How Voters Can Help Manage America’s Largest Companies

House Democrats should introduce legislation to let the government put directors on the boards of big banks and budding oligopolies.

In 1933, Congress passed the National Industrial Recovery Act, allowing the federal government to step into the private sector and craft voluntary, industry-wide codes of fair competition. These codes were designed to fight the Great Depression, largely by eliminating “unfair competitive practices,” reducing unemployment, and improving standards of labor. The agency charged with overseeing the act worked directly with businesses to fulfill these aims. Firms that adopted the NIRA codes and cooperated with the state would display a blue eagle and the program’s slogan: “We do our part.”

Today’s big businesses, preoccupied with chasing tax breaks and squeezing workers, are unlikely to voluntarily work with the government on behalf of the public. But that doesn’t mean the government can’t make them do so. Here’s one way the state can force large companies to play ball: have the government appoint a few directors to the boards of big banks and budding oligopolies, where they can take part in major decisions. These members could then speak up for taxpayers and consumers.

If this seems too intrusive to succeed politically, consider its populist appeal. Remember: even Trump voters hate big banks and distrust enormous corporations. In 2008, only 35 percent of Republicans supported Congress’ decision to bail out financial institutions. A 2017 Gallup poll showed that 36 percent of Republicans had confidence in banks, and just 28 percent had confidence in big businesses. There’s a reason that Trump took a hard line against large corporations while running for office. When Trump pledged to block AT&T and Time Warner’s merger, he claimed that the deal would create “too much concentration of power in the hands of too few.”

For Democrats, then, legislation that gives the government power to appoint company directors would be both good politics and good policy. It would peel away some of the President’s base while making America’s biggest private institutions more accountable.

A century before Congress passed the NIRA, President Andrew Jackson vetoed a bill renewing the Bank of the United States—America’s-then central bank. Jackson argued that the bank answered to no one except the economic elite. “Is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country?” he wrote.

Jackson’s concerns have been borne out, but not by America’s central bank. Instead, there are a variety of private banks – like Chase, J.P Morgan, and Citi Bank—that privilege elites and that are not democratically accountable. Collectively, they form a bank far bigger and far more powerful than the Bank of the United States. Indeed, our bloated private financial sector is creating far more money than the Federal Reserve. It does so through jaw dropping amounts of indebtedness. Right now, America’s most powerful companies limit competition and use their profits to buy back stock, enriching CEOs and shareholders. To do this, they depend on bank money. The banks’ lending practices are a big reason why corporate America is carrying over $9 trillion in debt.

There is no simple rule that determines how much lending is too much. Our current system therefore can’t, by itself, prevent what went wrong in 2008. The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the Great Recession, made some important changes. But it is insufficient and too opaque. Do you know what is in it?

Here’s what you should know: it just adds another layer of regulation on top of the layers already put in place by the Comptroller, the Federal Reserve, the Department of Treasury, and other outside monitors. Like any form of regulation, it is too rigid to keep up with the financial world. It can and will be evaded over time, and it will be hard pressed to stop new and more dangerous abuses yet to be conceived. The bill is also imposing unjustified costs on smaller banks, and it is limiting competition in the banking sector. Parts of Dodd-Frank have already been repealed by Trump, and because regulators determine many of its requirements, pro-Wall Street U.S. presidents can weaken the law without congressional support. We need something better to keep a Lehman Brothers moment from happening again. That means we need watchers on the inside.

Democrats should introduce a bill that would put independent directors on the boards of the big banks—outsiders tasked with monitoring the banks’ practices and working on behalf of the public interest. This includes financial firms like Goldman Sachs. Require that one director be for consumers, to stop all the nickel-and-dime rip offs at the local branch level, and the second for us taxpayers, who will be on the hook for liabilities if corporate indebtedness or flaky new financial instruments lead to another financial apocalypse.

