June 27, 2006
Book Review--Shareholder Participation and the Corporation: A Fresh Inter-disciplinary Approach in Happiness
by Bill Baue
Australian Law Professor James McConvill applies empirical research on happiness to corporations,
specifically focusing on the case it makes for shareowner empowerment.
The new book by James McConvill, a senior lecturer at the La Trobe University School of Law in Melbourne,
Australia, begs the question, what does the title (Shareholder Participation and the
Corporation) have to do with the subtitle (A Fresh Inter-disciplinary Approach in
Happiness)? Either topic could stand alone as the focus of a separate book.
For example, debate abounds on shareowner rights, particularly as they pertain to
nominating and electing directors. And Prof. McConvill's application of empirical research on
happiness to corporations is intriguingly novel, mining similar terrain as the "spirit in business"
movement that seeks to integrate these two areas traditionally considered so separate. However, it
is the very fusion of shareholder empowerment and research on happiness that makes the book
particularly interesting and potentially useful.
Part of the problem with the shareowner
empowerment movement, Prof. McConvill suggests, is that it tries to treat symptoms (such as
director elections) instead of rooting out causes. One root problem is the foundation of
corporations on wealth-building.
"Money, however, is a means to an end, and that end is
well-being," writes Prof. McConvill, quoting a 2004 journal article by Ed Diener and Martin
Seligman. "But it is an inexact surrogate for well-being, and the more prosperous a society
becomes the more inexact a surrogate income becomes."
"The measurement of well-being has
advanced sufficiently so that it is time to grant a privileged place to people's well-being in
policy debates, a place at least on par with monetary concerns," the quote continues. "After all,
if economic and other policies are important because they will in the end increase well-being, why
not assess well-being more directly?"
In other words, Prof. McConvill suggests an
overturning of the Milton Friedman precept that the purpose of a corporation is to make money for
its investors. This reasoning follows a very similar line to recent arguments supporting corporate
social responsibility (CSR), which suggest that corporations have a duty not only to generate
profits but also to benefit (or at least not harm) society and the environment. Prof. McConvill's
"happiness-based theory of the corporation" does not so much supplant the CSR argument for
augmenting profit with other priorities as it complements this objective.
Prof. McConvill does not recommend doing away with profits.
"In my view, it would be an
absurd proposition to suggest that the agenda of a corporation should switch from the blind
economic pursuit of pursuing profits for the sake of it, to an objective of not pursuing profits
for the sake of it," he writes.
Of course, some cynics will dismiss Prof. McConvill's
premise upon first glance of the words "happiness" and "corporation," rolling their eyes in disgust
as "touchy-feely." However, he anticipates his critics well, grounding his argument solidly within
the current academic and professional literature.
"As two leading corporate law academics
in the US have written, 'mushiness,' rather than cold hard economic analysis, is fast becoming the
flavor of the month," writes Prof. McConvill.
Indeed, he hearkens back to the most ancient
of sources, the Nicomachean Ethics, in which Aristotle states, "Happiness is the meaning and the
purpose of life, the whole aim and end of human existence."
Prof. McConvill goes to great
lengths to substantiate his claim that shareholders are actually pursuing happiness instead of
profit. Once he has performed this feat, he points out that "active participation" is a hallmark
prerequisite for happiness, thus conveniently substantiating his claim for greater shareowner
participation as a means of achieving the goal of shareowner happiness.
solutions Prof. McConvill recommends could apply more broadly than just his "happiness-based theory
of the corporation," just as research on happiness applies much more broadly than just to
shareowner empowerment. For example, he suggests the proliferation and even mandating of
shareholder committees as a means of bringing shareowner voice into the corporate boardroom. While
his recommendation is particularly targeted at Australia, he cites examples from the US, such as
the tactic used by the California Public Employees Retirement System (CalPERS) of calling for shareholder committees at companies
in acute financial distress.
This suggestion will resonate with shareowner empowerment and
corporate reform advocates, who already espouse the notion of opening up the board to more direct
shareowner participation than the current lame provision of withholding votes for director
candidates. So, readers do not necessarily need to ascribe to Prof. McConvill's happiness-based
theory of the corporation in order to apply the solutions put forward in his book.