Wealth Creation and Wealth Sharing: A Colloquium on Corporate Governance and Investments in Human Capital

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Brookings Institution Press, Dec 1, 2010 - Business & Economics - 100 pages
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Corporations are the productive engine of market economies. Yet the rules by which the wealth generated by corporations gets divided between the providers of financial capital and the providers of human capital are poorly understood.

In this colloquium, a group of economists, social scientists, lawyers, labor relations specialists, business executives, and executives of financial institutions debate questions about the allocation of risks, returns, and rights in corporations that were raised in Margaret Blair's prior book, Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century (Brookings, 1995).

In addition to Margaret Blair, participants include Bernard Aidinoff, Amatai Etzioni, Ronald Gilson, Martin Ginsburg, Mark Goyder, Oliver Hart, Bruce Householder, Tony Jackson, Bevis Longstreth, Jonathan Low, Bruce MacLaury, Ira Millstein, Nell Minow, Charles Rossotti, Charles Schultze, Kenneth West, and Sidney Winter. Roswell Perkins, of the New York law firm of Debevoise & Plimpton, served as moderator.

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Contents

Introduction
1
Laying Out the Problem
5
How Important Is It?
17
The Meaning of Ownership
25
Rewriting the Contracts
33
Labors Multifaceted Role
37
General Discussion
43
Creation In Theory and in Practice
51
Implications of the WealthMaximizing Standard in the Law
55
Employee Involvement in Practice
71
General Discussion
75
Notes
87
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Page 56 - All parties who have contributed inputs to the enterprise and who, as a result, have at risk investments that are highly specialized to the enterprise...
Page 70 - Offers), a corporation should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain.
Page 89 - Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century, (1995), at v. 18 The Secretary of State in the UK, Ms Patricia Hewitt, Ibid. |9 Worthington, S 'Corporate Governance: Remedying and Ratifying Directors' Breaches', October 2000, Law Quarterly Review, Sweet and Maxwell, London, at 638.
Page 13 - Firm-specific investments of all types are at risk in the same way that equity capital is at risk and for the same reason.
Page 12 - Firms that focus solely on share value will have an incentive to shut down operations that are not generating profits for shareholders even though those operations may still be generating substantial real economic rents. From the point of view of society at large, this is, obviously, inefficient. Moreover, over time such policies are likely to discourage further investments by employees in firm-specific human capital.
Page 57 - Boards must understand that they are the representatives of all the important stakeholders in the firm — all whose investments in physical or in human capital are at risk...
Page 10 - In other words, what we call corporate profits measures only about half of the total economic surplus being generated by corporations. The other half is typically paid out to employees.
Page 11 - Topel's estimates are even close, the value of the rents that employees have at risk in the typical large corporation is, in the aggregate, roughly the same order of magnitude as the value of the stake that shareholders have. Moreover, because employees...
Page 10 - The first thing we have to understand is that corporate profits, as measured by standard accounting rules, provide a very incomplete measure of the total economic surplus generated by corporations. As we have seen, a large part of the total surplus is paid out to employees in the form of higher wages; but the employees' share of the economic surplus, when paid out in this form, is treated as a cost of operation.

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About the author (2010)

Margaret M. Blair is a senior fellow in Economic Studies at the Brookings Institution and author of Ownership and Control: Rethinking Corporate Governance for the Twenty-first Century (Brookings, 1995).

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