Profit Sharing and Corporate Governance

The Argentina’s government is pushing a bill that would require companies to distribute 10 percent of profits to employees. Business leaders have fiercely reacted to the project, as they think it violates property rights and may undermine investment in South America’s second-biggest economy.
The government says this bill would allow employees to benefit from the surging profits at banks and other industries but opponents say it would dissuade companies from expanding and adding jobs. Companies may be further discouraged from putting more money into Argentina if this bill passes, said Bertrand Delgado, an economist at Roubini Global Economics LLC in New York.
The proposal, which opposition leaders said they can support, comes as banks, telecommunications companies and food producers benefit from the country’s economic growth. Argentina’s economy will grow 9 percent this year, the most since 2005, according to the central bank’s forecast, after 0.9 percent growth last year.
The plan may boost trade union support for the government, which cites similar legislation in countries such as Mexico, where companies have to share 10 percent of their profits, as well as laws in Brazil, Chile and Peru. However, the bill “clashes with the constitutional principles of property rights,” according to the Argentine Industrial Union (which represents the country’s biggest companies).
In response, advocates of this proposal says that it will bring more investment: "What could be a better advertisement for our country than showing the high rates of profitability that companies are having?” Profits at Argentine banks rose 43 percent in the first eight months of the year to 6.68 billion pesos, according to an Oct. 21 report by the central bank. Last year, banks profits rose 66 percent to 7.92 billion pesos. Telecom Argentina SA, the country’s second-largest telephone company, said profit rose 47 percent in the third quarter from a year earlier on higher sales of Internet and wireless services.
Another controversial issue that pertains to the topic we discuss this week is that the government's project also aims to give unions and workers the right to examine their employers’ accounting to ensure that they’re getting a fair share of profits. That would create an untenable situation in which workers will try to “co- administer” companies, said Santisteban, of the importers’ chamber. Companies don’t “want to have a discussion with unions about projects where they put capital at risk,” he said. The Industrial Union wants to modify the bill so that unions, which represent about 80 percent of Argentina’s registered workers, can’t view the companies’ books or bring up the issue of profit sharing during annual wage negotiations. The profit-sharing requirement would initially apply only to companies with at least 300 employees. It would eventually be expanded to all businesses that meet a certain level of profitability, with the details to be determined by a committee of government officials, union members and business executives.
The leader of the General Labor Confederation, the country’s biggest union, urged lawmakers to approve what he called a “revolutionary bill”. “Companies have never earned so much money as they do now,” Moyano said. Eduardo Gutierrez, president of Grupo Farallon, a Buenos Aires-based construction company that employees 600 workers, said in an interview that he doesn’t want to be forced to share his earnings.
The question is the one we discussed yesterday in class, but here you have a clear example of a conflict between stockholders and employees over the right to control and the right to profits. The clip is in Spanish without subtitles, but you can read newspaper articles covering this issue here, here, and here. There is also a famous Naomi Klein's movie, The Take, with English subtitles, available in Youtube (click here).