Who creates the surplus
The FairShares Model is based on an acceptance that there is more than one way to generate a surplus.
- Paying people who provide produce or labour less than their product or labour is worth;
- Charging customers / users more for goods and services than it costs to produce them;
- Investing financial capital in human, intellectual and social capital to reduce the costs of production.
Recognising more than financial investment
As there is no easy way to distinguish between labour, user and investor contributions to the creation of accounting surpluses, the members of a FairShares Company / Co-operative have to decide the proportion of profit/surplus to distribute as dividends to each group, By default, a 50/50 division is assumed where there is one primary and one secondary stakeholder (e.g. User and Investor Shareholders, or Labour and Investor Shareholders). Where there are two primary stakeholder groups (Users and Labour), the default proportions are 35% (Labour), 35% (Users) and 30% (Investors).
Both workers and consumers are regarded as the source of surpluses / profits. Both workers and customers have a legitimate claim to a fair share of profits / surpluses. In a FairShares Enterprise, both groups also have opportunities to receive Investor Shares to represent the value they have added. They can also buy additional Investor Shares. They also acquire a right to redeem their capital at some future point in time, but only where the company / co-operative creates a secondary mutual to handle share transfers, or there are members internally who are due to receive member shares.
In conventional enterprises, the workforce are denied capital gains (which typically go to absentee investors). Co-operative enterprises generally do the reverse by denying ‘absentee investors’ any capital gains on their shareholdings (if they are allowed shares at all). Both are forms of social exclusion. Employee-owned enterprises have a track record of being more flexible in this regard. Often called ‘co-ownership’, examples exist where conventional forms of equity are issued to both staff and external investors. Where a FairShares Company wants to offer risk-reward for absentee investors, it can choose to do so using Investor Shares. If they do, absentee investors will be entitled to the same capital gains as Labour / User Shareholders who have Investor Shares, and exactly the same rights to speak and participate in general meetings. However, investor voting rights collectively can never exceed those of Founder Shareholders, Labour and [User Shareholders]. Special provisions in the rules prevent Investor Shareholders from unilaterially taking decisions that would lead to the dissolution or merger of a FairShares Company or Co-operative. The support of each class of shareholder is required for major decisions.
Investor Shareholders cannot contribute to decisions about wage differentials. While all shareholder can set the total budget for wages, the distribution of wages is decided by Labour Shareholders on their own. This means that executive pay is under the control of Labour Shareholders, not the Board of Directors or Investor Shareholders.
Investor Shares are similar to ‘ordinary shares’ in private companies. To have value they need to be tradable or redeemable. In the case of a FairShares Company, Investor Shares rise and fall to reflect the asset base and future prospects of the enterprise (just as ordinary shares may rise/fall in value). To realise the value of Investor Shares, a mechanism is needed to make them tradable or redeemable. This is defined in Rule 10 and Rule 15. Rule 10 follows the practice of successful employee-owned enterprises. Members can create new mutual organisations that buy/sell shares for member benefit (which can take the form of an internal share market). Importantly, members can join the new mutual organisation to secure a role in governance of the income their (former) shareholdings generate. Rule 15 provides for User and Labour Shareholders to acquire Member Shares when the value of the company increases. Half the Capital Gain is allocated to those whose labour and custom/service use created the Surplus.
Return me to the FairShares Articles of Association page.
