Monday, January 4, 2016

Justice-Based Management, II: Reforming Corporate Culture


[This posting was rescheduled from November 30.  Sorry.  The refugee crisis seemed more important, and then the whole panic over falling prices by people who think we need to pay more for less to be better off.] In the early twentieth century, Judge Peter S. Grosscup of the United States Seventh Circuit Court published a series of articles on what to do about the problem of rapidly concentrating ownership of the nation’s productive capacity.  With such titles as “Who Shall Own America?” and “How to Save the Corporation,” Judge Grosscup outlined a plan for expanded ownership of corporate equity that, while it relied on past savings and was therefore not universally applicable, at least attempted to address the increasing wealth and income gap that was a growing problem even a century ago.


Judge Peter S. Grosscup
What His Honor did not address, however, was the problem of “corporate governance.”  This is key, because “property” is not the thing owned, but the right to be an owner in the first place (the right to property), and the bundle of rights that define how an owner may use what he or she owns (the rights of property).

“Governance” means “control,” and the rights of property determine who controls the use and the income from what is owned.  As Louis Kelso once said, “Property in everyday life, is the right of control.”

That is why an important aspect of the Just Third Way is not only that capital is broadly owned, but that it is also broadly controlled.  Misunderstanding this, in fact, is one of the chief dangers in getting people to understand that many programs that they think get capital “ownership” into people’s hands are actually socialism.

Many proposals take away the right to the income of what is “owned” and the right to dispose of the asset as the “owner” wills — the abolition of private property by any name.  Georgist socialism, Fabian socialism, social credit, and many modern forms of “distributism” are thus actually socialism, because they abolish rights to income or control . . . and “property” is a right.

Transforming the Corporation
That is why something like “Justice-Based Management” is absolutely critical to any program or proposal to expand capital ownership.  Justice-Based ManagementSM (JBMSM) is a leadership philosophy and management system that applies universal principles of economic and social justice within business organizations. The ultimate purpose of JBMSM is to create and sustain ownership cultures that enhance the dignity and development of every member of the company, and to economically empower each person as an owner and worker.

JBMSM promotes a company’s long-term profitability within the global marketplace by enabling all worker-owners to serve and provide higher value to the customer. JBMSM connects every worker’s self-interest to the bottom-line and long-term success of the company.

The JBMSM process builds upon a written articulation of the philosophy and principles of the company’s leader (typically the CEO or chairman of the board) and leadership core group, in terms of universal principles and core values of the company. JBMSM proceeds in stages to build a consensus upon these fundamental shared values and vision of the company within each work area of the company.

These articulated values provide the foundation for enhancing the productiveness of workers and company profitability, and include such structures as employee-monitored economic incentive programs, participation and governance structures, two-way communications and accountability systems, conflict management systems and future planning and renewal programs.

One of the main components of JBMSM under current U.S. law is the “empowerment ESOP.” While the employee stock ownership plan (ESOP) was originally invented as a means for providing working people with access to capital credit to become owners of corporate equity, most ESOPs are set up as just another employee benefit plan or tax gimmick, or as an employee share accumulation plan (“ESAP”). Most ESOPs today are not designed to treat worker-owners as first-class shareholders. The “empowerment ESOP,” on the other hand, is designed to encourage workers to assume the responsibilities and risks, as well as the full rights, rewards and powers, of co-ownership.

Furthermore, all academic and government studies to date have concluded that ESOPs alone are not enough to affect individual and corporate performance. Within a JBMSM system, in combination with a regular gain-sharing program tied to bottom-line profits, and structured systems of participatory management, the empowerment ESOP stimulates everyone in the company to think and act like entrepreneurs and owners.

Justice-Based ManagementSM offers an ethical framework for succeeding in business. JBM balances moral values (treating people with fairness and dignity) with material value (increasing a company’s productiveness and profits while enriching all members of a productive enterprise). JBM’s three basic operating principles are:

·      Build the organization on shared ethical values—starting with respect for the dignity and worth of each person (employee, customer and supplier)—that promote the development and empowerment of every member of the group.

·      Succeed in the marketplace by delivering maximum value (higher quality at lower prices) to the customer.

·      Reward people commensurate with the value they contribute to the company—as individuals and as a team.

Justice-Based ManagementSM is guided by the concept of social justice, as articulated by the late social philosopher William Ferree, S.M. Social justice involves the structuring of social organizations or institutions (including business corporations) to promote and develop the full potential of every member.

JBM also embeds within an ownership culture the three principles of economic justice defined by the late lawyer-economist Louis Kelso and philosopher Mortimer Adler: (1) “participative justice,” or the right to the means and opportunity to participate in the economic process as an owner as well as a worker; (2) “distributive justice,” or the right to the full, market-determined stream of income from one’s labor and capital contributions; and (3) “social justice,” or the right and responsibility of each person to work in an organized way with others to correct the “social order” or institution when the principles of participative or distributive justice are being violated or blocked.

Within JBMSM the principles of social and economic justice provide a logical framework for defining “fairness” and structuring the diffusion of power within the corporation.

JBMSM is designed to systematize and institutionalize shared rights, responsibilities, risks and rewards within all company operational and governance structures involving:

·      Corporate values and vision

·      Leadership development and succession

·      Corporate governance and future planning

·      Operations (policies and procedures) and hardship sharing policies

·      Communications and information sharing

·      Training and education

·      Pay and rewards

·      Grievances and adjudication

A well-designed Justice-Based ManagementSM system sharpens and crystallizes the leader’s philosophy around “universal” principles, providing a solid foundation for a corporate culture that enables people to internalize these guiding principles. JBMSM generates organizational synergy by connecting each worker-owner to the financial tools of ownership (i.e., ESOP and profit sharing), participative management systems, and a defined share of power in the governance of the organization. This in turn enables people to make better decisions, discipline their own behavior, and work together more effectively and cooperatively—because it is truly in their self-interest to do so.

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