Always Strive To Create Productive Value

The economy through its business sector should always strive to create productive value. In order to accomplish this, there needs to be sustainable consumer demand for products and services produced by Americans. Americans need to be connec…ted via individual ownership to the productive capital instruments used to produce the products and services to be consumed. At present, there is a disconnect with the 1 percent owning 90+ percent of the economy’s current productive capital structure, with the other 99 percent having to depend on their declining labor worker earnings to support the nation’s need for sustainable consumer demand. The 1 percent cannot possible spend their capital worker earnings on consumer products and services, to they end up investing the excess and further concentrating productive capital ownership. What is needed is a financial system that uses innovative credit mechanisms to enable the workforce and other Americans to acquire ownership in new capital formation endeavors and to pay for their acquisition out of the future earnings underlying the new capital formation. This will have the result of broadening productive capital ownership, expanding jobs, and providing Americans with the opportunity to not only earn from their labor but also to earn from their capital ownership assets, and over time build a viable capital estate.

Government Leadership Needed

Government leadership is necessary to overcome the continued concentration of productive capital ownership in the 1 percent. A new government corporation, the Capital Diffusion Reinsurance Corporation, is one entity that can use the power o…f the Federal Reserve to guarantee loans for the acquisition of capital ownership by the 99 percent with payback of the loan provided by the earnings of the capital assets over a reasonable period of time––say 5 to 7 years. Small start-up companies will continue to be driven by entrepreneurial efforts and will continue to use venture capital and debt financing. But once they attain IPO status and are determined to be stable and low risk, then their future growth should be financed so as to broadened ownership among their employees and non-employees with Capital Diffusion Reinsurance Corporation security backing. ESOPs are structured variously, but there are over 11,000 ESOPs with 1,500 of them majority employee owned. The alternatives are grim, either further concentration of capital ownership in the 1 percent or redistribution of capital worker incomes to the 99 percent in order to provide subsistence income.

Hoggism

Hoggish affluence is the reward to the 1 percent for their concentration of capital ownership. But reasonable affluence is possible for the 99 percent to achieve as long as we are able to efficiently manage our resources and produce more wi…th less. Thus, we need sustainable and renewable resource management and greater productive efficiencies. All this is possible through science and engineering but we need leaders to set the goals.

A Quick Comparison––Capitalism, Socialism And The "Just Third Way"

A QUICK COMPARISON
OF CAPITALISM, SOCIALISM AND THE “JUST THIRD WAY”

Center for Economic and Social Justice, © August 24, 2005 (updated 2010)
 
