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Noah Smith

Imagine If Shareholders Didn’t Come First

Elizabeth Warren wants to make companies also consider workers, customers and local communities.

Room for workers?

Room for workers?

Photographer: Abhijit Bhatlekar/Mint/Hindustan Times/Getty Images

U.S. Senator Elizabeth Warren has proposed a bill — the Accountable Capitalism Act — that would require large companies to create corporate charters that take account of the interests of workers, customers and communities in addition to shareholders. To enforce this dictum, it would give each company’s employees the power to elect 40 percent of the corporate directors.

Right now, U.S. corporations are set up to maximize the value of their shareholders. According to classic free-market theory, this will lead to companies maximizing their profits over the long term, which will be economically efficient. But Warren’s idea starts from the premise that society will be better served if workers are treated as vital stakeholders in the companies that employ them. Under her proposal, employees would be able to elect their own representatives, meaning more power and money for them and less for managers. This would be similar to the co-determination system used in Germany, although Germany also has other important systems for labor representation, such as workers’ councils.