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Changing America’s Corporate Culture
Spencer Shick
PVS 101
May 4, 2009
The American poor do not wish to be poor, searching for their next meal or place of shelter. These people would quite obviously rather be living in a two-story house with every bill paid on time, but for some Americans this cannot occur. Quite logically, most poor believe that if they get a job and work hard, they will make enough money to lift themselves from poverty. Do not most people believe the same thing? Getting a job and earning a wage will afford us the opportunity to buy items necessary for a decent life…right? However, many people are working, yet somehow they are still stuck in the doldrums of poverty. In twenty-first century America, work does not always work! People who work hard and strive to provide an adequate life for themselves and their family are not receiving enough income to meet their needs. The low wages some American workers earn do not allow them to pay every bill on time, or buy new shoes for their children when needed.
In The Working Poor, David Shipler describes the paycheck that one woman, Christie, receives and tells how quickly her paltry wage disappears. “The eighth was payday, and her entire $330 check disappeared in a flash. First, there was what she called a $3 “tax” to cash her check, just one of several such fees for money orders and the like - a penalty for having no checking account. Immediately, $172 went for rent, including a $10 late fee which she was always charged because she never had enough to pay by the first of the month. Then, because it was October and she had started to plan for Christmas, she paid $31.47 at a store for presents she had put on layaway, another $10 for gasoline, $40 to buy shoes for her two kids, $5 for a pair of corduroy pants at a second hand shop, another $5 for a shirt, $10 for bell-bottom pants and $47 biweekly for car insurance. The $330 was gone.”[1] Christie worked in a day care facility, taking care of other people’s children, a very important job to society, yet her income of approximately $600 per month was not enough to provide for herself and her children.[2] Shipler tells many stories of working people in similar situations all across America. He describes how these peoples’ paychecks do not cover the necessities of life; much less leave any cash left over for fun or recreational spending.
Christie and others in society making nearly $5 per hour, while laboring hard in the American workforce, are struggling under the difficulties of very low wages. However, this poverty takes place in a society in which some executives or higher paid employees make several hundred times the amount of the lowest paid worker. This has created a huge disparity in income between the upper and lower class which is only growing wider. This income disparity and the accompanying very low quality of life for the poor are indicative of a flawed system. Surely a system of economics and corporate practice that allows for and perpetuates extreme poverty is fundamentally wrong in some ways. While Adam Smith’s invisible hand theory and classical economics’ theory of incentives (which should control the market and spread wealth efficiently and effectively) make sense in theory, in actuality this economic system does not provide for or help the poor in any significant way. Therefore, something must be done to change the way in which our economy operates and alter the corporate culture of America.
I will discuss different ways of operating societies, running businesses and compensating workers that are already occurring around the globe. I will examine the Mondragon cooperative movement occurring in Spain and discuss the ways in which it contributes to a thriving community, while also being a successful corporate economy. Secondly, I will discuss the practices and philosophy of Bridgeway Capital Management, located in Houston, Texas, and the unique way in which their pay system is structured. I will then make suggestions based on elements from these two cultures that could be implemented in America, because in a society of ever-increasing wealth in the face of obvious poverty, something must be done to increase the quality of life for America’s working poor. Possibly, modern America can borrow elements of other societies and companies to create a corporate structure and vision which affords an adequate life for all its employees.
The Mondragon Movement
The Mondragon movement, which began in the Basque region of Spain, arose from the highly industrialized workers of the Union Cerrajera steel mill of Mondragon. “From its beginnings in the 1940’s as a training school for apprentices, the Mondragon cooperatives have become the world’s most significant cooperative system and industrialized market economy.”[3] Mondragon Corporacion Cooperativa, also known as MCC, is a system of cooperatively owned and operated businesses which exist with a democratic structure.[4] Mondragon is based on the idea that business structure be shared among the cooperative group; each person has a stake in the management and control of the company. The co-ops are owned by the workers and operated in such a way that one worker receives one vote in making decisions no matter how much of the capital owned. These entities are all operated under a cooperative entrepreneurial system which values the community’s growth as equal to, if not better than, the individual’s prosperity.
The Mondragon Cooperative movement is based upon ten principles from which all participants are to subscribe. “The principles are not legalisms or ideological statements, but an articulation of cooperative and participatory values that have developed over the forty years of the Mondragon experiment. The principles affirm the freedom and empowerment of working people and at the same time provide limits.”[5] The ten cooperative principles are exhaustive and brilliant in their makeup, but I will highlight eight which I feel best serve to show the makeup of Mondragon. These elements also show how a business (known as a co-op in Mondragon) and a society can be run in order to value each human being and afford each worker an adequate standard of living.
1. Open Admission: Mondragon is open to anyone who agrees to the basic principles of the co-op, without discrimination based on ethnicity, religious or political beliefs or gender.
2. Democratic organization: The system “is based upon the equality of owner-workers. The cooperative is democratically controlled on the basis of one member, one vote.”
3. Self-Management: “Cooperation involves both collective effort and individual responsibility.” Mondragon emphasizes the development of individuals along with, not against, others. “Democratic control means participation in management and the ongoing development of the skills needed for self-management.” Cooperators are to be empowered and use their management skills to better the co-op and information regarding the entirety of business operations is to be transparent.
4. Pay Solidarity: “The co-ops will practice both external and internal pay solidarity. Internally, the total pay differential between the lowest- and the highest-paid member shall not exceed a factor of one to six.”
