The Third Way: Share-the-Gains Capitalism

From Robert Reich

Marissa Mayer tells us a lot about why Americans are so angry, and why anti-establishment fury has become the biggest single force in American politics today.

Mayer is CEO of Yahoo. Yahoo’s stock lost about a third of its value last year, as the company went from making $7.5 billion in 2014 to losing $4.4 billion in 2015. Yet Mayer raked in $36 million in compensation.

Even if Yahoo’s board fires her, her contract stipulates she gets $54.9 million in severance. The severance package was disclosed in a regulatory filing last Friday with the Securities and Exchange Commission.

In other words, Mayer can’t lose.

It’s another example of no-lose socialism for the rich – winning big regardless of what you do.

Why do Yahoo’s shareholders put up with it? Mostly because they don’t know about it.

Most of their shares are held by big pension funds, mutual funds, and insurance funds whose managers don’t want to rock the boat because they skim the cream regardless of what happens to Yahoo.

In other words, more no-lose socialism for the rich.

I don’t want to pick on Ms. Mayer or the managers of the funds that invest in Yahoo. They’re typical of the no-lose system in which America’s corporate and financial elite now operate.

But the rest of America works in a different system.

Theirs is cutthroat hyper-capitalism – in which wages are shrinking, median household income continues to drop, workers are fired without warning, two-thirds are living paycheck to paycheck, and employees are being classified as “independent contractors” without any labor protections at all.

Why is there no-lose socialism for the rich and cutthroat hyper-capitalism for everyone else?

Because the rules of the game – including labor laws, pension laws, corporate laws, and tax laws – have been crafted by those at the top, and the lawyers and lobbyists who work for them.

Does that mean we have to await Bernie Sanders’s “political revolution” (or, perish the thought, Donald Trump’s authoritarian populism) before any of this is likely to change?

Before we go to the barricades, you should know about another CEO named Hamdi Ulukaya, who’s developing a third model – neither no-lose socialism for the rich nor hyper-capitalism for everyone else.

Ulukaya is the Turkish-born founder and CEO of Chobani, the upstart Greek yogurt maker recently valued at as much as $5 billion.

Last Tuesday Ulukaya announced he’s giving all his 2,000 full-time workers shares of stock worth up to 10 percent of the privately held company’s value when it’s sold or goes public, based on each employee’s tenure and role at the company.

If the company ends up being valued at $3 billion, for example, the average employee payout could be $150,000. Some long-tenured employees will get more than $1 million.

Ulukaya’s announcement raised eyebrows all over corporate America. Many are viewing it an act of charity (Forbes Magazine calls it one of “the most selfless corporate acts of the year”).

In reality, Mr. Ulukaya’s decision is just good business. Employees who are partners become even more dedicated to increasing a company’s value.

Which is why research shows that employee-owned companies – even those with workers holding only a minority stake – tend to out-perform the competition.

Mr. Ulukaya just increased the odds that Chobani will be valued at more than $5 billion when it’s sold or its shares of stock are available to the public. Which will make him, as well as his employees, far wealthier.

As Ulukaya wrote to his workers, the award isn’t a gift but “a mutual promise to work together with a shared purpose and responsibility.”

A handful of other companies are inching their way in a similar direction.

Apple decided last October it would award shares not just to executives or engineers but to hourly paid workers as well. Twitter CEO Jack Dorsey is giving a third of his Twitter stock (about 1 percent of the company) ”to our employee equity pool to reinvest directly in our people.“

Employee stock ownership plans, which have been around for years, are lately seeing a bit of a comeback.

But the vast majority of American companies are still locked in the old hyper-capitalist model that views workers as costs to be cut rather than as partners to share in success.

That’s largely because Wall Street still looks unfavorably on such collaboration (remember, Chobani is still privately held).

The Street remains obsessed with short-term stock performance, and its analysts don’t believe hourly workers have much to contribute to the bottom line.

But they’re prepared to lavish unprecedented rewards on CEOs who don’t deserve squat.

Let them compare Yahoo with Chobani in a few years, and see which model works best.

If I were a betting man, I’d put my money on Greek yoghurt.

And I’d bet on a model of capitalism that’s neither no-lose socialism for the rich nor cruel hyper-capitalism for the rest, but share-the-gains capitalism for everyone.

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