The corporation in the twenty-first century: Why (almost) everything we are told about business is wrong.
Doing business is about creating great businesses, says the economist Sir John Kay: it is not about profit. Quoting the American Football coach Bill Walsh, he argues that with a great business – one that has happy customers and satisfied employees, makes money, and is respected –‘The score takes care of itself’.
In this Distinguished Speaker Seminar, Sir John speaks to Dean Soumitra Dutta about some of the ideas in his latest book, The Corporation in the 21st Century: Why (almost) everything we are told about business is wrong.
By Sir John’s measures, very few of today’s large corporates qualify as great businesses, which explains why he is calling for a ‘reset’ of the relationship between business and society. He draws on examples such as Goldman Sachs Group Inc. v Arkansas Teacher Retirement System and the Private Equity ownership of – and resulting change of metrics and incentives in – many groups of veterinary practices to illustrate how business is losing trust and legitimacy.
Fulfilling the promise of his book title, Sir John challenges many of the assumptions that are held about business, including:
Capitalism is still about owning assets
Airlines typically lease rather than own the aircraft they operate; companies such as Amazon do not own their warehouses or ‘fulfilment centres’, and due to their platform-selling model and fast turnover, often do not record any inventory themselves. Even capital has become another service that the people who run businesses buy in. The assumed relationships between capital, assets, ownership, and control have been rapidly deconstructed.
Shareholder-ownership (with shareholder-primacy) is the only way to run a business
Other forms of governance are available. Sir John compares the models of ownership and control in the USA, UK, and Germany, noting that the USA mostly endorses shareholder primacy; Germany has a full stakeholder model; and, while a large proportion of UK executives believe that UK law mandates shareholder primacy, in fact it does not.
Great businesses are run by great leaders
The modern emphasis on leadership rather than management is akin to the ‘great man’ theory of history, described by the essayist Thomas Carlyle. Sir John cautions against being too impressed by individual heroic leaders, saying that ‘We would have computers in our pockets even if Bill Gates and Steve Jobs had not been involved.’
Ultimately, the modern business is a ‘collection of capabilities’ – technical capabilities and knowledge as well as teams of people who can collaborate and use that knowledge to build businesses. These collections of capabilities are best governed by professional managers, and he calls on business schools to take the lead in training and certifying those professionals, preparing them to build and run great businesses.
