Recently several people have expressed frustration, within hearing range, over infuriating actions of large companies. For example, Apple's practice of generating excessive hype for unremarkable hardware by applying a spot of polish and a kiloton of marketing. Aggressive lawsuits and patent trolling are another instance. Attacks on the reputability of excellent sources of journalism are a third.
The corporation is a paradox. Unlike the human beings that own and work for it, the corporate entity can be physically massive and far-reaching, to the point of incomprehensibility. We are hard-pressed to even picture Toyota's 300,000 employees, or the 9 million cars it sells annually. Conversely, while the behaviour of their employees and investors as individuals is complex, corporate 'behaviour' is very simply-motivated.
In fact, it is not reductio ad absurdum to say that nearly all business ventures have a single purpose: to generate a return on investment. This is an ineluctable truth, their raison d'être.
With this in mind, we see that it is unreasonable to treat corporate behaviour as if it were human behaviour. "Singly-motivated" humans are frequently described as insane. Likewise, it is unreasonable to describe corporate behaviour using the human qualities of hypocrisy, audacity, justice, honesty, fairness, consistency, etc.
On the other hand, lower life forms, which respond predictably to changes in their environment, are a good model. If I say that ivy will put roots in weak mortar, unable to know that such action will cause the wall on which it lives to collapse, you can begin to see my meaning.
Bacterial colonies can be made to commit suicide by consuming all the food in a closed container. Similarly, when the return on investment is demanded quickly, the corporation can be expected shoot itself in the foot by generating short-term profit and ignoring (or actively denying) the possibility of long-term repercussions.
There are, of course, attempts to quantify the human impact of corporate activities. In such discussions you hear the terms goodwill, corporate social responsibility, ethical consumerism, and so on. But at root these are ways of assigning monetary value to efforts to limit profit-reducing public backlash against corporate actions which are seen as 'evil'. In nature, small creatures will avoid the unwanted attention of predators and competitors.
Applying this sort of analysis doesn't reduce the human damage often caused by corporate actors, but it certainly renders most instances unsurprising. The comparison works best for larger companies, in which the actions of the whole are most divorced from any good intent of the many individual employees. It also explains why we tend to see fewer 'inhumane' behaviours from non-profit organizations and charities. Freed of the overriding imperative to generate returns, these entities can adopt decision-making structures that tend to increase other outcomes.
Finally, to my mind, the analogy clarifies the issue of public versus private provision of government services. To shoehorn the positive societal impacts we expect from certain government programs into the measure of profit or return on investment is often inappropriate. Even where it is, private service providers can only be expected to yield the desired outcome if the direction of increased return is carefully aligned with more positive societal impact. On the other hand, as outlined above, the same providers can be expected to find all new ways of generating returns which do not necessarily correspond to any societal improvement—bursting like so many blades of grass through cracks in the figurative pavement.
"Corporations are a paradox."
"Corporations are a paradox." What's the contradiction? (I don't mean to nitpick, but I think you're above the sensationalist approach that you seem to advocate against).
Furthermore, I do think it is reductio ad absurdum to say that "nearly all business ventures have a single purpose: to generate a return on investment." Your essay relies completely on that statement being fact, but I wouldn't say it were so simple. Saying 'it's obvious that...' doesn't make it true.
How does one identify a 'sole purpose?' The purpose of a watch is to tell time, with secondary goals of looking good, displaying the date, etc. It's easy to identify because it was designed with that purpose in mind. Corporations weren't designed; sure, the 'corporation' as a legal entity was created with specific rights, but as with fractals or Conway's Game of Life, these simple rights/rules have resulted in fascinating emergent properties.
Take humans, for example. What is the meaning of our lives? One approach would be to look at it functionally, as I think you are doing with corporations, ie. corporations are seen to maximize ROI, as humans are seen to primarily sleep, eat and attempt to procreate. However, years of scholarly argument have shown that the functional view on the meaning of life is not satisfactory. I think it's equally complex for corporations.
Treating corporations as "macro-organisms", I'd argue that their 'purpose' is to maintain their own existence. Using this angle, one can identify the aspects of corporate organisms that achieve said purpose. Maximizing ROI is one of these aspects, but I wouldn't say it's the only one. Providing value -- not necessarily via financial means -- seems a much better fit. Does FedEx exist only for profits? Or is its purpose to create value by ways of superior logistics management, which it happens to receive payment for?
The "ROI as a sole purpose" label seems to fit investors a lot better than corporations. For investors, the corporation is the means to achieve the end that is a good ROI, but is it the same for the corporation itself?
It's also worthy to note that the market provides the ecosystem in which these organisms thrive. Like critters, corporations adapt to optimize performance in their environment. It so happens that performance is measured largely by profits, but this isn't the ethos of every company. If the market isn't meeting 'social goals,' a governing body is needed to 'engineer' the market through the use of various instruments (regulations, taxes, subsidies, etc.) The whole 'green movement' seems to be an evolution of our society in which we are starting to account for the negative environmental externalities of our existing systems.
I'll stop myself before I write a whole essay (or is it too late?)
Some other thoughts:
I went through a "business bad, government good" phase, which flipped to "laissez fair good, all else bad," but now I'm liking the (still imperfect) middle ground that exists. As much as I support free market, its fascinating to see that even perfect/rational systems occasionally result in market failures -- the Tragedy of the Commons is a great example -- which require a governing body to resolve.
There are 'bad eggs' in corporations, but those that survive are the ones that don't shoot themselves in the foot. As with your bacteria analogy: corporations that exist solely for profit/short-term-gain, don't exist for long.