Capitalism
Socialism
“Just Third Way”
/ Political power accessible to all; economic power concentrated in a wealthy elite / Economic and political power concentrated in a governing elite / Both economic and political power are accessible to all
/ Capital ownership concentrated in a wealthy elite / Capital ownership concentrated in a collective controlled by a bureaucratic elite / Capital ownership is systematically deconcentrated and made directly accessible to every person
/ Capital incomes beyond consumption capacity for a wealthy elite / Adequate and secure incomes from capital for a governing elite / Adequate and secure capital incomes directly accessible to every person
/ Individualistic, atomistic system (ignores or trivializes common good) / Collectivist system (denies economic freedom and sovereignty of individual) / System based on sovereignty of every person, within institutions embodying principles of social justice
/ Institutionalizes greed / Institutionalizes envy / Institutionalizes justice
/ Materialistic ideology and system which ignores the growing income insecurity of non-owning workers facing displacement by technology or lower-paid workers / Materialistic ideology and system based on and fostering the absolute dependency of all citizens on the state for their income security and well-being / Moral philosophy and economic system based on the inherent dignity and sovereignty of each person, which underpins the inalienable right of every person to be a worker and capital owner within a society where spiritual values and the respect for all creation transcend material values
/ Labor-centric, classical laissez-faire economic system (ultimately recognizes that only one factor–labor–produces wealth and creates economic value) / Labor-centric Marxist and Keynesian systems (only one factor–labor–produces wealth and creates economic value) / Kelsonian binary economic system [two interdependent and distinct factors– human (“labor”) and non-human (“capital”)– directly produce wealth and create economic value]
/ Win-lose, zero-sum, scarcity, “dog-eat-dog” orientation / Lose-lose, zero-sum, scarcity, forced-leveling orientation / Win-win, synergistic, post-scarcity orientation (systems and technology are improved to do more with less)
/ Sacrifices justice for efficiency / Sacrifices efficiency for a collectivist version of “justice” / Justice and efficiency go hand-in-hand
/ Wage system (jobs for the many, capital ownership for the few) / Wage system (jobs for all, capital ownership for none) / Ownership system (every citizen and worker a direct capital owner)
/ Equality of opportunity to work; inequality of opportunity to own / Forced duty to work and forced equality of results as determined by governing elite / Equality of opportunity to work; equality of opportunity to own
/ Protects private property rights of the few who own productive wealth, and monopolizes access to future ownership opportunities / Truncates or eliminates rights of private property, putting control over means of production in hands of political elite / Universalizes right to private property and protects rights of property (to extent others are not harmed)
/ “Hands-off” role of the state regarding monopolization of ownership and control; state ends up redistributing wealth and incomes / Economic power is centralized in or regulated by the state; state redistributes incomes / Economic role and power of the state is limited primarily to preventing abuses and monopolies, and dismantling barriers to universal participation in direct capital ownership
/ Prices and wages protected from global competition; promotes mercantilism / Prices and wages controlled by government / Prices, wages and profits set by free and open markets with profits spread among many owners
/ Capital credit available to a few; consumer credit available to the many / All credit controlled by state / Universalized access to capital credit made available through local financial institutions
/ Past savings used to finance future ownership by few / Past savings used to finance future ownership by state / Pure credit, future savings and capital credit insurance used to finance growth linked to future direct ownership opportunities for all
/ Technology controlled by a private sector elite, subject to government oversight / Technology controlled by a non-accountable governing elite / Technology owned and controlled directly or through private sector entities that are accountable to many shareholders and stakeholders
/ “Social safety net” for poor: Trickle-down incomes and social entitlements provided through government transfers of income, institutional charity and personal charity / “Social safety net” for poor: Trickle-down incomes and social entitlements provided through state monopolies, forced redistribution of wealth and income by government / “Social safety net” for poor: Directly connects poor individuals and families to growth dividends, supplemented by personal charity, institutional charity, and government transfers
/ Indifference to environmental degradation; economically powerless become victims of development and environmental hazards; the well-being of future generations is sacrificed for short-term profits / Economic inefficiencies lead to inability to finance the most advanced and environmentally sustainable technology; economically powerless become victims of development and environmental hazards / Anticipatory approach to sustainable growth and development internalizes externalities, assigning environmental costs to polluters and passing costs on to consumers; offers means of financing most advanced “green” technologies; economically empowers people directly through private property to protect themselves against environmental hazards; and plans for future generations
/ Purpose of education is to train people to get jobs / Purpose of education is to train people to get jobs / Purpose of education is to teach people how to become life-long learners and virtuous human beings, with the capacity to adapt to change, to become masters of technology and builders of civilization through their “leisure work”, and to pursue the highest spiritual values.

Louis Kelso's Economic Vision For The 21st Century

 

by Norman G. Kurland and Dawn K. Brohawn
(© 2004 Center for Economic and Social Justice.
Updated from the original article published in Owners at Work,
the newsletter of the Ohio Employee Ownership Center, Winter 1999-2000.)

America has crossed the threshold into the 21st century as the most prosperous and powerful nation on the planet. Gazing toward the vast frontier of the global economy, we see a rapidly changing landscape shaped by forces beyond the control of any individual or nation. Space Age technology, global finance, global markets and transnational corporations are impelling us toward an uncertain future.

We as a nation have benefited from modern technology. It has contributed to our economic success in the world. It has lengthened our life spans and shrunk to fractions of a second the transmission of a message or billions of dollars across the planet. The global economy has brought the American consumer a year-round cornucopia of goods from every corner of the world. Competitive forces continue to drive down the price of personal computers, video recorders, and cellular phone systems, putting unimaginably powerful tools of information and communication in the hands of the average citizen. Choice abounds.

But Americans have also seen harbingers of troubles to come: the disappearance of entire sectors of labor as robots, artificial intelligence, and advanced office machines enter the work place. Globalization has encouraged the flight of jobs and capital to lower-wage regions of the world. Blue-collar workers and middle management alike have become targets for corporate downsizing. Today, six Ph.D. computer scientists from India can be hired over the Internet for the price of a comparable American. Thousands of jobs have been lost to a computer chip. Even in the midst of our prosperity most of us feel powerless to control our own futures or unable to find meaning in our current condition.

