OK, apparently people need a refresher on how corporations work. Class C shareholders are creditors of the corporation. The original shareholders loaned money to create the company, and later shareholders then purchased that debt.
Shareholders are not "betters". They are not gambling on how well the company does.
Option traders, arguably, are "gamblers". But they don't get to vote.
Class C shareholders are the last people to get paid by the company. It's illegal for corporations to pay anything back to their class C shareholders unless everyone else has been paid.
Employees are suppliers of the corporation. They sell their time to the company. If they don't think the terms under which they do so are a *net* positive benefit to them, they should stop working there.
Employees are in the list of "everyone except class C shareholders". It is *illegal* for a corporation to pay its class C shareholders *anything* unless every employee has been paid his or her full salary or other compensation.
In exchange for agreeing to be the last people to get paid, class C shareholders get two benefits. (Otherwise, nobody would agree to be a class C shareholder, because the corporation could just pay its employees - including upper management - so much that nothing is left over.)
First, the class C shareholders get paid *whatever* is left over, whether it's more or less than the amount of the original debt. This is called a dividend. The shareholders own the profits of the company.
Second, the class C shareholders get to control how the company is run. Specifically, they get to pick the board members, who in turn hire and fire the CEO, who in turn hires and fires everyone else.
Sometimes, corporations don't make enough to pay everyone who isn't a class C shareholder. If the company is unable to borrow additional money to cover the difference - or believes it is unlikely to make enough to pay its debts in the future - it can restructure.
When this happens, the class C shareholders get wiped out, and whoever is next-to-last to get paid loses their debt and become the new class C shareholders.
So shareholders have the most direct interest in making sure that the company either owns enough to pay all its debts, or has a good enough probability of being profitable in the future that it can borrow money against it.
Employees also have an interest in the company being profitable - you can't get paid your salary if the company isn't - but they have a weaker interest than the shareholders do, and unlike the shareholders, *employees can sue* if the company doesn't pay them.
Shareholders cannot sue if the company can't pay them. There are a few exceptions - minority shareholders can sue if the majority is voting to benefit itself at their expense (except in the free republic of Texas),
and shareholders can sue on behalf of the corporation if it's being defrauded by its board, management, or subsidiaries. But, in the latter case, any damages awarded go to the corporation, not the shareholder.
Shareholders can also sue - in some cases - when a corporation is wickedly choosing not to issue dividends. But that right is extremely limited; there is no duty of a corporation in general to issue dividends, even if it is profitable, such a duty only arises in special cases.
And all lawsuits by shareholders against management are limited by the business judgment rule that, if a court can view an action by management as - potentially - a legitimate part of managing the business, the court is not allowed to rule on whether it's a good decision or not.
So shareholders get voting rights because, other than that, they have the weakest rights against the corporation.
A good general rule in deciding who should own something is that ownership should be assigned to the person who is, on the margin, most affected by decisions in managing that thing.
While employees are affected by management decisions, shareholders are more directly affected, and more affected on the margin. Therefore, the shareholders are the proper owners of a corporation.
Now, that doesn't mean corporate law doesn't need to be reformed in the United States. It does.
First of all, the corporate income tax should be abolished. That's not particularly on-point, but corporate income taxes are worst taxes and should always be abolished.
The corporate income tax in the US only produces about 2% of GDP, or 11% of total federal tax revenue. It can easily be replaced by a small increase in income taxes (about 1 percentage point).
Corporate income taxes are just a way to tax the same income twice, which serves only to distribute and hide the real tax burden represented by our tax laws. They should be abolished.
Second, the capital gains tax rate on sales of stock and the income tax rate on dividends should be set at the same level, by law - whatever we choose that level to be. There should be no tax advantage to corporations retaining earnings rather than distributing them.
That eliminates one distortionary advantage to corporations retaining earnings and growing larger. Another reason corporations retain earnings is empire-building by upper management. This is protected by the business judgment rule, so we need to be careful with it.
But it's worth talking about giving shareholders stronger rights to - at least by majority vote - demand that corporations distribute their earnings.
We should also discuss - even if we decide not to do it - banning the retention of earnings by corporations in order to expand, and requiring businesses to distribute earnings even while issuing new stock to finance expansion.
That way, it's up to each shareholder to decide whether to expand their holdings of that company (by reinvesting dividends) or to use the profits to invest in other businesses (or even for consumption).
Currently, a shareholder who owns stock in a growing company, but wants to invest the profits in other businesses, has to either sell whole shares or demand a stock split in order to sell portions of the shares.
And, of course, the shareholder class as a whole has no way to put the brakes on corporate expansion short of replacing the board of directors, which may or may not work, even when the expanding business is an inferior investment to other firms.
But ending or reforming shareholder control of businesses makes no logical sense.
Unrolled and edited blogspot version: jonathancast.blogspot.com/2018/09/shareh…
