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Sen. Elizabeth Warren’s “Corporate Dividend Redistribution” Act

Sen. Elizabeth Warren wants to make large US corporations more accountable to the American people. Her target audience may be broadly inclusive but she has taken a decidedly partisan tone when describing her Accountable Capitalism Act. In a recent Wall Street Journal opinion piece, she imagines a time before 1981 when large corporations were known for their generosity and concern for the public good. Then Milton Friedman came along with his free market ideas and corporate benevolence turned into shareholder dividends.  Sen. Warren definitely used red and blue in her scatter gram when she plotted the partisan hotspots of her bill.

To make large corporations more accountable, Sen. Warren reaches back 400 years and lays hold to a commercial concept conceived in Elizabethan England – the nationally chartered corporation – a concept that led to the formation of the most unaccountable international corporation in history.

On the 31stof December 1600 Queen Elizabeth I granted a royal charter to the East India Company (EIC) for the purposes of trade with all countries east of the Cape of Good Hope and west of the Straits of Magellan. Over the next 300 years, the EIC became the commercial advance guard and occupying force of the British Empire. The EIC learned quickly how to lobby members of Parliament and saw their political influence ascend. The EIC formed their own army and navy, oversaw the conquest of India, participated in the Opium wars with China and gained a worldwide trade monopoly with British colonies including those in America.

As the EIC intertwined with the British government, it periodically required indirect government bailouts if the markets fell. These bailouts often came in the form of tax manipulation on specific imported products. One such bailout was the Tea Act in 1773 that fueled the Boston Tea Party and our Revolution. The framers of our Constitution did not forget the vast commercial influence wielded by the EIC. Generally, the framers were not fond of corporations whether large or small. James Madison referred to them as “at best a necessary evil only” and questioned allowing any legal entity designed to exist in perpetuity. In their wisdom, the framers reserved the power to grant corporate charters to the individual states.

Sen. Warren, taking a contrarian view to the 10thAmendment and historical experience, thinks the time has come for federal intervention. She believes that corporate shareholders are making too much money while stakeholders famish. She worries about wage stagnation. She wants the federal government to regulate large US corporations on a fundamental level, not for accountability, but to redistribute shareholder wealth at the source.

Within her Act she requires US corporations whose annual revenue exceeds $1 billion to obtain a federal corporate charter for the purposes of accountability to the American people. She requires corporate decisions to include the interests of all major stakeholders as well as shareholders. She grants employees the right to elect 40% of the corporate directors. She prohibits corporate political donations unless they are approved by 75% of the corporate directors. She restricts corporate officers, directors and management from selling company shares within 5 years of receiving them.

Beyond the questionable constitutionality of Sen. Warren’s Act, it is just plain unnecessary.  Her act partially mimics the  “benefit corporation” legislation already adopted by 34 states. Benefit Corporation status allows corporate directors to publicly state a corporate purpose beyond making a profit, subject to the prior approval of the shareholders. The corporate purpose must be a material benefit to the public good and can be broadly defined. This status has no tax implication for the corporation, but rather allows a corporation to prove their contribution to society through a third-party audit. Benefit Corporations already have the freedom to elect any of Sen. Warren’s legislative goals and more. The election for benefit corporation status is voluntary unlike the coercive requirements found in Sen. Warren’s Act.

As the primary sponsor of South Carolina’s Benefit Corporation Act back in 2012, I was pleased when the bill passed the South Carolina House and Senate with a unanimous vote. Gov. Nikki Haley signed it into law. Our vote reflected nonpartisanship at its best. We understood an important fact that escapes Sen. Warren. Allowing corporations the flexibility to decide how they can best benefit society delivers a more generous result than a federal mandate of forced benevolence.