There is an economic fault line running throughout America and the world which today’s economic gurus seem unable to explain or remedy: the widening wealth and income gap between a tiny rich elite and multitudes of poor in every country (including the United States), and between developed and developing nations. Surrounded by global communications, the global economy, and our global environment, we cannot help but feel the tremors inside and outside our borders. With the growing economic imbalances come bloody conflicts, widespread starvation, international crime and corruption, depletion of the planet’s non-replenishable resources, unconscionable destruction of the environment and systematic suppression of human potential and life-enhancing technology.

Seeing through the chaos of our rapidly changing world, one post-scarcity visionary of the 20th Century, lawyer-economist Louis Kelso, understood the power of technology either to liberate or dehumanize people. Popularly known as the inventor of the employee stock ownership plan (ESOP), Kelso observed that modern capital tools and their phenomenal power to “do more with less” have offered people an escape from scarcity to shared abundance.

As a lawyer Kelso also saw that the design of our “invisible” institutional environment and social tools determines the quality of people’s relationship to technology. Intangibles, such as our laws and financial systems, determine which people will be included or excluded from sharing of access to equal economic opportunity, power and capital incomes.

Access to capital ownership, asserted Kelso, is as fundamental a human right as the right to the fruits of one’s labor. Furthermore, Kelso argued, the democratization of capital credit is the “social key” to universalizing access to future ownership of productive wealth, so that every person, as an owner, could eventually gain income independence through the profits from one’s capital.


Kelso’s Economics of Ownership and Justice

At the heart of what Kelso called “binary economics” is a simple but revolutionary proposition. Kelso stated that people could legitimately create economic value through two (thus binary) factors of production:

  • Labor (which Kelso defined as all forms of economic work by people, including manual, intellectual, creative, and entrepreneurial work, and so-called “human capital”), and
  • Capital (defined by Kelso as anything non-human contributing the production of marketable goods and services, including tools, machines, land, structures, system improvements, and patents).

Capital, in Kelsonian terms, does not merely “enhance” labor’s ability to produce economic goods. (It wasn’t Bill Gates’ labor that accounted for the increase in his wealth in one year’s time from $50 billion to $90 billion; his capital would have kept producing even if Bill Gates were in a coma.) According to Kelso, capital (increasingly the source of economic growth) should increasingly become the source of added property incomes for every person.


Kelso based his ideal market system on the three basic principles of economic justice:

  1. Participation, the input principle. If both labor and capital are responsible for production, then equality of opportunity demands that the right toproperty (and access to the means of acquiring and possessing property) must, in justice, be extended to all. 
  2. Distribution, the out-take principle. Property rights require that income be distributed based on what one contributes to production—one’s labor, one’s capital, or both. Assuming that capital ownership is spread broadly, the free and open market under Kelso’s system becomes the most democratic and efficient means for determining just prices, just wages and just profits. If both sales revenues and all labor costs are set by globally competitive market forces, then profits (the revenues left over after all labor costs are subtracted) represent a market-based return to capital. 
  3. Limitation, the feedback principle (which some Kelsonians call the principle of “Harmony” or “Social Justice“). This principle restores balance between “participation” (input) and “distribution” (out-take) and puts limits on monopolistic accumulations of capital and other abuses of property.

Kelsonian Macroeconomic Reforms

Democratized access to money, capital credit and credit insurance would become instruments of inclusion, not exclusion, and the means for “procreative” financing of whatever capital the economy needs to move toward prosperous lives for all members of society. Kelso’s monetary, tax and other “Capital Homesteading” reforms would allow us to finance sustainable growth through techniques that offer more universal access to future ownership. (See “The Federal Reserve Discount Window,” Journal of Employee Ownership Law and Finance, Winter 1998, and “A New Look at Prices and Money: The Kelsonian Binary Model for Achieving Rapid Growth Without Inflation,” The Journal of Socio-Economics, Volume 30, 2001, authored by Norman G. Kurland.)


Kelsonian Microeconomic Reforms

Justice-Based Management (JBM) [originally termed “Value-Based Management” or “VBM”] is a Kelsonian system for building and sustaining an ownership culture within the enterprise. Applying principles of economic justice, the philosophy of servant leadership and Kelsonian financing techniques, JBM was conceived as the new management system for the 21st century.

