Firm Commitment

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* Book: Firm Commitment: Why the corporation is failing us and how to restore trust in it. By Colin Mayer. Oxford Universithy Press, 2013

URL = http://ukcatalogue.oup.com/product/9780199669936.do

Description

"The corporation is one of the most important and remarkable institutions in the world. It affects all our lives continuously. It feeds, entertains, houses and, employs us. It generates vast amounts of revenue for those who own it and it invests a substantial proportion of the wealth that we possess. But the corporation is also the cause of immense problems and suffering, a source of poverty and pollution, and its failures are increasing. How is the corporation failing us? Why is it happening? What should we do to restore trust in it? While governments are subject to repeated questioning and scrutiny, the corporation receives relatively little attention." (http://ukcatalogue.oup.com/product/9780199669936.do)


Discussion

Justin Fox:

"Mayer wrote a very interesting book called “Firm Commitment,” in which he argued that corporations had in the past succeeded and created economic value in large part by entering into commitments -- with employees, customers, suppliers, shareholders and others -- and that the modern ideology that corporations exist only to serve the interests of shareholders was endangering their ability to commit to anyone else.

As he summed up in his speech:

From entities with persistent ownership beholden to their nation states, corporations have transitioned into organizations with investors with no commitment to any particular nation or generation other than the present. The result is that the interests of the corporation have progressively diverged from those of the societies within which they operate.

The less tangible a corporation’s assets, the freer it is to escape commitment. This is apparent in corporate tax bills, as corporations where intellectual property plays the biggest role (technology and pharmaceutical companies, mainly) are most able to shift income from country to country to avoid taxation.

Another worry, mentioned by Mayer but expounded upon at length elsewhere (and with brevity on Bloomberg TV yesterday) by another former business school dean, Roger Martin of the University of Toronto’s Rotman School of Management, is that corporations where the value is mostly intangible tend to funnel income to the relatively small number of talented people who are credited with creating that intangible value, thus fueling a sharp rise in income inequality.

Mayer’s proposed remedy to these problems is what he calls the “trusted corporation,” companies built on the model of Bosch and Bertelsmann in Germany and Tata in India, owned not by footloose shareholders but by an industrial foundation. Short of that, he argues, corporations should be required to articulate a purpose beyond just maximizing return to shareholders, and directors should hold executives accountable for fulfilling that purpose.

This isn't just academic noodling. Similar ideas are at the heart of the burgeoning B Corporation and NewCo movements, in which entrepreneurs commit to goals other than (just) making money. Something about the evolution of the corporation over the past few decades has begun to convince a lot of people that companies need a grounding in something other than shareholder return. And part of that something may be the fact that we can’t rely on buildings and machines and property to ground corporations anymore." (http://www.bloombergview.com/articles/2015-03-18/brick-and-mortar-gives-way-to-the-intangible-corporation)