The Corporation: Rethinking the Iconic Form of Business Organization: Volume 78

For more than a century, the corporation has shaped our thinking of organizations. This deeply institutionalized form is still regarded as both the iconic business organization and the core structural unit of our economic order. Today, however, it stands at a crossroads. Economic, social, and environmental failures of the recent past as well as misconduct and scandals are widely linked to inadequacies in this corporate form and its governance. The aim of this volume is to spark a debate within the field. In this introduction, we provide an outline of the current crisis and an overview of the interdisciplinary set of articles presented in this volume. We conclude with a view ahead and a plea for the acknowledgement of “alternatives.”

Concentrated ownership implies greater alignment between ownership and control, mitigating the agency problem. However, it may also engender governance challenges such as funds appropriation through related party transactions and the oppression of minority shareholders, especially in the context of weak legal systems. We draw from legal theory (the tradeoff controlling shareholder model and private benefits of control) and from organization theory (socioemotional wealth), to suggest that concentrated ownership can be beneficial in both robust and weak legal systems for different reasons. We advance theory on the effects of controlling shareholders and suggest that the longer-term outlook associated with engaged concentrated ownership can aid the shift of the corporation toward Berle and Means' (1932, p. 355) “third possibility” of corporations serving the interests of not just the stockholders or management but also of society.

In the “shareholder primacy” (SP) view of the modern corporation, shareholders are endowed with ownership rights over the corporation. This view stems from the property rights and agency theories of the business firm formulated by financial and business economists in the 1970s and 1980s, which subsequently fed into US corporate law debates. It relies on positive legal assumptions that have largely been debunked by legal scholars, and on normative economic ideas that are equally problematic. However, SP is still very influential – if not the dominant paradigm of corporate governance, especially in the United States. The goal of the present study is to come back to the theoretical debates around the foundations of the SP paradigm to seek to identify key ideational properties that may explain, in part, the resilience of such paradigm in policy, scholarship and business practice. In particular, this paper proposes that one important reason for the persistence of the SP ideology lies in the latter’s foundation on the radically contingent nature of shareholders’ claims over the corporation.

Connecting and integrating the economics, organization, and management of the firm with other relevant perspectives in political science, constitutional law, and constitutional political economy, this paper revisits the nature of the corporation as a particular type of constitutional contract. The baseline argument is to show how far we can go in redesigning and democratizing the corporate form of business “societas” by using only organizational effectiveness criteria before any ethical or political options. In fact, on the basis of those (re-)foundations, the analysis addresses the questions of why the form of government of that societas should be (and in part already is in various corporate law systems) a “republic of rightholders”; who those “rightholders” should be; and which structures (organs and bodies) and decision and control procedures may sustain effective governance not only in terms of the representation of legitimate interests but also in terms of decision quality. The result is the specification of the requisite variety of “chambers” and within “chambers.”

This paper narrates the efforts made in Italy after the end of the Second World War to develop an economic and social model in between corporate capitalism and planned economy, on the one hand, and shareholder versus stakeholder capitalism on the other. The result was the institutional infrastructure that supported the Istituto per la Ricostruzione industriale (IRI), a state-owned public holding in charge of managing the funds of the so-called Marshall Plan. The history of IRI illustrates the importance of a pragmatic approach to dealing with institutional constraints and opportunities when faced with the need to reconstruct destroyed economies in a context of very fragmented societies such as those of post-war Italy. The result was the resistance to an acritical adoption of the corporate American model and the definition of a more balanced form of capitalism. In an era of new recovery plans, there is a lot we can learn from IRI’s history.

Institutions are collective responses to collective concerns, with the underlying link between concern and response being the purpose of the institution. With this conceptual lens, we analyze the history of the Aktiengesellschaft (AG), which emerged in Austria and Germany around 1800. While any analysis of the organizational features of the form would have diagnosed marked stability over the past two centuries, our historical study reveals significant shifts of the AG’s purpose and meaning: from a vehicle in the service of the public interest, shareholders, and employees to a persona with legitimate self-interests and the will to survive. We suggest to regard such purpose drifts as distinct variant of institutional change. In addition, we conclude that the AG’s essentially political actorhood institutionalizes the ever fragile and delicate quest for a balance between the different legitimate interests on whose behalf a corporation acts (including those of the self). Such a view, we argue, can offer a future for the corporation as organizational form.