JBM systematically anchors capital and builds ownership into successive generations of employees. JBM also re-orients the operational and governance systems of today’s enterprises from the present top-down, risk-averse and conflict-prone patterns of the wage system, to a system of participatory ownership where risk, rewards and responsibilities are shared among many co-owners. JBM would enable all workers to become reconciled with the realities of global competition. With their labor incomes supplemented by capital incomes, workers could shift a growing portion of their incomes from automatic fixed wage increases (which also increase cost pressures on their company) to more equitable sharing of bottom-line profits.

The role of the labor unions will also evolve as unions move from the economics of conflict to the economics of co-ownership. Unions will regain their original role as a democratic society’s most important institution for advancing economic justice by organizing all non-owners, not just workers, to help get them their fair share of the growing capital pie.


A Capital Homestead Act for America

How can we realize Louis Kelso’s vision for America and the rest of the world? A 21st century counterpart to Abraham Lincoln’s Homestead Act (which was limited to a finite land frontier) would provide every citizen and family with access to future capital and profits in a frontier without boundaries. The Capital Homestead Act is a comprehensive legislative program of Kelsonian tax, monetary, and fiscal reforms to make every citizen a stakeholder in the unlimited technological frontier. (See Capital Homesteading for Every Citizen: A Just Free Market Solution for Saving Social Security, by Norman G. Kurland, Dawn K. Brohawn, and Michael D. Greaney, published by Economic Justice Media, 2004; available as a free PDF document from www.cesj.org.)

Facilitated by capital credit and loan default insurance available under “Capital Homesteading” reforms, each citizen will begin to accumulate dividend-yielding shares in (1) the company he works for through an ESOP, (2) the companies he regularly buys from through consumer stock ownership plans (CSOP), (3) a community investment corporation (CIC) to link him to the profits from local land planning and development, and (4) a diversified portfolio of blue-chip growth and other companies he invests in through a Capital Homestead Account (CHA).


A Glimpse of the Future

Envisioning a Kelsonian future where every American has a viable capital ownership stake in a growing economy, we predict:

  • America’s moral leadership will be restored as we set an example for the rest of the world on how to achieve genuine economic democracy and justice for all. 
  • Wealth, economic power and income gaps between the rich and poor will shrink, without present owners being deprived of their property rights. 
  • Sharing profits and control of technology, all people will become empowered, not victimized, by technological change. 
  • Market gluts and “overproduction” will be eliminated, as overall supply is matched by the simultaneous creation of mass purchasing power. 
  • Enthusiastic and productive worker-owners will produce goods and services of the highest quality at lower cost within corporations operating with more democratic accountability, efficiency and equity.
  • Politicians will become more accountable to more economically empowered and independent citizens, who will be less dependent economically on government welfare, subsidies and income redistribution.
  • Personal, family and community life will strengthen as more people gain greater control over their economic destinies.
  • The environment will become healthier as “Capital Homesteading” enables Americans to fund green technologies and non-polluting, “hydrogen age” energy sources that in the past lacked financing for their commercialization.
  • The quality of education and work will radically improve, as technology reduces the need for economic toil, and as more people gain the time and means to engage in lifetime learning and non-paid “leisure work,” enabling them to work creatively for their personal, as well as the common, good and the advance of civilization.
  • A flourishing and peaceful world society will be built upon the decentralization of economic power, and, as in the first American Revolution, the power of government will again subordinate itself to the sovereignty of each human person.

In the 20th century, many lived lives of quiet desperation, struggling from paycheck-to-paycheck, or from hand-to-mouth, with no ownership stake in society’s wealth-producing assets. Most 20th century Americans were limited to a choice between the wage-systems of capitalism and the wage-systems of socialism. Many lost hope that they and their descendants would ever share in the American Dream.

Just as Lincoln provided opportunities for propertyless people in 19th century America to gain a piece of the world’s shrinking land frontier, 21st century Americans will gain their ownership share in the limitless technological growth frontier. In the 21st century, Americans will be given a new choice, a “just third way” opened up by Louis Kelso, an alternative model of development that transcends both Wall Street capitalism and all forms of socialism. Choosing this road will lead America back to its revolutionary roots to a more participatory, unified and empowering “Second American Revolution” and a more just, free and efficient market economy. America will then again serve as “the last best hope of mankind.”

