Federal Triangle: Company License Up For Renewal
It is unlikely that many readers of this journal ever thought about the history and world changes wrought by an invention known as "The Company," coincidently the title of a new book by John Micklethwait and AdrianWooldridge, both editors of the British publication The Economist. The earliest companies date from 3000 BC Mesopotamia usually for limited partnership traders. By the early middle ages, a corporate person, or association of individual people, was recognized by European monarchs, and distinctive features of the "company" were granted to applicants, embodying three concepts of being an "artificial person," with limited liability, allowing joint stock ownership or the ability to issue tradable shares to any number of people. Probably, Stora Enso of Sweden is the oldest, continuously operating, private company, begun as a copper mine in 1288. As the authors of this wonderful book examine, the company has become the basic societal unit, not the state (Hegel), the commune (Marx), the political party (Lenin and Hitler), or any of the churches, manors or monarchies throughout history. The most important organization in the world is the company, possibly only rivaled by the family.
Company evolution has been sporadic and not always with intended outcome. The English East India Company ultimately ruled India with a private army of 260,000, pillaged the country, but changed the nation's cultural development while despoiling the subcontinent. The Virginia Company was instrumental in fostering ideas of democracy in the American colonies as a means to assure economic survival, causing King James I to claim the company "a seminary for a seditious parliament"; Curiously, the company produced no profits for its 700 investors. However, the Mississippi Company literally destroyed the economy of France and financial speculation that led to restructuring of debt owed by the English South Sea Company created a larger financial bubble from 1689 to 1714 than is estimated to have existed in the U.S. during the 1920s.
Humorous but true, Lever Brothers, the soap maker, introduced citizens to the offense of "BO" to induce people to wash, and in the past decade McDonald's is credited with teaching the Chinese public to form queues waiting to buy hamburgers. But it was railroad companies that opened American horizons, expanding from 31,000 miles of track in 1860 to 240,000 mile by 1910. IBM built its facilities in a small New York town to control its workforce but, as a result built the model, company-town community. It really was Sears & Roebuck that pioneered assembly lines to fill customer mail orders allowing the public greater saving, buying goods from a 532-page catalog in 1895, than from local merchants with poorer selections. In 1900, after Andrew Carnegie introduced "line production" to steel making, a dozen men on the mill floor could roll three thousand tons a day, as much as a Pittsburgh mill produced in the year 1850. It was Ford Motor Company in 1916 that introduced the employee pension fund, tied to company profits. By 1917 U.S. companies produced 36% of world industrial output and were the dominant institutions.
In the early 20th century, a practice began of separating company ownership from operation, dramatically changing businesses to control by the "organization man." Americans were ambivalent about the role of business because most joined their league for jobs. Then growth of companies gave way to decentralization into fiefdoms within conglomerates. But in the 1970s government began introducing bothersome rules for corporate behavior (e.g. EPA, OSHA, and affirmative action) so that by 1974 when the 100 largest companies accounted for 35.8% of U.S. gross domestic product, the trend reversed, and in 1998 the figure had fallen to 17.3%. By 2001 the U.S. was home to 5.5 million corporations and the average size is shrinking. But among the giants the company bossman does very well; In 2000 the boss took home an average $12.4 million, six times more than in 1990. In 2002 the median pay of the top 365 American CEOs was $3.7 million, 200 times compensation of the average employee, an outrageous ratio compared to Japan (20) or Britain (35). Now, regardless of whether you subscribe to the "bad apples" or "rotten roots" school, a public backlash has begun against big U.S. company and that will continue.
The question is how the company will evolve in the future. Government continues to deregulate markets but increasingly regulate companies. Politicians have discovered it is easier to get the private company to implement government's will and do the work for them. Companies that treat their employees or environment badly, forfeit trust, as some have, but most managers know that correct balance between shareholder and stakeholder interests maintains the best policy. In the current climate, The Company license is up for renewal.