State-appointed directors would be a consistent voice for consumers and taxpayers in board meetings, advocating for measures that reduce public hazards. The directors would provide a liaison between taxpayers and the major financial firms that seem to control our destiny, making some of America’s most opaque institutions more accessible and understandable. They could, for example, have blogs where they tell us what they have been doing—as well as what the board as a whole is up to.

This, of course, assumes that the appointed directors are motivated to act in the public interest—an admittedly risky bet given our history. In recent years, presidents from both parties have proven willing to appoint regulators who are more interested in helping companies make profits than they are in helping the public. As a result, the outsiders appointed to the banks’ boards will have to be under the most severe ethical restrictions, practically like Cistercians. These monks in green shades should have limited two-year terms with salaries set by the Secretary of the Treasury at levels far below what the banks will pay. Where will the directors come from? Set up an elite corps, where aspiring candidates must pass a Confucian-like set of examinations. The Consumer Protection Board will keep one list of potential appointees and the Comptroller of the Currency the other. Limit each appointee to two years per bank. Mandate that all banks of a certain size and capitalization be covered. The Secretary of Treasury and Director of the CPB will have the power to require that other financial institutions have directors appointed by the state.

State-appointed corporate directors should also be used in antitrust enforcement, especially when regulators or courts decide that a proposed merger has risks but doesn’t need to be blocked. In these instances, the Justice Department or Federal Trade Commission could allow the deal to go forward on the condition that the corporation accepts outside directors, at least temporarily. These state-appointed board members would work to ensure that any increased efficiency stemming from consolidation goes to lower consumer prices. They would advocate for the rights of workers at all levels and skills (and make sure that they get a fair return for their labor). They would monitor and work to prevent unwarranted profiteering by management. Like their counterparts on bank boards, these directors would also make the inner workings of their companies more accessible to the public.

While this idea may sound novel, it’s long been employed by the state in other situations. Chancery courts use their authority to replace directors of corporations. The Model Business Corporation Act also provides for court-ordered board replacements. Modern-day federal prosecutors use racketeering laws to reorganize corporations and other enterprises that have been infiltrated by organized crime. The government, for example, used the Racketeering and Corrupt Organizations Act to revamp the corrupted Teamsters Union, forcing the group to allow direct elections to its board.

To be sure, state-appointed directors would not replace traditional antitrust law. Some mergers should be stopped. But this would be a useful additional tool, one that’s potentially more powerful than the asset divestments that the Department of Justice usually demands in exchange for mega mergers. It’s also a remedy that a court would have the discretion to impose, even if the government does not make a strong case that the merger would lessen competition. A court could allow the merger to proceed but require outside directors to safeguard consumers and workers. And some big companies, aware of how their mergers would dampen competition, might be deterred by this measure from trying to combine in the first place.

This proposal has the added benefit of creating a more democratic workplace. There is plenty of evidence that when citizens help manage large corporations, the company becomes more productive—and the economy overall becomes more equitable. It is time that the United States experiments with remedies that change the governance of corporations, particularly those seeking more market power, rather than just regulating from the outside.

To be sure, as a union lawyer, I would far prefer something more intrusive. In Germany, for example, workers elect half of a company’s directors if the company has over 2,000 employees—an idea that I think would do well in America. It would be even better if there were a federal law requiring that corporations avoid profiteering at the expense of employees. Sign me up for the bigger limits on capitalism found in social democracies.

But it will take a real labor movement to give working people the nerve to fully share in corporate governance without being swept aside—a movement that the U.S. currently lacks. That’s why my proposal is an important first step. Giving voters at least some control over the destiny of big banks and corporations would teach Americans that they can help manage the country’s major private industries. Doing so would help force these institutions to cooperate with, rather than exploit, our communities.

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Thomas Geoghegan

Thomas Geoghegan is a lawyer and the author, most recently, of Only One Thing Can Save Us: Why Our Country Needs a New Kind of Labor Movement.