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Shifting the corporate governance focus from shareholder to stakeholder

Shifting the corporate governance focus from shareholder to stakeholder

By Dani Rodrik.

Cambridge – Firms are the cornerstone of the modern economy. The bulk of production, investment, innovation, and job creation takes place within them. Their decisions determine not only economic performance, but also the health and wellbeing of a society. But who should govern firms, and on whose behalf should those decisions be made?

The conventional theory under which our contemporary economies operate is that firms are governed by – or on behalf of – investors. This theory posits a clear separation between owners and employers – between capital and labor. Investors own the firm and they must make all the relevant decisions. Even where this is impractical, as in larger firms with multiple investors, the presumption is that managers are “agents” of the investors – and of investors alone.

This theory of the firm rests on two fictions. First, investors are the only ones “invested” in the firm, and hence the only ones taking risks. Second, markets are competitive and frictionless, so that workers (and others closely affected by firms’ decisions, such as suppliers) can leave and go elsewhere if they do not like how a particular firm treats them.

In reality, a job is much more than a source of income. It is a crucial part of an adult’s personal and social identity. The relationships workers build and the community they acquire on the job give them purpose and help define who they are. Jobs provide workers with not just material utility, but also expressive utility. The terms of employment determine not just how much we can afford to buy, but our sense of ourselves and the extent to which our aspirations and potential are fulfilled. This is why losing a job often delivers a severe shock to our overall life satisfaction.

If markets were hyper-competitive and frictionless, and if information were perfect, none of this would matter much. Workers would enter complete contracts with investors (or their agents), taking all these considerations into account. Workers would sort themselves among firms, choosing to work for firms that give them the best combination of material benefits and expressive value. But in the real world, such complete contracts are not possible and imperfect competition is the norm, giving firms inordinate power to shape the lives of their workers.

In her fascinating book Firms as Political Entities, the legal scholar Isabelle Ferreras has taken these ideas one step further to challenge the traditional conception of investor-governed firms. The problem, she argues, arises from a failure to distinguish the “corporation” from the “firm.” The corporation is a state-sanctioned legal form that sets out the legal privileges and responsibilities of investors and the relationship among them. The firm is not a legal construct as such; it is a social organization. It embeds the corporation in a network of relationships with workers, suppliers, and other stakeholders.

The question of how firms should be governed has no determinate answer, both in the law and as a matter of economic logic. Ferreras proposes an analogy with national governments. As national politics became more democratic, a second, more representative assembly was created to complement an upper chamber dominated by the aristocracy. Similarly, firms could be governed in a bicameral fashion, with a workers’ chamber having equal say to an investors’ chamber. The German system of codetermination comes close to Ferreras’ proposal, though still falls short insofar as workers’ representatives never have equal power on German corporate boards.

Worker control is important to counterbalance investors’ incentives to disregard their employees’ wellbeing. But two other social externalities require further attention. First, contemporary innovation takes place within ecosystems where firms heavily depend on other firms and suppliers for standard setting, knowledge flows, and skills. There are many opportunities for coordination failure. For example, viable technologies may fail to take off in the absence of complementary upstream and downstream investments.

Second, there are what Charles Sabel and I have called “good jobs” externalities. Communities where good, middle-class jobs become scarce develop a wide range of social and political ills – broken families, addiction, crime, decline in social capital, xenophobia, and growing attraction to authoritarian values. The “insiders” with good jobs cannot always be expected to have the interests of “outsiders” at heart. So even if workers are empowered within firms, we need mechanisms to ensure that the interests of the wider community are internalized.

For both reasons, government action remains indispensable. Governments have to provide the nudge needed to solve local coordination failures. And they need to provide the carrots and sticks needed for firms to internalize good jobs externalities. Firms should not regard such government interventions as restrictions on what they can do, but rather as an expansion of their technological and employment possibilities.

In recent years, large corporations have become increasingly aware that they must be sensitive not only to the financial bottom line, but also to the social and environmental effects of their activities. Discussions about corporate governance nowadays are rife with talk about social responsibility, the stakeholder model, and environmental, social, and governance (ESG) criteria. A growing number of companies define themselves as “hybrid,” pursuing profit and social purpose at the same time. Some have figured out that treating workers better can be good for profits.

All of these are welcome developments. But societies should not allow investors and their agents to drive the discussion about reforming corporate governance. If firms, as social and political actors, are to serve the public good, workers and local communities in particular should have a much bigger say in their decisions.

Dani Rodrik, Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government, is the author of Straight Talk on Trade: Ideas for a Sane World Economy.

Copyright: Project Syndicate, 2020.


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Following reverse listing, public can now acquire shareholding in Paratus Namibia


20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.