Last week, Senator Elizabeth Warren of Massachusetts introduced the Accountable Capitalism Act, a bill that would, among other things, require all corporations with over $1 billion in annual revenues to include representatives of the business’s employees on the corporation’s board of directors. In an op-ed in the Wall Street Journal, Warren argues that the bill is intended as a response to the increasingly exclusive focus on the profits of shareholders over other corporate stakeholders such as workers and consumers, and to the growing inequality in income between corporate executives and employees. The bill has generated a great deal of interest, both positive and negative, but in this post I want to examine the relationship between Senator Warren’s bill and Catholic social teaching.
Although Warren herself does not use the word, she is proposing co-determination, a form of corporate organization in which the workers share in the governance of the business. Senator Warren’s bill proposes that worker representatives should hold 40 percent of the seats on the board of directors. Many European nations, such as Germany, Sweden, France, and the Netherlands, have adopted a co-determination system of corporate governance, taking different forms in each country. Catholics played an important role in implementing these co-determination systems in those countries with significant Catholic populations because co-determination has been an important facet of Catholic social teaching for several decades.
Co-Determination and Catholic Social Teaching
In his 1931 encyclical Quadragesimo Anno, Pope Pius XI taught that it was “advisable” that businesses be governed by what he called a “partnership-contract” in which “workers and other employees thus become sharers in ownership or management or participate in some fashion in the profits received” (#65). This proposal went significantly beyond what had been taught in Pope Leo XIII’s Rerum Novarum forty years earlier, which insisted that workers have the right to form labor unions to advocate for their interests in negotiations with management.
Pius XI’s teaching on co-determination was reiterated by Pope John XXIII in his 1961 encyclical Mater et Magistra. Writing at a time when co-determination had been implemented by some European countries such as West Germany in the aftermath of the Second World War, John cites Pius’s earlier teaching (#32) on co-determination, and elsewhere expresses the same idea in his own words. He writes that “the workers [should] have their say in, and make their own contribution to, the efficient running and development of the enterprise” (#92). He claims that worker participation is necessary so that the business enterprise can be a “true human community, concerned about the needs, the activities and the standing of each of its members” (#91). Like Pius, John insists that work arrangements need not be limited to co-determination, but may also include worker co-ownership of the enterprise (#77).
There is a subtle shift in the justifications for co-determination in John’s teaching. Pius links the issue to the just distribution of goods, seeing worker participation in the management of the company as a way, alongside a just wage, of ensuring that workers maintain a sufficient livelihood. Although these concerns are still present in John’s teaching, John puts greater emphasis on the importance of worker participation in the workplace. For example, he writes that a business “must not treat those employees who spend their days in service with the firm as though they were mere cogs in the machinery, denying them any opportunity of expressing their wishes or bringing their experience to bear on the work in hand, and keeping them entirely passive in regard to decisions that regulate their activity” (#92). Here John suggests that the active participation of workers in promoting the good of the company is a reflection of their dignity as human persons.
This focus on participation is taken up by Pope John Paul II in his 1981 encyclical Laborem Exercens. Here John Paul appeals to Catholic social teaching’s ongoing advocacy for “joint ownership of the means of work, sharing by the workers in the management and/or profits of businesses, so-called shareholding by labor, etc.” (#14). He argues that these arrangements are fitting because they respect the worker as a subject, a participant in the life of the enterprise. In words similar to those of Pope John XXIII, John Paul claims that it is necessary to reject any system “which makes the worker feel that he is just a cog in a huge machine moved from above, that he is for more reasons than one a mere production instrument rather than a true subject of work with an initiative of his own” (#15).
Co-Determination in the United States
The consistent support for co-determination found in Catholic social teaching suggests that Catholics in the United States ought to be favorably predisposed toward Senator Warren’s proposal. But could such a sweeping proposal succeed in the United States? Warren’s concerns with income inequality and inequity between executives and workers are consistent with Catholic social teaching, and there are good reasons to believe her bill, if passed, could help address these problems. But there are also reasons to be cautious about the chances of success for this or a similar bill.
For one, in the United States, the incorporation of businesses is a matter for the individual states. Warren’s bill, in contrast, proposes that federal government issue charters to corporations of sufficient size requiring them to implement a co-determination system. Warren’s proposal, were it to be implemented, would almost certainly face constitutional challenge in the courts.
Second, Warren’s proposal represents a sweeping and radical change in corporate governance that cuts against common assumptions about the nature and purpose of business corporations. Although the radicalness of Warren’s proposal is not necessarily a bad thing, it does mean that the bill will face fierce resistance from the business community and would have a steep, uphill battle in Congress, even if the Democratic Party were to gain control in the upcoming elections.
There are other ways of promoting co-determination, however, that can circumvent these obstacles. For instance, a number of states have passed laws permitting the incorporation of businesses that do not follow the shareholder-first model. Some states, for example, permit the incorporation of worker cooperatives, in which the workers themselves are the joint owners of the business, whereas other states only permit cooperatives to be formed as unincorporated companies such as limited liability companies (LLCs). Likewise, many states permit the incorporation of benefit corporations (B corps), that is, corporations that pursue some public benefit, for example to the community or the environment, in addition to profit. Pope Benedict XVI endorsed this type of corporation in his 2009 encyclical Caritas in Veritate (e.g., #46). In the same way, Catholics and other supporters of co-determination can advocate for the recognition of forms of incorporation that include worker participation in the executive management of the corporation. As Pope Benedict states in Caritas in Veritate, “Space . . . needs to be created within the market for economic activity carried out by subjects who freely choose to act according to principles other than those of pure profit, without sacrificing the production of economic value in the process” (#37). Even if a nationwide policy mandating co-determination is beyond reach, it may be possible to create space for corporations governed by the principles of co-determination at the state level.
In addition, it may be possible to craft policies at the national level that encourage the formation of corporations governed by co-determination even without mandating it. For example, the tax code could be revised to provide a tax deduction to corporations that seat employee representatives on their board of directors. This would create an incentive for businesses to change their corporate governance that could potentially offset the losses to shareholders that might accrue if co-determination were adopted.
Looking beyond the policy level, it is important to challenge the underlying assumptions that contribute to resistance to the idea of co-determination. As Current Affairs editor Nathan J. Robinson notes in an excellent analysis of Warren’s proposal, the notion that the purpose of corporations is purely to accrue profits for shareholders seems natural, despites its relatively recent origin. As Robinson points out, there is no “metaphysical entity called ‘The Corporation’” of which co-determination is an unthinkable corruption; rather, a corporation is “a legal entity, i.e., one constituted by government laws. The government defines the parameters of what a corporation is. To ‘incorporate’ is to form the kind of entity that the law provided for, and to accept the rights and responsibilities that are outlined in the statute.” That business enterprises are institutions of human creation, and that we can exercise power over the shape they take and the purposes they serve, is fundamental to Catholic social teaching.
Whether or not it is realistic to expect a nationwide policy mandating co-determination, Senator Warren has done a great service by re-introducing the idea of co-determination into American public discourse. Several economically successful countries maintain systems of co-determination, and co-determination provides important social benefits. Whether it is in the form of a nationwide mandate or an option at the state level, U.S. Catholics ought to support greater worker participation in corporate management.