[For original post see http://www.cesj.org/binaryeconomics/kelsovision.htm]

Justice-Based Management: A System For Transforming The Corporate Culture

 

The Problem: Transforming the Corporation
The Conflict Model (“Zero Sum Game”) of Industrial Relations
The Proprietary Interest Model (“Win-Win” Strategy) of Industrial Relations

 

The Objective: Justice-Based Management
  • Leader monopolizes power
  • Leader commands through fear
  • Ownership and control concentrated
  • Paternalism
  • Accountability upward only
  • Trickle-down incentives
  • Rewards disconnected from productivity
  • Waste of time, materials, and human potential
  • Short-term sense of income security
  • Target of political attacks
  • Leader serves by teaching and empowering others
  • Leader guides through Justice
  • Every worker an owner
  • Management by shared values and customer satisfaction
  • Governance by checks, balances and two-way accountability
  • New labor deal: gain sharing, risk sharing, profit sharing
  • Efficiency maximized by Justice
  • Waste converted into production
  • Shared interest in long-term survival
  • Broadened political constituency

ADDITIONAL SOURCES ON JUSTICE-BASED MANAGEMENT(SM)

For more information on Justice-Based Management(SM) and building an ownership culture, contact Equity Expansion International, Inc. at P.O. Box 40711, Washington, D.C. 20016, (Tel) 703-243-5155, (Fax) 703-243-5935, (Eml) info@eei-consultants.com, (Web) http://www.eei-consultants.com.

Also see:

“Justice-Based Management: A Framework for Equity and Efficiency in the Workplace” [pp. 189-210 in Curing World Poverty: The New Role of Property. [Originally titled, “Value-Based Management: A Framework for Equity and Efficiency in the Workplace.”] Available for $15 plus $3.00 shipping and handling (in U.S.) from the Center for Economic and Social Justice, P.O. Box 40711, Washington, D.C., (Tel) 703-243-5155, (Fax) 703-243-5935, (Eml) thirdway@cesj.org, (Web) http://www.cesj.org.

“Beyond Privatization: An Egyptian Model for Democratizing Capital Credit for Workers” [pp. 247-258 in Curing World Poverty: The New Role of Property ] See above.
 
Journey to an Ownership Culture: Insights from the ESOP Community, ed. Dawn Kurland Brohawn, published by Scarecrow Press and The ESOP Association, 1997. Available from CESJ, $35.00 plus $3.00 shipping and handling (in U.S.).
 
“Theory O.” Available from National Center for Employee Ownership (NCEO), 1201 Martin Luther King Jr. Way, 2nd Fl., Oakland, California 94612-1217, (Tel) 510-272-9461, (Fax) 510-272-9510, (Eml) nceo@nceo.org; (Web) http: //www.nceo.org).

Various publications of the Ohio Employee Ownership Center, Dept. of Political Science, Kent State University, Kent, Ohio 44242, (Tel) 330-672-3028, (Fax) 330-672-4063, (Eml) oeoc@phoenix.kent.edu.

Various publications of the Beyster Institute (formerly the Foundation for Enterprise Development), 2020 K Street, NW, Suite 400, Washington, D.C. 20036, (Tel) 202-530-8920, (Fax) 202-530-5702, (Eml) dbinns@fed.org, (Web) http://www.fed.org.

[See original post at http://www.cesj.org/jbm/diagrams-jbm.htm]

Justice-Based Management

Justice-Based Management:
A System for Building an Ownership Culture*Excerpted from a paper presented at the ESOP Association
21st Annual Conference – May 20-22, 1998 – Washington, D.C.
[*Originally entitled, “Value-Based Management: A System for Building an Ownership Culture.”]

Work in most companies today follows the “scientific management” philosophy of Frederick Winslow Taylor. Writing in 1911, Taylor proposed that systemizing efficiency should be the primary focus of corporate managers. He declared:

 


“In the past, man was first.
In the future, the system will be first.”

Frederick Winslow Taylor


 

Unfortunately, Taylor’s system turned the worker into a disposable human tool, a worker-for-hire, a wage serf. As satirized in the classic movie “Modern Times,” where Charlie Chaplin actually becomes a mere cog in the assembly line, Taylor’s system dehumanized the worker and the culture of work, pitting workers against technology.

Taylor was also oblivious to another danger inherent in his system: it left ownership, control and the distribution of profits in the hands of a small elite of managers, time-study engineers and owners. His system offered once self-reliant workers higher wages in exchange for their loyalty to what many consider a modern form of feudalism.

