The Myth of Stockholder Ownership, and the new case for Workplace Democracy

The notion that the stockholders own the assets of the business corporation is a longstanding myth and implies that, by rights, all control and all benefits belong to them.  This myth is fast collapsing among corporate law scholars, who increasingly recognize that an abstract legal entity owns the property, not natural persons.  But few recognize the full implications.  It means that the authority of the board does not come from the stockholders but from the public authority, via the charter.  Corporations are “franchised governments.”  Because stockholders neither own the assets nor authorize the board, there is no rights-based reason they should select the board members.  The question of who should control the firm, and how this control should be structured, is thus a pure public policy choice to which the question “who owns it” is irrelevant, since the entity owns.  Other criteria, such as effectiveness for achieving the organization’s ends, non-domination of subordinates, equitable distribution of benefits, minimization of negative externalities, and the impact on the political system, are all potentially relevant.  A corporate economy thus allows us to break the presumption that control should be purchasable and that the wealthy, by buying stock, may buy control of the production and distribution of wealth.  Further, if the chartering authority is democratic, the presumption that stockholders should control may flip to a presumption that, other things equal, employees should control, through representatives.  Regardless, because stockholders are not the owners, the negative consequences of stockholder control under present-day conditions argue for limiting or eliminating the control rights of stockholders.  Examples and further considerations are supplied.

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