Community Corporations

One of the most daunting dilemmas facing American communities today is how to improve their qualify of life without triggering the departure of their most important corporations. Whenever a local government decides to tighten business regulations—whether it enacts a livable minimum wage or builds speed bumps to slow down capital mobility—it motivates resident firms to move out and outside firms to stay away. Most municipalities have responded by doing everything possible to lure businesses, even if it means paying out big bounties and weakening local environmental and labor standards. A better way for a local government to build a healthy relationship with its business community, however, is to replace the current strategy of capitulation with a smarter one grounded in local ownership.

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Is it possible to create a corporation that blends the efficiency and attractiveness of private ownership with the loyalty conferred by community ownership? One intriguing option is to create a company whose stock can only be owned—or traded—within a locality. ...

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...A community corporation could be either nonprofit or for-profit. Like other enterprises, the shareholders would elect a board of directors to oversee management. The key distinction from conventional corporations is that only members of the local community would be allowed to own voting shares of stock. Shareholders could exchange or sell the stock freely, but voting shares could only be sold to other community members. Whenever such a shareholder decided to move out of the community, she would be obligated to sell off her shares to other community members or back to the company.

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Residential restrictions on ownership are uncommon because most businesses do not wish to limit the pool of potential investors, and thus the company’s profitability. A community corporation, however, could partially overcome this problem by doing what conventional corporations often do: create different classes of stock ownership, with different rights and par values. By keeping voting rights in a class of shareholders restricted to residents while issuing nonvoting shares to outsiders, a corporation could still keep control local.

A community corporation would be only a slight modification of the conventional privately held corporation, yet would blend and balance the virtues of public responsibility with private profitability. Unlike most cooperatives and nonprofits, community corporations would retain the features conventional corporations use to ensure high levels of performance. These include the personal accountability of the CEO, a streamlined board overseeing him or her, and a continued mandate to deliver strong profits for shareholders. At the same time, community ownership ensures community sensitivity. If the owners of an enterprise live close to the workforce, go to the same church or synagogue, send their children to the same school, have picnics in the same parks, and drink the same water, they have a greater incentive to make decisions responsive to their neighbors’ needs. And with all voting shareholders being neighbors, it is unlikely that they would allow the firm to move operations elsewhere—unless relocation were truly in the interest of the community.

A local economy made up of community corporations would notabsolve municipal government of its traditional responsibility to regulate business. What is important is that it now becomes possible to raise labor and environmental standards with much less fear that such regulations would trigger corporate departures.