The Future of Capitalism: 'Un-Corporating' Corporate Governance
Lex Research Topics in Corporate Law & Economics Working Paper No. 2016-4
35 Pages Posted: 14 Jun 2016
Date Written: June 14, 2016
A corporate governance model built around hierarchical structures, in which authority and empowerment flows through the board of directors to management and eventually staff, and the board is responsible to shareholders (the owners) of a company, worked well in an era of industrial capitalism, but in a connected age it proves far less durable. Large firms that have adopted this hierarchical corporate governance model seem to be less responsive to competitive global markets, disruptive new technologies, cultural shifts in attitudes towards consumption and work, new demands for environmental sustainability, and looming automation. The reason for this is simple. An unintended side effect of the hierarchical model has been to feed the growth of a “corporate attitude”, i.e. a corporate culture in which conservative decision-making, short-term profit and formalistic compliance are prioritized. Firms dominated by such a corporate attitude are at risk of becoming “Dinosaurs”, i.e., lumbering giants facing extinction.
In order to overcome this disconnect, it is necessary to re-visit the key elements of the firm - namely the product, people, process - and to examine the meaning of these elements in a contemporary context, i.e., in the context of global markets, disruptive new technologies, etc. This involves asking: What kind of products do firms need to deliver in order to disrupt markets and satisfy the dynamic needs of today’s consumers? What kind of corporate culture do firms need to put in place in order to attract the most talented “Millennials” who will shape the future of the firm? And what organizational processes are best placed to deliver such products and culture? The answer to these questions involves “un-corporating” corporate governance. By embracing this strategy, large firms give themselves the best opportunity to maintain relevancy in the context of rapid and profound transformations in the way we should think about capitalism.
Keywords: capital markets, capitalism, corporate culture, corporate governance, corporate reorganizations, entrepreneurship, growth, human capitalism, industrialized capitalism, innovation, leadership, Millennials, networks, theory of the firm, value creation
JEL Classification: D11, D21, E22, G32, G34, J24, K22, K31, L21, L26, M13, M14, O16, O31
Suggested Citation: Suggested Citation