the death of the corporation?

Jerry Davis’s new book will certainly challenge your way of thinking, especially if you’re a dyed in the wool organizational theorist. His book, along with his article “The rise and fall of finance and the end of the society of organizations,” contests the view that corporations are a core structure in society.  Although they were once social institutions, having been infused with value and a kind of “soulful” meaning to communities and wielding massive economic and political power, corporations are now reducible to contracts, relational or otherwise. The reason for this change was that society itself transformed. People reconceptualized the organization as something other than an institution with indebtedness to its society and members and as something less than a political juggernaut. Through legal changes, deregulation, and changes in corporate and investor practices, the corporation is now nothing more than a legal shell that houses economic exchange of various types. If you don’t believe this, Jerry would probably point to the securitization of corporate assets, noting that everything about a corporate entity can be bought and sold in small chunks on a securities exchange. The reconceptualization of corporations as bundles of assets has reduced their responsibility to anyone other than their shareholders. This gradual drift from “welfare capitalism” has been accompanied by a deterioration of employee commitment to corporations.

In his book Jerry provides an intriguing historical account of this change. Some important facts stick out in his analysis. 1) Due to the takeover wave of the 1980s and subsequent changes in agglomeration, the average company is now much less diversified than it was 30 years ago. In 1980 the median large manufacturer operated in three industries; by 1995 the number of industries had been cut to one. 2) Employment concentration has weakened over time. In 1960 the top ten firms employed roughly 5% of the U.S. workforce. In 1980 this number declined to 4.6% and by 2000 the top ten employed less than 3%. 3) The largest firms today, like Wal-Mart and McDonald’s, have high employee turnover rates, especially when compared to the old large employers in manufacturing industries. The median employee in transportation manufacturing has a tenure of eight years, while the average tenure in the food services industry is 1.5 years. Thus, the more dominant employers in today’s age are less likely to retain their employees than was true in the past. The implication of this is that the social bonds between the corporation and its employees are disintegrating.

Consider this description of the corporation in chapter 3 of his book:

After the bust-ups of the 1980s, the idea that the corporation was nothing but a nexus, and that it had no special connection with its employees, became increasingly true. Firms became adept at retaining contractors rather than hiring permanent employees; outsourcing tasks outside their “core competence;” and engaging in more-or-less temporary alliances rather than vertical integration. The conglomerate had rendered dubious the idea that the corporation had an organic unity: parts came and went through acquisitions and divestitures, and to find a “core” or “essence” to an ITT was a fool’s errand. The network organization took the next logical step: the corporation was not attached to particular parts, or even to particular members. It was, “in a very real sense,” simply a nexus of contracts that existed to create shareholder value (91-92).

Such is the state of the corporation. A bedraggled, ineffectual monster of yesterday. Or is it?

Jerry’s book is  extremely useful I think for pointing out important corporate trends and challenging organizational theorists to adapt to the new economic conditions. And the book also raises important questions, including: if the employment relationship has changed, what function do corporations have in today’s society? Why do we still continue to see corporate hierarchies even in the midst of this reshuffling of parts? Where is the center of power now? Even if corporations are on their way out, what should we make of extensions to their citizenship rights? Who or what should the state regulate or do we live in an era in which regulatory control of corporations (read: anti-trust and competitive practices) makes less sense? Or are we fooling ourselves? Is shareholder value just another shield to justify managerial  policies (policies that may, in fact, benefit only the managerial class)? Who captures wealth in the system described by Jerry? And if corporation is not the primary medium for wealth generation, what should we study – the contract?