Marma
Marma
Aug 24, 2017 · 4 min read
  1. proposal makes the buyback essentially a liquidation event, so the shareholders and managers can just leave and let the workers deal with the company on their own, right?

My proposal would include that managers would need to stay for a set period of time (6 months for instance) before leaving. There are always provisions in law which prevent people from leaving their jobs abruptly to ensure smooth transitions, and in case they nevertheless wish to leave early, they would suffer a financial penalty. During the transition period from being a shareholder run company to a cooperative, the managers would be personally responsible for any wrong doings which would prevent them from purposefully sabotaging the transition. These are all “worse case” scenario, but in the end, even cooperatives can make a good use of managers, but workers may simply decide to close the wage gap a bit, alongside an “easing” of managers’ responsibilities (since more decisions are made collectively). In the end, many managers might choose to stay!

  1. Would banks be forced to extend credit for daily operations to the cooperative or can they decline to once the buyback process takes place?

A difficult question. It is true that I have proposed government to extend the buy-back loan to prevent banks from refusing to lend based on ideological motives, however I don’t think forcing banks to extend credit for daily operations would be viable. I would rather take the bet that: cooperative banks would be more open to lending to cooperatives, and regular banks, if the cooperative is financially viable and in good shape, will not refuse an opportunity to make money. Also, I might add, the cooperative might save money by getting rid of some financial leaches like CEOs with million dollar pays and pay a smaller reimbursement of the government loan than what they used to pay shareholders in dividends, which might help create a self-financing mechanism.

  1. Can the board reject the buyback if the offer is below their valuation? Actually, how does the valuation take place exactly without a stock market consensus?

This is a bit evil on my side. My intention with giving this right to workers (vote to buy back their company) would have it’s own market effect. That is, one additional criteria for investors to consider is the likelihood that workers will vote to buy back the company they wish to invest in, thereby, they would ask for information like whether workers are happy/satisfied to work in that company, the rate of retention, the results of votes in previous years… And companies that are on the verge of being bought back by their workers would arguably see their stock market value plummet, which would make it a bargain for workers to buy! :-)

In the end, giving this right to workers creates its own positive effects in rebalancing power between workers and shareholders/managers, which is exactly what I was looking for. Not all workers would want the responsibility of ownership and decision making, but that doesn’t mean they are ready to work for a miserable pay in miserable conditions.

Now for companies that are not on the stock market, I would call upon an independent valuation expert, agreed upon by both parties (the management/owners and workers), and if there is no agreement, the government picks one.

  1. Would the government be automatically forced to give out these loans if the vote succeeds? You mentioned a 0% interest rate, so what would the mechanism to adjust for the risk difference between Snap Inc. and Google becoming a cooperative be?

The government would not automatically be forced to give out these loans, or rather, the votes in companies would be scheduled in such a way as to ensure that the government always has the means to issue these loans and ensure that the transition from privately owned company to cooperative goes smoothly. So for instance, if too many workers vote for their company to become a cooperative, further votes are postponed until a time when the government has the resources to allow for the transition to happen quickly enough.

Now regarding the risk, I mention a near 0% loan but I do think there needs to be some interest paid, precisely because of risk. But the interest rate would be the same for all transitions in order to mutualize/socialize risk. The worst policy is to give out loans with interest rates adjusted to risk: if a loan to buy back a company in financial difficulty carries a very high interest rate, how do you expect that company to transition successfully if it has to pay a very high interest rate? It’s just like the absurdity of what happened to Greece: the country has to borrow at exorbitant interest rates to finance itself, but given those rates, it is impossible for Greece to invest in order to achieve growth that would be large enough to repay the debt, effectively setting the country in an infinite debt spiral.

  1. How does the vote play out with a global company? Do the workers who vote against the cooperative have the option of spinning off or do they just leave?

Now you mention Google… Google is a huuuuge company and when I wrote this article, I didn’t really have in mind or expect that companies that are that large would ever turn into cooperatives, even for practical reasons of running such huge companies democratically. The father of modern democracy, Jean Jacques Rousseau, said that “real” democracy could only work at the level of a city-state of the size of Geneva (at the time)… But to answer your question, I think the answer is indeed outside of my article, namely, breaking up huge conglomerates or companies into several independent companies. Google is already, now, Alphabet… But you could break it apart into Youtube, Google (the search engine), Android… So it’s basically Anti-trust laws that should be strengthened to make sure companies are “small enough” to be eligible for transforming into a coop.

Thanks for these interesting questions!

Sincerely,

Martin

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    Marma

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    Marma

    Political thinker, amateur philosopher, crypto-enthusiast and recently awakened to a spiritual transcendental reality.. https://marmadeveloper.wixsite.com/home