Originally posted at Next City.
By Joelle C. Gamble.
When U.S. corporations buy a company overseas in a country with a lower tax rate to avoid billions of dollars in taxes — a practice called corporate inversion — the potential for amassive loss of federal revenue is a cause for concern with huge national implication. But beyond the hit to U.S. coffers, there is a local angle to this problem that is often overlooked: Inverted companies take one more step on the path of removal from the cities in which they provide jobs and services.
In response to citizen outcry, some companies have altered corporate inversion plans. Walgreens, for example, reversed its plans to invert due to mounting public pressure. How can we convert current advocacy efforts into sustainable policy change? Many argue the mantle should be taken up by Congress or President Obama. That’s true: It should be. But given the local impact, we need to find solutions that don’t just empower federal authorities but also return more ownership to the municipalities in which these businesses should exist.
Josh Barro, in the New York Times, suggests abolishing the corporate tax rate and taxing the income and capital gains of shareholders. His argument: American shareholders should be responsible to the American economy.
While domestic ownership is a smart move for corporate accountability, a looming question remains: How do we keep shareholders American and can we? Tracking shareholder ownership when shares change hands at a rapid pace and share sizes are incredibly small becomes a herculean task. Instead of focusing on who owns capital in these corporations, we need to focus on who can influence decisions. What does it mean for Walgreens, headquartered in Illinois with stores across the states, when its major decision-makers all hail fromone small group of socioeconomic elites who likely cannot relate to the average Walgreens shopper or worker?
We can resolve this. Now is a critical moment for municipalities and local groups to elevate the need for community representation in corporate decision-making practices.
One particular solution could be to tie certain local and state tax exemptions to local stakeholder governance on corporate boards. This can be done in several ways. Employees could directly elect board members, allowing for more worker-friendly boards. Or companies could set up direct representation or legal superstructures that include primary stakeholders such as workers, community members or even customers.
We’ve seen such models of corporate governance play out in nations like Germany to a good deal of success. One of the key reasons stakeholder models work is because they allow for the allocation of capital (with shareholder guidance) and labor (with worker/community guidance) in a way designed to maximize both groups’ needs. A company that is able to please local populations, shareholders and customers, through locally minded decision-making, maximizes its impact and its image. We’ve seen the benefits that companies receive in being community-minded with the Market Basket grocery stores in New England.
Large companies have a responsibility to localities and communities; it’s time they give those groups a say in corporate governance.
Originally posted at Next City.