5. Group cooperation: Mondragon is not isolated. Individual co-ops interact with each other in groups; co-op groups interact with each other; Mondragon interacts with other societies in the global marketplace.
6. Social Transformation: Since Mondragon is committed to a greater cooperative mission, they have already transformed their society in many positive ways. However, they do much more for the good of society than just offer fair wages to workers and work for the overall good. Co-ops invest the major portion of their operational profits back into the Basque community. This money is used in many ways including new job development, a social security fund based on solidarity and responsibility, developing language and culture and many other practices.
7. Universal Nature: “The co-ops proclaim their solidarity with all who labor for economic democracy, peace, justice, human dignity and development in Europe and elsewhere, particularly with the peoples of the Third World.”
8. Education: Common to most societies, the Mondragon mindset is committed to putting many resources and a firm emphasis on proper education and professional training.[6]
When reading these principles, we notice elements that are present in America’s Western Society. An emphasis on education, interaction with other societies, reinvesting locally, and to some degree, an equality of opportunity are factors of American society that are also present in the Mondragon movement. However, there are also immense differences between the principles of the Mondragon worker cooperative movement and the principles of United States society. For example, in American society, how often do we witness the development of the community valued above the development of the individual? Where can we find a firm that will not let the highest paid worker make more than six times that of the lowest paid worker? Which American companies invest a large portion of their bottom line profits into the community instead of paying them to wealthy stock-holders?
Overall, the Mondragon society is one that is vastly different than that of twenty-first century America and the globalizing world. The main difference is the fact that the overall goal of Mondragon is not to accumulate wealth. “The ten Mondragon cooperative principles are the basis for substituting the values of enduring community development and stability for the accumulation of wealth.”[7] Mondragon bases their society on enduring prosperity for society as a whole, not on selfish motives.
In terms of operating the cooperative businesses, each worker theoretically receives one vote, but most often decisions are made on a consensus-discussion basis rather than an explicit vote. Cooperators get together and discuss the issue at hand and work through it until a consensus is reached. Often, if the group is still divided at the end of discussions, the issue will be changed or brought up at another time.[8] The Mondragon Cooperative Corporation is made up of three distinct parts: financial, industrial and distribution. There are also various educational and training centers including the Mondragon Unibersitatea, Mondragon’s University.[9] The continuing theme that Mondragon is not solely money-focused is evident in their balance sheets and financial statements. Besides economic and business statistics, balance sheets also include measures of “customer satisfaction, commitment to the environment, and people satisfaction, among others.”[10]
Some people may argue that elements of the Mondragon system just would not work well or that Mondragon could not be successful both economically and in the business environment globally. However, Mondragon is a very successful, continually growing economy which aptly provides for its citizens. Mondragon began in the fifties out of a Spanish economy which was growing greatly, however even as the Spanish economy has contracted, Mondragon has continued to grow.[11] From 1996 to 2002, MCC total assets almost doubled from 8908 to 15337 million Euros. Total investments nearly tripled, profits grew by 150 %, and the workforce more than doubled. MCC growth and expansion has been very strong and looks to stay that way because of their stable workforce, reinvestment in the community and an emphasis on education. To those who say that this model could not work in an increasingly global marketplace and economy, in 2002, 51% of the Mondragon sales came from exports.[12]
Because the cooperative system is invested in creating new jobs, measuring employment levels is generally a good measure of overall economic health. “Economic surpluses and positive cash flows are usually translated into new jobs for new cooperators.”[13] While Mondragon does go through recessions just like every other economy of the world, recessions mean a reduction in the number of jobs being created, rather than massive layoffs or business closings. Due in part to its employment policies which provide great job security and empowerment of workers, Mondragon’s success is beginning to gain world recognition. In 2003, MCC was ranked one of the ten best firms to work for in Europe, by Fortune magazine. Several MCC companies have won ISO (International Organization for Standardization) certificates which are awarded to the top firms around the world when considering quality management in their products or services.[14] ISO awards are very prestigious internationally and for Mondragon companies to be winning these awards shows how successful the Mondragon experiment has been.
Bridgeway Capital Management
In recent years, the media has given increased attention to the inflated salaries that many corporate-level employees are making while sometimes the lowest paid workers in the company are making several hundred times less than the CEO. Much talk has originated from this increased attention, yet very little has been done to change the corporate pay structure policies. One company, Bridgeway Capital Management, does operate in a more fair way. Bridgeway, founded in 1993 by John Montgomery, is a very unique company. It is a financial firm which operates out of Houston, Texas. Like many Americans, the CEO Montgomery recognized how inflated the salaries of corporate individuals had become and decided to start and operate a business that is focused on compensating its employees fairly and is committed to the community.[15]
Therefore, when John Montgomery opened Bridgeway, he decided that no partner can make more than seven times the lowest paid partner (this includes himself, as CEO). He has also instituted an Employee Stock Option Program which further assists in fairly compensating his employees. In addition to this unique pay structure, Bridgeway is an outward-focused company, as opposed to being inward-focused, meaning that the overall goal is to help the community more than the individual workers inside the company. To that end, Bridgeway also has a foundation which gives away half of the company’s profits to the community and other causes around the world. Their goal each year is to give away one-hundred million dollars, half of their overall operating profit! Montgomery’s goal was to change the overall mindset of those who work for Bridgeway. If top people want to make more money, then they must encourage and help the lower-level people to be more productive. Then, if the overall company improves its’ bottom line, everyone in the company can make more, but more importantly, Bridgeway is able to contribute more to the community.[16]