Most companies today still operate according to Taylor’s top-down vision of the workplace. However, the advent of robotics, advanced informational systems, and the globalization of production, marketing and distribution is forcing a basic shift in how we view the role of the worker and the nature of the workplace.

Because of global and technological change, companies are recognizing that their survival and success will require changes in the way they “do business.” More and more, they are seeking new, more flexible ways of rewarding and motivating their workers while controlling costs and delivering ever-higher levels of value to their customers. They are also realizing that these objectives are impeded by the adversarial nature of the surrounding economic and cultural environment, a by-product of Taylor’s philosophy of work and the inherent instability of the wage system. Businesses are coming to see that what is needed is a new way of thinking.

This new way of thinking would not reject the critical role of systems, but would redesign systems to put people first. It would create a new management approach that rehumanizes the workplace. It would shift power, responsibility and control over modern tools and advanced organizational systems from the few to every person affected by the process.

The new system would combine principles of equity (justice and ownership) with principles of efficiency, to raise the performance of an enterprise and its workers to their highest potential, in order to better serve their customers and other stakeholders. Instead of tapping into the wisdom, knowledge and creativity of only a few, the new system would recognize the advantages of drawing out and combining the wisdom, knowledge and creativity of every worker.

Some of the most progressive private sector firms have begun to implement successful new approaches for motivating workers, improving productivity and quality, facilitating changes and maintaining continuity in their organization’s culture. One comprehensive approach, developed by the Center for Economic and Social Justice (CESJ) in Arlington, Virginia, is called “Justice-Based Management(SM)” or “JBM(SM).” [Note: In the late 1980s, CESJ originally referred to this system as “Value-Based Management(SM)” or “VBM(SM)“. Subsequently, to avoid confusion with a different usage of the term by Wall Street firms and various business management schools, CESJ decided to change its terminology to reflect the system’s underlying principles of economic and social justice.]

 


What is Justice-Based Management?

 

Simply put, JBM is a business philosophy and management system for competing effectively in the global marketplace, based upon the inherent value, dignity and empowerment of each person-particularly each employee, customer and supplier. As a customer-focused “service” philosophy, Justice-Based Management (JBM) is built upon a shared set of core values. As a management system, JBM offers a logical framework for designing a company’s structures and processes to instill an ownership culture that enables the organization to carry on its mission most effectively.

Justice-Based Management follows the market-oriented theory of economic justice first advanced by the ESOP inventor Louis Kelso and the philosopher Mortimer Adler. The Kelso-Adler concepts underlying JBM reveal a systematic approach for enabling each member to: 1) participate fully as a worker and owner in the company, 2) receive a fair distribution based on what he or she contributes to the company as a worker and owner, and 3) organize with other members to correct problems or defects in the system affecting participation and distribution. (See chapters 4 and 9 in Curing World Poverty: The New Role of Property, John H. Miller, ed., Arlington, VA: Center for Economic and Social Justice, 1994.)

Justice-Based Management marries the quality, educational and participation aspects of Total Quality Management and Open Book Management, with the equity and ownership concepts underlying employee stock ownership plans (ESOPs). JBM provides a structured system for diffusing power down to the level of each person in the company. JBM also offers workers an opportunity to participate as first-class shareholders in the company’s equity growth, and in monthly and annual profits on a profit center basis.

A JBM system typically incorporates an employee stock ownership plan (ESOP), individual and team performance feedback (i.e. frequent and formula-based cash profit sharing), ownership education and sharing of financial information, and structured participatory management and governance. JBM also reinforces within ongoing information and education programs, a broad understanding by all employee-shareholders of the interdependency among every person, department, and profit center in serving the customer and competing in the marketplace.

Experience has shown that where reinforced by a Justice-Based Management system and culture of ownership, workers become empowered to make better decisions, discipline their own behavior, and work together more effectively as a team. Because each person contributes, risks and shares as an owner, as well as a worker, JBM helps unite everyone’s self interest around the company’s bottom-line and corporate values.

 


A New Philosophy of Leadership

 

Justice-Based Management calls for a new philosophy of leadership. It holds that an “authentic” leader sees him- or herself as a teacher, as well as the ultimate servant. A true leader is one who empowers others to realize their hidden potential, not one who rules by fear or refuses to be accountable to others. JBM is catalyzed by such leaders; but it is developed and sustained from the ground-up.