On reflection (it's been a good hour since I started writing this), I realize I may have squirreled my argument by muddling for-profits and corporations in general. Hopefully the above maintains some of its intellectual merit. "For-profit" corporations do have ROI as their goal on paper, but I don't think it's that clear-cut in practice. The continued success of millions of corporations proves that they provide value, and those that do it in a 'humane' way prove that a for-profit corporation does not a psychopathic corporation make.
Recommended: Dan Dennet on Dangerous Memes
Thanks for the thought-stimulating post!
—Rafal Dittwald (not verified), 5 April 2010 - 10:28pmI like the initial thoughts
I like the initial thoughts and the response. It is true that organizations can have some aspect of a conscience, though those that do still require their CEO's to jump through hoops to prove that being "ecologically friendly" or "socially responsible" does, in the end, lead to better profits for the company. The bottom line is, with many corporations, that the managers' legal responsibility is to maximize the profits to increase the value for the investors. If a corporation wants to have a low environmental impact, it still needs to frame this in terms of long term profits - that protecting the land that the corp. owns means that they can remain there longer, with a better social image, leading to fewer future expenses for new land and greater customer loyalty due to the beneficial practices, etc etc.
With respect to the organisms that consume all before dieing out: these do exist in the corporate world and they may not last long, but the difference being that the petri dish that they exhaust are the finances or lives of citizens. Further, the practices that led to the uncontrolled growth can persist though the corporation has long gone (see mining companies that open a mine, extract all the minerals, go "bankrupt" so they don't have to pay cleanup fees, then re-start everything all over again under a different name...). The 'purpose' of these organizations is not to survive, but to exploit, repeatedly, and as completely as possible since the corporation is distanced from the ownership, and penalties to the former do not pass to the latter...
—Cam Fraser (not verified), 5 April 2010 - 11:22pmGood thoughts. ANY system let
Good thoughts. ANY system let to evolve under a set of simple rules will start to look like bacteria, or ants, or for that matter, any other systems let to evolve under simple rules.
What i think you overlook, although you do mention, is that corporations are formed of many individuals, who's general goal is to keep their job. I think looking at a corporation as a set of many individuals, all doing what they think is expected of them, provides a new view point. Yes, a corporation makes money, if the people in it think (as it usually happens) that they are being payed to make money. A corporation can innovate a lot, if pure innovation is expected from it's people (Google's 20% rule).
Of course what the CEO thinks is his job to do will influence the company more than the janitor's opinion. However, we often hear of corporations taking a stand on social justice, environment, etc. That is actually one or more employees deciding that they are not being payed only to make money, but for applying their moral guidelines to the job they are making.
Example, FedEx provides good value and service because a may of it's employees think they are being payed to deliver packages on time and without breaking them, and FedEx makes money because some employees think their job is to keep the company making money.
I dont think the complex and interesting behavior is due to outside rules, like for bacteria colonies, but from the opinions and actions of the employees inside a company.
—Victor Ragusila (not verified), 6 April 2010 - 9:58amAfter reading the posting,
After reading the posting, the first comment, and rereading the posting again, I felt like I need to address some of the arguments given in the first comment and to share some of my humble thoughts.
First, there is not much to debate about on whether the goal of a cooporation is to generate a ROI or otherwise. It is, simply, a fact. Cooportations are not governments, nor are they charities. They only want to make lots of money; a fact nobody is trying to hide,
Of course, in order to generate profit cooporations must provide values. But providing values is really the means through which cooporations can achieve their real goal. Fedex doesnt just happen to receive money for their logistical services, they do it because they know for a fact that they will make good amount of money out of doing it. If cooporations can get away with giving out trash and make a profit, Im sure they wont miss out on the opportunity to do so. And in reality, more often than not do cooporations charge consumers alot more than the product/service that they provide, and more often than not do cooporations pay as little as they can in order to create these product/services(such as the Apple example given in the original post). After all, cooporations need to be efficient in making money. Providing value can take a backseat if there is no profit to be gained.
To compare cooporations with human being is to bluntly ignoring the poster's main point about the bahaviour and motivation of cooporations. Corporations are social structures created with the goal as stated above. Although their organization and interactions might seem complicated to us, they are no where nearly as complicated as human beings. The two are simply uncomparable.
I do, however, agree with the point that the cooporation's purpose is to ensure its own survival. But to a cooporation in a capitalist free market, this is more or less the same as making as much profit as possible. The rule of the game is to make money, expand market share, make more money, repeat until either the competitions have been wiped out or some sort of oligopoly equilibrium have been reached. If you are not taking as much of the pie as you can, then you lose out on an opportunity to grow, and someone else will come and take your share of the pie.
I'd like to also point out that the simple mindedness of cooporations is also the reason why government regulation is important. Ecosystems in nature have negative feedback mechanisms in place to ensure a sustainable environment in which animals interact(atleast in a relatively long timeframe). Free markets, however, are rather complicated feedforward systems where catastrophes can often result at a very rapid speed if its not carefully regulated. What is more concerning is the amount of political influence cooporations can have on governments(espcially the most poweful one of them all), essentially gaining control of not just their own fate, but also the well being of the general public(an example would be the US health care bill).
As for the last point, simply being "successful" is not a defining trait for being valuable or useful, or even efficient. The defense sector is doing quite well, but I think its something that the world can do without. The health insurance companies in the states are making huge profits and yet heath care cost per person in the states almost double those of a Canadian. Its not providing value that drives a cooporation. It all really comes down to whether there are pies to be made.
—Jason Gu (not verified), 17 April 2010 - 11:30pmPost new comment