To solve large-scale problems of different kind has always implied the compiling and combining of resources with labour. Certain goal can only be attained by cooperation and collaboration resulting in division of labour and specialization.
The mediaeval man was well aware of these facts which lay behind his attempts of new social organization, where the most successful become the corporation with limited liability. Such a corporation was originally established to serve a public good. A plain example is the foundation of the first universities in Italy and France during the Middle Ages.
The corporation in very early times, however, evolved from a venture regarding public purposes to a phenomenon mainly dedicated to the fulfilment of private gains. The league of merchants in Europe can be considered the real creators of the modern corporation as it promoted both growth and competition through apprenticeship. These self- governing groups were usually presented its authority from the king or crown and possessed exclusive rights of toll-free trade in a given area. Such grants and also more specific blessings given to certain persons were soon to be seen as rights rather than privileges.
The trading corporation or company soon grew in size with its practices of using partnership in business. Partnership was, however, an inadequate and often dangerous way of organization when the trade grew. A big problem was the possibility to raise enough capital for large projects. Another was that each partner was responsible for all the others and if one of them died the partnership was dissolved.
The demands to be satisfied by a well-working corporation therefore should be according to the following:
- The accumulation of large sums of capital should be enhanced.
- The life span of the corporation should outlast the life span or interest of its owners (it should have a life of its own).
- Risks and liabilities of those participating in the corporation should be limited.
- It should be possible to participate without involvement in daily management.
These goals should be realized through ‘incorporation’, as a ‘limited’ liability company. Here we see the origin of the well-known abbreviations ‘Inc.’ and ‘Ltd.’ in connection with British company names. This new institutional structure was able to secure necessary credits and span large blocks of space and time as well as handle long-lasting ventures. It was supported by a governmental legislative advocacy which by degrees accepted to threat companies as individuals. Facilitating factors for this new kind of corporation was the familiarization with Italian double entry bookkeeping and Arabic numerals. Separation of accounts in connection with limited liability and increased calculation speed was now possible and conquered the world about 1600 BC.
The new corporations soon proved to be a phenomenon of great flexibility. Created for a specific purpose, documented in legally specified instruments, it was only responsible to its owners. The liability of its owners or stockholders was limited to what was invested. New stockholders could constantly be added and old ones could quit without hindrance. Owners could participate without being directly absorbed of its daily management. Decision-making and management could be standardized and simplified and productivity enhanced. There was a clear distinction between corporation and society and the modern corporation with its owners, managers, and workers was born. By this organization, the company could fulfil (at least in theory) the demands of the involved parties and assume the necessary risks and raise enough funds even for very large projects.
While the owners were interested in profit maximizing, the government was interested in collecting taxes. The consumers of the company production were interested in the quality of its goods and services. The employed, in their turn, were interested in job security, raised wages and working conditions. With this background, it is easy to see that the modern organization is pluralistic, that is, it comprises different kinds of goals and several types of independent interests. Several models regarding the influence of organizational stakeholders have been launched (for instance Simon 1976) which recognize the following groups:
- shareholders
- lenders
- suppliers
- customers
- state and community
- competitors
- management
- employees
From a social point of view, the corporation has certain disadvantages. One is that unethical company behaviour only rests on the company itself, not on its owners who scarcely could be held responsible. Today, the corporation can, on principle, disclaim practically all responsibility for what is happening outside the organization. Another is the pressure from the stockholders that profits always should be made, including social responsibility or not. ‘Limited responsibility’ has proved to be both the strength and drawback of the corporation.
Today, when corporations transcend national borders, they have got even more flexibility. Above all, they have been masters in playing off one interest against another, but also to hide what really is going on. Costs and profits are often hidden by moving them across different borders. Human rights and ecological matters are seldom considered beyond the responsibility to improve efficiency of organizations which are guests in a (often third world) country. In finding ways to limit liability, corporations also find ways to avoid responsibility…
Source: Skyttner Lars (2006), General Systems Theory: Problems, Perspectives, Practice, Wspc, 2nd Edition.