A well-designed Justice-Based Management system sharpens and crystallizes the leader’s philosophy around a set of universal moral principles. Through a participatory, company-wide process, these principles are refined and embedded within the organization, laying the foundation for an ongoing ownership-sharing culture.

According to JBM, a leader should always strive to empower and encourage people to be responsible for and make decisions in areas directly affecting their lives and work, and at the level of their competence. Power, responsibility and accountability over policy should be decentralized, to avoid potential abuses which occur when these are centralized or concentrated. Those in higher levels within an organization should avoid making decisions which can be made most efficiently and competently by those at lower levels.

Justice-Based Management is not village democracy where every decision is voted upon by all members of the company. Nor is it “management by committee.” Rather, JBM builds checks-and-balances in the company’s governance and accountability system. It protects the property rights of all shareholders, but allows executives flexibility to make traditional executive decisions.

 


The ESOP: A Vital Key to a JBM Culture

 

The purpose of Justice-Based Management is to help empower people and raise their human dignity and quality of life, both inside and outside the workplace. Its principal economic means for achieving this end is expanded capital ownership.

Justice-Based Management offers every worker the most effective tools to become a co-owner of the place where he works. The Employee Stock Ownership Plan (ESOP) was created to provide workers with access to capital credit-previously available only to those with significant accumulated assets-and to pay for their shares out of future corporate profits which they help the company to earn.

But in terms of Justice-Based Management, the ESOP by itself is insufficient. Without a clear articulation of shared moral values and the systematic dispersion of power and accountability in a company, the ESOP can be used as a tool to exploit workers and deprive them of their ownership rights, thus violating the fundamental principles of justice underlying Justice-Based Management. In contrast, an ESOP based on JBM principles respects the property rights of every shareholder.

 


The Basic Elements of Justice-Based Management

 

Justice-Based Management can also be described as an ethical framework for succeeding in business. As such, JBM balances moral values with material values.

JBM’s three components of value are realized in:

1. A foundation of universal moral values, starting with the intrinsic value of each person--each employee, customer and supplier.

2. Success in the marketplace based on delivering maximum justice–higher quality at lower prices-to the customer.

3. Rewards based on the value people contribute to the company–as individuals and as a team, as workers and as owners.

Within a JBM system, these ethical and material aspects of value can be expressed in a business by:

1. Creating structures of corporate governance and management based on shared moral values, as expressed in a written set of:

a. company core values (ethical principles which define the culture and clarify the social purposes and mission of the organization); and

b. a code of ethics (describing a set of virtues or “habits” to be encouraged, which guide individual behavior toward strengthening the company’s culture and interpersonal harmony).

Ideally these core values and code of ethics are agreed upon by consensus by every person in the company, and are subject to periodic review and improvement (as with Herman Miller Inc.’s “renewal process”). These serve as the “compass” for guiding corporate objectives, policies, and other decisions; they also provide a basis for judging people’s behavior.

2. Maximizing value for the customer. JBM expresses a simple formula for any business to follow for succeeding in the competitive marketplace:

V = Q/P
where V=Value, Q=Quality, and P=Price

 

This states that Value delivered to the customer increases as Quality of the good or service increases, and/or its Price decreases. Within a JBM culture, everyone in the company has a self-interest in providing “service to the customer,” because ultimately it is the customer who “signs” every employee’s paycheck.

3. Structuring the company’s compensation and reward system to enable every person in the company to be rewarded for the value of their contributions to the company. This is one of the fundamental aspects of ownership. It reflects the “correct” principle of distributive justice contained within the Kelso-Adler theory of economic justice, where a person’s returns are based on performance and contribution, not charity. Basic JBM compensation and reward systems would include:

a. monthly, bimonthly or quarterly bonuses linked to each worker’s profit center within the company,

b. annual, corporate-wide performance bonuses based on formulas tying each worker’s contributions to overall company profits, and

c. a structured, profit-based program of share ownership (i.e. annual ESOP contributions), supplemented by cash dividend payouts to reinforce long-term ownership consciousness.