This paper traces how in Britain and Germany, for-profit and non-profit businesses coevolved with political-economic institutions. Starting in the late eighteenth century, Britain embraced the logic of liberal capitalism, although the path was not smooth. Over the same period, German states balanced both liberal and social-welfare ideals. Social-welfare ideals did not gain support in Britain until the start the twentieth century. The market logic embodied by for-profit businesses was more congruent with liberal capitalism than with social-welfare capitalism, so business corporations thrived more in Britain than in Germany. Yet in both countries, the growing number and power of for-profit businesses created problems for farmers, workers, and small producers. They sought to solve their problems by launching non-profit businesses – co-operatives, mutual-aid societies, and credit co-operatives – combining the ideals of community, enterprise, and self-help. British non-profits gained support from authorities by emphasizing their self-help and enterprise ideals, which were congruent with liberal capitalism, over the community idea, which was not. In contrast, German non-profits gained support by emphasizing all three ideals, as two were congruent with liberal capitalism and all three with social-welfare capitalism. Our analysis reveals how the success of different forms of business, embodying different institutional logics, depends on prevailing political-economic logics. It also shows how the existence and technical success of various organizational forms shapes elites’ perceptions and through them, societal-level logics of capitalism.

The debate about corporate purpose is a recurring one that has re-emerged today. What should be the guiding principles of business: the pursuit of profit or a contribution to public interest? We trace key elements in this debate in Britain and America, from the interwar years, when John Maynard Keynes and Adolf Berle made important contributions, to the 1970s, when events ushered in a return to laissez-faire and the rise to dominance of the shareholder primacy model of corporate governance and purpose, to today. Both the earlier and the current debates are centered around whether we see business institutions as strictly private entities, transacting with their suppliers, workers, and customers on terms agreed with or imposed upon these groups, or as part of society at large and therefore expected to contribute to what society deems to be its interests. Whether current developments will ultimately produce a shift in corporate purpose akin to the one that followed the Second World War remains to be seen. But the parallels to the interwar debates, and the uncertain economic, political, and social environments in which they took place, are striking. Our objective is to see what might be learned from the past to inform the current direction of thought concerning capitalism and corporate purpose.

We explore the significance of social ontology and its capacity to inform the specification of organizational status, architecture and capacities. We consider how different conceptions of social ontology are critical for explicating a range of epistemological and socio-economic questions concerning organizations and develop a research agenda oriented to studying these issues from the perspective of management and organization studies.

In this paper, we propose a new conceptualization of the purpose of the corporation in relation to its activities. This conceptualization builds upon the existing distinction between the corporation as a legal vehicle and the enterprise as an economic organization, but renews the approach of the enterprise. We argue that the enterprise is a peculiar historical form of economic organization that emerged in the late nineteenth century to not only produce but also create new goods and technologies. This creative purpose involved a new type of managerial authority, not grounded in corporate law, but institutionalized in other branches of law, such as labor law. The legitimacy of the managers relied on the premise that the enterprise’s creative power would be harnessed for collective progress. However, this new view of the enterprise was insufficiently conceptualized in the twentieth century and continued to be governed by standard corporate law. This allowed managers to be seen as agents of shareholders, and the purpose of collective progress to be replaced by the interests of shareholders. Our analysis has important implications for the purpose of the corporation. As enterprises become more innovative and impactful, we argue that they can no longer be governed by traditional corporate law. If the corporation remains the legal cloth for business activities, then its purpose must consider the nature and impacts of these activities. We therefore interpret the new legal forms of purpose-driven corporation as an appropriate framework to restore the enterprise and a collective purpose within corporate law.

The currently dominant version of the corporate form – the profit-maximizing corporation – is one of the most influential organizational forms in contemporary society. It is also one of the most criticized organizational forms, especially with respect to questions of purpose, participation, and ownership. The corporation’s strong focus on profit maximization and its non-democratic nature, as it excludes non-shareholding stakeholders from participating in how the corporation is run, have all attracted significant criticism. There are, however, several debates over alternative ways of organizing besides the corporation. In this chapter, we review the most influential of these: co-operatives, state-owned enterprises, democratically organized firms, social enterprises, stakeholder firms, and firms based on the sharing economy business model. We first analyze how these alternative ways of organizing do things differently with respect to questions of purpose, participation, and ownership and then we discuss how these different approaches can inspire efforts to reform the corporation.

Corporations vary widely around the world, yet our understandings of “the corporation” have been decisively influenced by the peculiar American version, with dispersed shares traded on a stock exchange and a matrix of institutions orienting them toward the North Star of share price. Moreover, even as this American model has shaped the terms of debate around the corporation, it no longer operates in its ancestral homeland, where ownership is increasingly concentrated, assets and employment are increasingly dispersed, and corporations are disappearing from the stock market. In this afterword, I underscore some themes from the articles in this volume and suggest some thoughts on research and theory in an increasingly post-corporate world.