Classroom 3

Business Transfer Options for Realizing Democratic Online Platforms

Domain: Business & Economics / Law
Research Article Title: Business Transfer Options for Realizing Democratic Online Platforms
Authors and Affiliations: Morshed Mannan (PhD Candidate, Company Law department, Leiden University) and Nathan Schneider (Assistant Professor, Department of Media Studies, University of Colorado Boulder)
In this research article, we present a set of legal strategies for converting investor-owned platform businesses into more broad-based, democratic ownership structures. Platforms are herein understood to be a  business model predicated on technologically intermediating informational and value exchanges between user groups, which has grown in response to rising search costs (Evans and Gawer 2016: 5-6, Evans and Schmalensee, 2016: 1-2). Platforms are present in industries ranging from cross-border remittances to on-demand transport. Their business model relies on network effects, whereby firm value appreciates the more users make use of the platform, and as users are in finite supply, only a few platforms survive in their relevant markets. This success is, at least partially, due to their ability to aggregate user data and identify individual preferences, which enables them to hold user attention and, in turn, commodify and trade this resource (Wu 2017).
These platforms tend to have anti-competitive effects as they have shown a proclivity towards abusing their dominant position (cf. Ezrachi and Stucke, 2016; European Commission, 2017). In terms of corporate governance, the ownership structure of these influential enterprises are also geared towards privileging certain voices, usually founding entrepreneurs, by furnishing them with dual-class shares. Some have charitably described this as the preservation of idiosyncratic vision (Goshen and Hamdani, 2016) but others see it as being plutocratic, diminishing firm value and exacerbating agency costs (Bebchuk and Kastiel, 2017). It may be argued that in the era of platform capitalism we can see platforms as an amplification of what Marcuse considered machines to be in the age of industrial capitalism: as a totalizing “political instrument”, that dominates all sphere of life (Marcuse, 1964: 3).
This has not been received passively, whether in the form of antitrust enforcement or employee misclassification lawsuits, new legislation (e.g. the GDPR), strikes and consumer boycotts. Popular resistance to technological change has a long and storied history, tracing back to the time of the Luddites and beyond. As Deakin and Markou note, this has fostered novel social organizations and legal rules (2018: 10). One manifestation of this has been the open source and ‘copyleft’ licensing of software (Raymond, 2000). Another has been the creation of Mastodon, a microblogging platform that is financed by donations rather than venture capital. Yet, as the recent acquisition of Github Inc., “the largest open source community in the world”, by Microsoft indicates (Greene 2018), these practices do not address issues of corporate structure, accountability or profit. We hypothesize that this requires greater attention towards the allocation of control rights within the platform.
Over the past decade, ‘platform cooperatives’ have begun to emerge in response to the need of democratic and distributed platform ownership, while also providing members with a fair source of income (cf. Scholz and Schneider, 2017). In contrast to the capital-managed firm, these multi-stakeholder firms allocate control rights to other contributors of value as well, whether they be employees, volunteers or businesses. They redistribute decision-making rights so as to give workers a voice in developing the ‘future of work’ on their own terms, individuals an assurance of accountability of how their data is commercialized and communities the opportunity to reassert control over critical infrastructure and services (e.g. housing, transport). For existing platforms, business transfers to cooperatives and other broad-based ownership structures (e.g. a trust) may fairly reward founders for their early innovation and investment, while simultaneously sustaining user activity and business value, especially as founders lose their ‘magic touch’. While there are a few platform cooperatives currently in operation, and interest in such cooperatives has heightened through advocacy by cooperative organizations (e.g. Legacoop), academics and international institutions (e.g. International Labor Organization) (Schneider, 2018: 323), practical advice on forming platform cooperatives as startups or through business transfers is scarce.
This article will contribute to filling this gap by presenting a set of transfer strategies for converting platform companies into more democratically owned and accountable structures. The first part of the article will be devoted to elaborating on why democratization of ownership is a key concern in the platform economy. In the second part of the article, the discussion will turn to why employee participation and ownership, in isolation, is insufficient in achieving said democratization. We will expand on the 16 ‘arrangements’ of employee participation and ownership identified by Ben-Ner and Jones (1995: 534), by suggesting additional arrangements, based on select illustrations of how existing companies use contractual mechanisms to allocate control and return rights to other stakeholders, including consumers, users and suppliers. This includes, but is not limited to, platform cooperatives. Given this framework, the third part will evaluate three strategies for realizing a transfer of a business to a multi-stakeholder participation and ownership structure: (1) Leveraged and Non-Leveraged Buyouts; (2) Contractual Agreements; and (3) Legislative reform to facilitate multi-stakeholder participation and ownership. We will then conclude.

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