in the governance of the Corporation and should arguably have seats on its Board of Directors.

A Corporation is a producer. The factors of production are land, labor, capital, and entrepreneurship but this is an antiquated definition based on agricultural production. I am proposing treating Capital as a single factor (combining land and capital), and am proposing calling entrepreneurship, Intellectual Property, for example trademarks, goodwill, brand names, trade secrets, etc. Intellectual Property is an asset of the Corporation whose asset owners should be, and are already, represented on the Board.

Not represented on the Board, but arguably it should be, is Labor, the employees of the corporation. If a Corporation has gone public (i.e. shares of the assets of the corporation are liquid and can be sold to others of the public) then the employees of the corporation probably do not have a seat on the Board governing the corporation, but arguably Labor should be involved in governing the Corporation. A special class of corporation, Employee Stock Ownership Plan, ESOP, often has employees on its Board, or at least employees always elect members of the Board because those employees are shareholders.

The economic transactions of the Corporation should produce profits. The profits of a Corporation are taxed. Thus the government already should be receiving a share of those profits. The remaining profits are either retained to increase the assets of the corporation (shareholder equity), are distributed to the shareholders in the form of dividends, or distributed to employees in the form of bonuses, at the direction of the Board. When a Corporation is private, then it is more likely to award bonuses, share the profits with all of the employees of the Corporation. When a Corporation is public, then it is less likely to do so.

Having seats on the Board does not compel those directors in those seats to always be in attendance and vote on the actions of the Corporation. The Labor seats and the Government seats can vote present or be absent and, in that case, can give their vote as proxies to other Board members. However having a seat means that those members can, and should, participate in debates on Corporate actions.