The key issue in the corporate governance debate is: expression of ownership. Where that breaks down or is intercepted, a vacuum is created. Those, of course, are soon filled, often resulting, at the very least, in a distortion, if not a rollback, of the natural operation of democratic and capitalist structures . . .
As we mentioned yesterday, the corporate veil describes a legal principle of protecting owners from liability for the actions of the owned corporation. This has the effect of freeing up additional sources of capital and increasing its liquidity for investment. It is somewhat less well known that the veil also was intended to protect directors – and even officers – as well. However, the spectacular and egregious nature of some of the corporate scandals of recent years has led to the veil being pierced far enough for litigation to reach individual directors and executives . . .
Consider this: In a functioning democracy, the people – who are the sovereign – are generally able to communicate their broad wishes about the identity and direction of the state, as well as their concerns and preferences regarding specific policies and initiatives. The politicians they elect are typically pretty clear about all of this. But in an anonymous shareholder-owned corporation, despite the undoubted presence of ownership in the shareholders, there is no really effective way to make it felt, in a practical sense, in the boardroom or executive suites of the corporation. . .
There are decided benefits – tested and proven, obviously, under the most extraordinary conditions – to the military concept of the chain of command. Violate it, and you risk losing the very meaning – never mind effective expression – of strategy and execution.
We don’t like to use so-called “traditional” approaches to management, these days. Certainly, military ones are falling out of fashion – even specifically singled out as out of step, if you will, with the times. No, today we don’t command; we empower, give away ownership of decisions, and even let our teams self-organize. But the thing is, unity of command isn’t so much about asserting rigid control as it is about establishing enlivening clarity. . .
Capitalism is a system of economic organization built on the insight that when owners of labor and capital are able to deploy their assets as suits their self-interest, the wider public good tends to be served, as well. It works to the extent that its fundamentals are in play. The invention of the modern anonymous shareholder-owned corporation would seem to be a perfectly ordinary extension of capitalism. It certainly has been a boon to the world economy. It has enabled vast amounts of capital to be mobilized and deployed into commercially viable projects that could never have been conceived of, before. But . . .
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