 


Building Systems for Sharing Risks, Responsibilities and Rewards

 

JBM is designed to “institutionalize” shared responsibility, shared risks and shared rewards within the company’s ongoing structures and processes. The key management areas affected by the JBM transformation process include:

  • Corporate values and vision
  • Leadership style and skills
  • Corporate governance
  • Open Book Management
  • Operations (policies and procedures)
  • Communications and information sharing
  • Training and education
  • Pay and rewards
  • Grievances and adjudication
  • Collective bargaining with labor unions
  • Employee shareholder education and participation
  • Future planning

 

 


Conclusion: The Benefits of Justice-Based Management

 

Building an ownership culture is more of an ongoing process than a single event. There is no perfect ownership culture, and even the most justice-based company must struggle with the challenges of a changing market, a changing work force, and its own expansion, while remaining true to its core values. Justice-Based Management, however, offers a systematic way of creating, maintaining, and perfecting an ownership culture for the good of all its members.

What are the Benefits of JBM for Management?

By moving from an autocratic to a more participatory, justice-based mode, a company’s leadership can spread around some of management’s typical operational “headaches.” This gives managers more time to focus on the company’s long-range, strategic needs, rather than spending most of their time putting out brush fires.

What are the Benefits of JBM for employees?

A workplace that operates according to the principles of Justice-Based Management empowers employees as workers and as owners. JBM creates a corporate culture where work can be more satisfying and economically rewarding.

What are the Benefits of JBM for Labor Unions?

Just as JBM involves a transformation of the modern corporation, it also involves the transformation of labor unions within JBM companies, offering labor representatives new and more important roles than they have played within the present adversarial system of labor-management relations. Unions can help deliver a higher degree of economic justice and far greater rights for their members than the false security and wage system “crumbs” now bargained for within today’s labor-management framework.

What are the Benefits of JBM for the Company as a Whole?

Experience within a growing number of companies indicates that the more that people’s self interests are unified within a management system reflecting the principles of Justice-Based Management, the greater will be customer and employee satisfaction. From this can flow increased cost savings, increased sales, and increased profits.

By offering solid principles and a logic for building an ongoing ownership culture, Justice-Based Management helps to create an environment which respects the dignity of all forms of productive work. JBM recognizes that, regardless of a person’s function or role in the company, we are all workers. The success of Justice-Based Management comes when each person–from the CEO and supervisor to the machine operator and receptionist–feels that they own and benefit from the JBM process and share in the results as full participants in their company and its culture.

ADDITIONAL SOURCES ON JUSTICE-BASED MANAGEMENT(SM)

For more information on Justice-Based Management(SM) and building an ownership culture, contact Equity Expansion International, Inc. at P.O. Box 40711, Washington, D.C. 20016, (Tel) 703-243-5155, (Fax) 703-243-5935, (Eml) info@eei-consultants.com, (Web) http://www.eei-consultants.com.

Also see:

“Justice-Based Management: A Framework for Equity and Efficiency in the Workplace” [pp. 189-210 in Curing World Poverty: The New Role of Property. [Originally titled, “Value-Based Management: A Framework for Equity and Efficiency in the Workplace.”] Available for $15 plus $3.00 shipping and handling (in U.S.) from the Center for Economic and Social Justice, P.O. Box 40711, Washington, D.C., (Tel) 703-243-5155, (Fax) 703-243-5935, (Eml) thirdway@cesj.org, (Web) http://www.cesj.org.

“Beyond Privatization: An Egyptian Model for Democratizing Capital Credit for Workers” [pp. 247-258 in Curing World Poverty: The New Role of Property ] See above.
 
Journey to an Ownership Culture: Insights from the ESOP Community, ed. Dawn Kurland Brohawn, published by Scarecrow Press and The ESOP Association, 1997. Available from CESJ, $35.00 plus $3.00 shipping and handling (in U.S.).
 
“Theory O.” Available from National Center for Employee Ownership (NCEO), 1201 Martin Luther King Jr. Way, 2nd Fl., Oakland, California 94612-1217, (Tel) 510-272-9461, (Fax) 510-272-9510, (Eml) nceo@nceo.org; (Web) http: //www.nceo.org).

Various publications of the Ohio Employee Ownership Center, Dept. of Political Science, Kent State University, Kent, Ohio 44242, (Tel) 330-672-3028, (Fax) 330-672-4063, (Eml) oeoc@phoenix.kent.edu.

Various publications of the Beyster Institute (formerly the Foundation for Enterprise Development), 2020 K Street, NW, Suite 400, Washington, D.C. 20036, (Tel) 202-530-8920, (Fax) 202-530-5702, (Eml) dbinns@fed.org, (Web) http://www.fed.org.

[See original post at http://www.cesj.org/jbm/articles-jbm/brief-jbm.htm]