One of my favourite books published over the last few years is “Saving Capitalism: For the Many, Not the Few,” by Robert Reich, a public policy professor at UC Berkeley and secretary of labour in the Clinton administration.
Reich’s main argument is that capitalism is damaged and that the rich are getting richer while the poor and middle class are getting poorer, creating the greatest income inequality and wealth disparity in nearly a century.
He’s right that capitalism is a system that enriches only a few. I also agree with Reich’s call for a revival of corporate profit sharing, which was much more widespread in the 20th century, when some of America’s biggest and most well-known companies had profit-sharing programs.
At the company I founded, Magna International, profit sharing was one of the hallmarks of our operating philosophy. We made all of our employees and managers partners in profitability.
Harvard Business School called it “Magna’s success formula.” I called our profit-sharing philosophy “fair enterprise,” because I believed that all of the company’s key stakeholders — investors, managers, employees and the communities they worked in — each had a moral right to share in the success of the business.
It became the driving force that placed Magna on a path of incredible growth and profitability in the decades that followed. By the time Magna celebrated its 50th anniversary in 2007, the company had shared more than $1 billion in profits with employees.
Fewer large companies today are sharing profits with their workers, and it’s one of the reasons why there is growing income and wealth inequality. As a result, I believe we should establish a national policy that would require large companies with more than 300 employees to give their workers 20 per cent of their annual profits.
If we did that, we would be able to create a system where wealth is distributed more evenly and fairly throughout the economy, rather than remaining concentrated in the hands of relatively few individuals.
Compared to investors and senior management, employees get a disproportionately small share of the wealth that companies generate. But without employees, you haven’t got a business. I’ve always believed that it takes three forces to drive a business: investors, managers and employees — and all three have a right to share in the firm’s profits.
Profit sharing on a national scale could spur increased productivity and the sort of widespread and sustained economic growth that we haven’t experienced since the end of the Second World War.
The key beneficiary of this proposal would be companies themselves. If workers have a tangible stake in the company’s success, they’ll be highly motivated to produce better products for better prices. It’s just human nature: when you get a piece of the action, you work harder and constantly think of ways to improve quality and boost sales.
But there are many additional benefits to sharing profits with employees. It would put more money into the pockets of consumers, and governments would get a bigger slice of the taxes generated by a large spike in consumer spending.
In addition, at a time when companies are struggling to attract and keep employees, profit sharing would be a potent employee retention tool. And profit sharing makes relations between management and employees much more harmonious since both stakeholders have a shared vested interest. Everyone in the boat is rowing in the same direction.
A 2015 study found that companies that shared profits with their employees experienced not only a more positive workplace culture, but also a greater return on equity.
We need a new kind of capitalism — one that makes employees partners in profit participation, makes businesses more competitive and turns workers into part-owners by giving them a share of the wealth they help create.
Sharing profits worked spectacularly for my company. I know it could do the same for other companies, as well. Profit sharing would also help improve the living standards of Canadian workers.
If we can’t find ways to spread the wealth more evenly, we as a society will have a major problem in the years ahead.