The Company. A Short History of a Revolutionary Idea

Citation

Mesure, H. (2007), "The Company. A Short History of a Revolutionary Idea", Society and Business Review, Vol. 2 No. 1, pp. 130-133. https://doi.org/10.1108/17465680710725317

John Mickelethwait and Adrian Wooldridge, both of whom work for The Economist, have already published at least three others significant books that can be classified in the field of Business and Society: “The Witch Doctors: Making Sense of Management Gurus” (1998); “A Future Perfect: The Challenge and Promise of Globalization” (2003) and “The Right Nation: Conservative Power in America” (2004). “The Company” is one of the Business Week Top Ten Business Book of the Year. It is not totally the fruit of journalistic connivance as we are going to see.

In the introduction, Mickelethwait and Wooldridge precise that their book is an attempt to chart the rise of the company and to give some indications on its possible future. The “company” is defined as “the limited‐liability joint‐stock” form of enterprise, a “distinct legal entity …endowed by government with certain collective rights and responsibilities” (p. xvi). As a legal form for collective and pecuniary enterprise, the company has three main characteristics: it is an artificial person; it refers to tradable share and, above all, the investors have a limited responsibility. Having defined the object, Mickelethwait and Wooldridge can advance four convictions that underline their book. The first one is that “the most important organization in the world is the company: the basis of the prosperity of the West and the best hope for the future of the rest of the world”. Secondly, the “causes of capitalism and companies are inseparable” (p. xvii). Thirdly, the nature of the company is historical. Therefore, the past, the present and the future of the company are the result of dialectic between society and companies (and other legal forms of enterprises we should add) especially between state and businesses. Fourthly, the acceptation of the company by the society is the central question. Why do they exist? For the benefit of whom do they exist? The history proposed by the authors is also an answer to this central question. Therefore, except the introduction and the conclusion, the chapters are chronologically arranged.

The Chapter 1 “Merchants and Monopolists (−3000 BC – AD 1500)” is the occasion to present, briefly, the main historical legal forms of enterprise that have been tested throughout the space and the time. In the antique civilisations (before Rome) the first collective pecuniary enterprise were made within contract of partnership that associated persons that belonged to the same family or clan. The Roman created the idea that an association of people could have a collective identity – societates – “that was separate from its human components” (p. 4). We can date back the premises of the company in the “compagnia” a collective and pecuniary form of enterprise that appeared in Florence in the twelfth century. This new form enlarged the investors outside the family or clans circles and was associated with the invention of the double‐entry bookkeeping. During the Middle Age occidental jurists elaborated, from Roman and Canon laws, the notion of “corporate persons” that were guilds, corporations, universities, cities or religious communities. Beyond these historical elements, three Mickelethwait and Wooldridge's conviction appear on the surface: the importance of the political power; the importance of the cultural context in the creation of the company; the legal forms of business – being anachronicle – as competitive advantage of the civilisations. Those ideas are mended in the second chapter “Imperialism and speculators”.

The Chapter 2 (“Imperialists and Speculators, 1500‐1750”) focuses on “chartered companies” that are a pure product of the occidental modern societies; one of the main by witch they began to dominate the earth. Those companies brought two business institutional innovations. Firstly, they shares could be sold on open market; secondly, there were limited company. For Mickelethwait and Wooldridge the “chartered companies” were able to informed societies economically and technologically. More important they had massive political and social impact especially in the “new world” since one considers that they are at the origins of the USA. Unfortunately for the company this period was also marked by a few financial scandals around 1720‐1730 (i.e. the Law's bankruptcy) – with tremendous social, political and economics effects – that left traces in the mentality of business and political men of England and France that leads us to the third chapter.

The chapter “A prolonged and painful birth (1750‐1862)” underlines how the “joint stocks companies” and the “limited liability” notions were – in the XVIIIth and XIXth – unpopular with most of the politicians, industrialists and even liberals such as Smith. The crucial change was the railways and theirs demands for large agglomeration of capitals. Therefore, it can be said that the limited liability joint‐stock company “emerged” from a political and economical context in the mid‐nineteenth century in the main occidental countries (US, UK, France, Germany). It still was “a long way from modern shareholder capitalism” (p. 52) notably because, at that period, little protections were given to the shareholders and because the new form of enterprise was associated to business failures. For Mickelethwait and Wooldridge two points are clear. First, “the company was a political creation” (p. 53) and, second, it created the first “public” institutions that were independent of the governments. The two following chapters describe how this legal form of enterprise delivered the “big business” in America (Chapter 4) and in Britain, Germany and Japan (Chapter 5).

The Chapters 4 and 5 cover a period of time that lies – roughly – from 1850 to 1950. By contrast to the traditional forms of business, the modern company is recognizable with its shareholders, its distinct operating units, a national or international process of production, and professional salaried managers. According to Mickelethwait and Wooldridge, “the giant corporation had become the dominant business institution in America: the gold standard by which all other enterprises were judged” (p.59). In the main occidental countries, companies set in societies the mass consumption industries (such as railroads; mass distribution; etc.) and generated the development of financial markets. They also influenced the creation of mass labour unions, deeply changed the way of living and restructured the cities. The authors also describe briefly the different models of capitalism or national governance that emerged during that period confirming that the business – and the companies – are essentially social and historical facts. In this historical overview of the growth of the company, the authors also write about anti‐trust legislation, the alternative ways of financing big businesses, and the “popularity” of the company or why societies do accept or not the companies? Those historical chapters are followed by the Chapter 6 that is more conceptual and less historical than the others.

