According to Frank Stronach, Magna's unusual corporate structure is a model of a "fair-enterprise system," his own personal amalgam of capitalism and socialism. Its heart is Magna's legally binding Corporate Constitution -- which mandates, among other things, that every employee own equity in the company. "The working class," says Stronach, "has the moral right to participate in capital building."
Magna's performance over the years lends Stronach's liberal-minded philosophy a certain credibility even with traditionally minded business executives. But what's most interesting about the philosophy is that it's as much promanagement as it is prolabor.
Take that constitution, for example, which local wags have been quick to dub the Magna Charta. It mandates that 10% of Magna's pretax profits be distributed to the company's 10,000 employees, mostly in the form of stock. But it also allows up to 6% of the profits to be distributed to Stronach's handful of top managers. Last year, Stronach took home $1.8 million (Canadian), his first lieutenants an average of $650,000 apiece.
Magna's employees, who among them now own about 6% of the company, might be a significant voting bloc in many corporations. Not Magna. Workers, like most other outside stockholders, own Class A shares -- one share, one vote. Class B shares, mostly in the hands of Stronach and other top managers, carry 500 votes. Conventional shareholder democracy cuts in only in extreme circumstances -- if management fails to earn 4% on share capital in a given year, say, or fails to distribute profits as the constitution specifies. But even then, all the Class A shareholders can do is elect two delegates to the company's 14-person board.
Since the company has right of first refusal on a manager's Class B shares, the system erects a stone-wall defense against an unfriendly takeover. That's no small matter in this age of acquisitions, particularly since Magna's familial culture would be unlikely to thrive under absentee management. But the price of protection against would-be raiders is insulation from existing shareholders, including the employees. That's a system, all right, but there's no doubt about who runs it.