Thursday, April 12, 2012
Viterra takeover, Mergers and Acquisitions and Inequality
By Paul Earl
As some of you know, Viterra is being taken over by Glencore. I have been working on a history of Agricore United (AU), a farmer-controlled company that was taken over by Saskatchewan Wheat Pool that then renamed itself Viterra. My work on Agricore United leads me to believe that the principle of shareholder primacy contributes to inequality by making corporations larger through mergers and acquisitions and in the process distancing them from other stakeholders. Let me explain.
Agricore United (AU), like its predecessor organisation United Grain Growers (UGG), was a cooperative. However, AU was always a very right wing cooperative - or what Ian MacPherson, a preeminent scholar on Canadian co-ops called “the pragmatic wing” of the co-op movement. In 1993, the company issued publicly owned shares in order to raise capital. However, AU retained much of the co-op governance structure, with 12 out of 15 directors elected by farmer-members. Saskatchewan Wheat Pool, which had converted from a co-op to a CBCA company, mounted a successful takeover of AU which was completed in 2007.
Although AU was defined in its own special legislation as a corporation that consisted of both shareholders and members, the interests of shareholders trumped the interests of members during the takeover. There is substantial evidence that the members wanted to retain AU as an independent entity, but it was the interests of shareholders to gain a “change of control premium” that drove the decision in the end. And yet it is well recognised in corporate law, and specified in the Canada Business Corporations Act, that a board must act in the interests of the corporation, and the Supreme Court has ruled that the interests of the corporation are not to be considered synonymous with the interests of shareholders.
So if the interests of one part of the corporation (the members) were essentially ignored, then was the takeover in the interests of the corporation? And if not, how should the interests of members and shareholders have been balanced?
The extension of this to other more “normal” M and As is this: Of what does a corporation actually consist? How are the corporate interests defined? How are the interests of “stakeholders” - normally considered to be employees, customers, creditors and the community(ies) in which the corporation functions - to be taken into account? If they are not given sufficient consideration - which is to say, if they are continually trumped by shareholder interest - is not the result (as we see around us) ever larger corporations, eventually reaching the “too big to fail” category. But “too big to fail” violates the very essence of free enterprise which says that any enterprise should only survive if it can be a commercial success in the marketplace. There can be, in some circumstances, a persuasive case for public sector support for a commercial enterprise. But arguably “to big to fail” is not among them.
In AU, we see a corporation whose purpose from 1906 to 2006 was focussed on western farmers and the western Canadian grain industry, that has now become part of a world-wide commodity trading organisation. How large a place will the interests of western farmers, the western Canadian grain industry, Western Canada, or the Canadian economy take in the agenda of the board of directors of Glencore? In whose interest, therefore, has the evolution of AU to Viterra to Glencore actually been accomplished?
History provides a compelling case that free enterprise economies work better than their command and control, state run, competitors. But from this positive observation one cannot, as we collectively seem to be doing, jump to the normative conclusion that unfettered free enterprise will work flawlessly to produce prosperity and justice for all. Everyday observation of the economies of all developed - and many developing - nations shows that unfettered free enterprise creates large and powerful corporations whose interests, by the very nature of free enterprise, are largely confined to a relatively small group of shareholders and senior managers.
So shareholder primacy affects the way M and As proceed, which affects the size of the resulting organisations, which shifts the power relationships in society, which has implications for inequality. Without a balancing of these emerging powers, justice and prosperity will not be achieved.