Democracy and Corporation

Introduction

In the countries that adopt the democratic system, democracy and corporation are closely related to each other. However, their characteristics are contrary to each other. Thus, this causes controversy that activities of corporation undermine the democracy. This difference undermines democracy in two ways. First, a corporation lets politic to give them benefits at expense of other citizens. Secondly, within a corporation, their decision-making process undermines democratic system.

Democracy Not Corporatocracy

Democracy

The belief in freedom and equality between people, or a system of government based on this belief, in which power is either held by elected representatives or directly by the people themselves.

Corporation

A corporation is a business or organization formed by a group of people, and it has rights and liabilities separate from those of the individuals involved. The popular conception is that corporations exist principally for the purpose of maximizing shareholder value (MSV). This idea is firmly embedded in business thinking; it is taught in business and law schools around the world, and it provides a theoretical basis for corporate governance regulation.

Conflict

Political Support Fund and Policies

In democratic countries, more than two political parties exist for standing different point of views such as the liberal and conservative. Thus, many corporations and rich people donate billions of money to the party they support. To be more specific, a ratio of donations raised by wealthiest people or companies has been constantly increased since the 1980s: 40% of political donations are raised by top 0.01% of wealthiest people or corporations nowadays. In this context, they are able to make a strong voice if their supporting party wins an election. Of course, they have their own political stands; therefore, corporations or people who run corporations could undermine democracy and the public good. The political party, supported by these corporations, tends to promote legislation that benefits corporations at the expense of individual citizens. These corporations are able to privatize the functions that have historically been the mandate of local, state, and the federal government.

Corporative US flag

"see also" http://www.theatlantic.com/business/archive/2015/04/how-corporate-lobbyists-conquered-american-democracy/390822/

Example 1. Pharmaceutical industry

Pharmaceutical companies had long opposed the idea of government adding a prescription drug benefit to Medicare, on the theory that this would give government bargaining power through bulk purchasing, thereby reducing drug industry profits. But sometime around 2000, industry lobbyists dreamed up the bold idea of proposing and supporting what became Medicare Part D—a prescription drug benefit, but one which explicitly forbade bulk purchasing—an estimated $205 billion benefit to companies over a 10-year period.

Collapse of Democratic system in Corporation

Even though a corporation exists under the system of democracy, the way of decision-making within the corporation is against democracy. A corporation is comprised of many entities such as employees, CEO and stockholders. Their roles in a corporation are different. Stockholders are owners of a corporation and they nominate CEO in order to make a profit efficiently. On the bottom of this system, employees only follow the orders by CEO. At this point, the inconsistency with democratic system is made. In the democratic system, every individual is able to make an equal voice. However, in a corporation, employees have to sign on contract that requires them to only follow and work for the company. Moreover, CEO who is nominated by stockholders is eager only to make a profit for stockholders. Thus, if a corporation makes profits, it does not equally distribute the profits to members. in this context, when a corporation is in crisis, CEO and stockholders are more likely leave the corporation without a second thought, while employees can not leave because of high opportunity costs.

Solution

ESOP

An employee stock ownership plan (ESOP) can be one of solutions for this conflict. ESOP is a qualified defined-contribution employee benefit (ERISA) plan designed to invest primarily in the stock of the sponsoring employer. ESOPs are "qualified" in the sense that the ESOP's sponsoring company, the selling shareholder and participants receive various tax benefits. ESOPs are often used as a corporate finance strategy and are also used to align the interests of a company's employees with those of the company's shareholders. In the company adopting ESOP, employees are the owners of the company. It allows employees to make an equal voice and profits of the corporation would be equally distributed which is consistent with democracy.

Example case

1. CALIBRE

CALIBRE

Calibre is an employee-owned company. All employees have Calibre's stocks and they have rights to vote for members of an advisory committee who represents benefits of employees. The value of the company has been increased since 1994 by 25 percent for every year. Most of the profits go to the employees.