The Chapter 6 “The Triumph of Managerial Capitalism (1913‐1975)” associates the company – as a legal form‐ to a model of organization and discuss about why do companies exist? For Mickelethwait and Wooldridge the managerial capitalism is characterised by the invention and the diffusion of the multidivisional firm (that is more a model of management than a strict form of organizing) and by a character: the company man. To explain the existence of the company, the authors search, confusedly, in three directions. Firstly, the multidivionnal firm (or the Sloanism model of management) – that economically incarnated the company until the 1980s – is more efficient that the market in allocating the resources especially because it better exploits the economies of scale (Coase, 1932). Secondly, the authors put the question of the justification of the company in the light of the shareholders/stakeholders dispute. By summoning Berle and Means (1932) they show – allusively – than the essential elements of this dispute were laid between the two World Wars. Thirdly, the workers – as a possible reason for the existence of company – are evocated with Drucker (1942) who suggested treating workers as resource rather than just a cost.

The Chapter 7 “The Corporate Paradox (1975‐2002)” is about the Sloanist model of company that was contested in the 1975‐2002 period. Four groups of “players” jointed together to split off the Sloanist Company. The first players were the Japanese's firms since the Japanese model of management of the 1980s obliged the American and European managers to review their principles and methods of management. The second group of players is composed of institutional investors that revolutionized the nature and the functioning of the financial market introducing the financial approach of management that is nowadays dominant. With the “Silicon Valley” the third kind of players, the big business converted to the computerization of the physical and informational process and to networks (throughout alliances, partnerships, joint ventures, and franchises). Small and markets re‐became beautiful. Company also muted to a new form of employment based on stress rather than loyalty, on employability rather than on lifetime employment. The Company man became a dinosaur. The players two and three must be associated with the development of the regulatory capitalism that had to face business scandals such as Enron. By the way, the notion of “regulatory capitalism” itself implicitly confirms that the states – as the fourth group of players – have a major impact on the evolution of the company. For our two authors, beyond the Enron scandal is the old debate “about what the company owed to society” a dispute that is focused on one particular sort of company, the multinational.

The multinational is the object of the 8th chapters titled “Agents of Influence: Multinationals (1850‐2002)”. Notice that the multinational is not really defined. Nevertheless, Mickelethwait and Wooldridge defended two theses. Firstly, even if they were developed a lot during that period, “multinationals were considerably less (economically) powerful than their critics imagined” (p. 176). By measuring their economical powerfulness in terms of macro added value rather than with sales, “far for gaining economic clout, the biggest multinationals were losing it” (p. 176). Secondly, according the authors, the weakest state is politically stronger than a multinational because it can coercive, collect taxes, imprison people, rise armies what cannot do a multinational. Historically, nowadays multinationals are less politically powerful than some “chartered companies” used to be. About the ninetieth century, the multinationals cannot be considered as “imperialist”. Yet, the multinationals are trying to treat world as a single market and to combine global scale with local competencies or resources whatever the consequences for the local or even the global levels. To finish, Mickelethwait and Wooldridge joint the supposed continuous unpopularity of the multinationals to the recurrent question that underlines the book: the place or the role of the companies in the society (whatever the way it is managed).

This question designs the conclusion title “The Future of The Company”. According to Mickelethwait and Wooldridge, throughout its history, the company has shown an equally remarkable ability to evolve. It is “an amoebic creature” (p. 182) that future depends upon two factors. A political factor since the company have permanently had to secure “a franchise from the society” (Hannah quoted by the authors); an economical factor that is to say “the balance between transaction cost and hierarchy costs that decides whether companies make sense” (p. 182) (economically sense we add). On this basis, the authors consider “three possible worlds”. The first should be “a handful of giant companies” that should govern the world. With the second world the company is becoming ever “less substantial since the company is not much of anything except a good idea, a handful people (…), and a bunch of contracts” (p. 183). In the third, “the company is no longer the basic building bloc of the modern economy”. It will be replaced by the “network”. The authors reject the first scenario opting for the second. But the future of the company will depend on a decisive variable: politics. Beyond, the relationships between companies and authorities or governments, the problem “stem less from what companies do to society than from what society does to company” (p. 190). On this angle, “although the influence of companies has never been more widespread, the clout of indivividual big companies has arguably declined” that opens the question of the future managerial characteristics of the company (as juridical form of enterprise).

This book is not an academic book. It is a recollection of historical secondary data. Mickelethwait and Wooldridge show a bit too much that they belong to The Economist. We can be reassured the potential reader; they are right in the political and ideological line of this honourable institution of the capitalism. This history of the company is largely written from the American and English business point of view. However, the easily readable and short book is a lively and concise history of the business company that gives a global view of how “the limited‐liability joint‐stock” form of enterprise have become one of the main contemporary institutions and could have changed the world.