New Economics Foundation Pocketbook 6, 2002
33 Pages Posted: 8 Aug 2002
This pocketbook was commissioned to identify ways for avoiding the unexpected failure of large publicly traded enterprises and overcoming the shortcomings in government, and/or privatised organisations. It describes the fundamental problems of organisational hierarchies in either the public or private sectors to perform effectively and reliably with the ever-increasing complexity and dynamism in modern societies. Network organisations with multiple control centres or boards are identified as providing requisite variety of information and control channels to flexibly govern complexity. Provided self-governing network organisations are kept to human scale they reduce information overload and bounded rationality. The division of power into a number of centres introduces checks and balances to facilitate self-governance and allows individuals to act in a contrary way that are inhibited in command and control hierarchies. The ability of individuals to be competitive/cooperative, suspicious/trusting, self-interested/altruistic and so on introduces natures' check and balances to efficiently introduce self-regulation. Competition for excellence arises from contestability for control within organisations rather than between organisations through the market place to harness the self-interest of executives to further the public good. Networks of network organisations achieve economies of scale and scope, provided that no higher level network undertakes activities that are better carried out by a lower level self-governing unit. This principle of subsidiary function is illustrated by the nested networks that make up the stakeholder control enterprises around the town of Mondragon in Northern Spain that operate more efficiently that investor owned firms. Like a mutual enterprise the Mondragon firms do not require equity investors.
All viable firms by definition become independent of investors but no firm can exist without employees, customers and suppliers who are described as strategic stakeholders. Tax incentives are proposed for shareholders to agree to change corporate constitutions so that all ownership rights are transferred to citizen stakeholders over a twenty-year period. This eliminates any overpayment of investors after 20 years to democratise the wealth of nations. Firms transferring ownership would sponsor new ownership transfer "offspring" firms to raise the new funds required to expand the size and scope of their operations by establishing network relationship with their offspring. This process would convert multi-national corporations into nested networks of firms owned and control by local citizens who supported their operations by being a strategic stakeholder. While investors are eliminated from the new UK proposals for the running railways and some water supply firms, their governance system is identified as being inconsistent with self-regulation.
The booklet was developed from a working paper with the abbreviated name of "A New Way to Govern" that can be downloaded from http://ssrn.com/abstract_id=310263. The working paper contains academic references, tables and figures not included in this edited version published in hard copy to promote a public policy debate.
JEL Classification: D7, D8, G3, L1, L3
Suggested Citation: Suggested Citation
Turnbull, Shann, A New Way to Govern: Organisations and Society After Enron. New Economics Foundation Pocketbook 6, 2002. Available at SSRN: https://ssrn.com/abstract=319867 or http://dx.doi.org/10.2139/ssrn.319867