What is a Corporation?
Henry Ford once said, “A great business is really too big to be human.” Indeed, that is the purpose of the corporate structure, to transcend the ability and lifespan of any individual. It is also the challenge of the corporation. The efforts by humans in directing and controlling other humans, whether through democracy or fascism, whether by carrots or sticks, have been notoriously unsuccessful. Efforts by humans to control institutions are an even greater challenge.
The very elements of the corporate structure that have made it so robust – the limitation on liability, the “personhood” that can continue indefinitely – make it very difficult to impose limits to ensure that the corporation acts in a manner consistent with the overall public interest. The corporate structure creates both the motive and the opportunity for externalizing costs to benefit the insiders. As we will see, most of the problems and failures and obstacles we find in looking at corporate functioning from both a micro and macro perspective come from this seemingly intractable element of their existence. In other words, we must make sure that we have created a structure that is not just perpetual, but sustainable.
In this book, we will devote chapters to the three most significant forces governing the direction of corporations and trying to reduce agency costs and maximize sustainable ...