Balancing Three Corporate Dimensions
Shareholder sovereignty is bound to flounder. It is a fair-weather model.
An important task for top management in the next society’s corporation will be to balance the three dimensions of the corporation: as an economic organization, as a human organization, and as an increasingly important social organization. Each of the three models of the corporation developed in the past half-century stressed one of these dimensions and subordinated the other two. The German model of the “social market economy” put the emphasis on the social dimension; the Japanese one, on the human dimension; and the American one, on the economic dimension.
None of the three is adequate on its own. The German model achieved both economic success and social stability, but at the price of high unemployment and dangerous labor-market rigidity. The Japanese model was strikingly successful for many years, but faltered at the first serious challenge; indeed, it was a major obstacle to recovery from Japan’s recession of the 1990s. Shareholder sovereignty is also bound to flounder. It is a fair-weather model that works well only in times of prosperity. Obviously the enterprise can fulfill its human and social functions only if it prospers as a business. But now that knowledge workers are becoming the key employees, a company also needs to be a desirable employer to be successful.
Defining Business Purpose and Mission
What is our business?
Nothing may seem simpler or more obvious than to know what a company’s business is. A steel mill makes steel; a railroad runs trains to carry freight and passengers; an insurance company underwrites fire risks; a bank lends money. Actually, “What is our business?” is almost always a difficult question and the right answer is usually anything but obvious.
A business not defined by the company’s name, statues, or articles of incorporation. It is defined by the want the customer satisfies when she buys a product or a service. To satisfy the customer is the mission and purpose of every business. The question “What is our business?” can, therefore, be answered only by looking at the business from the outside, from the point of view of the customer and market. What the customer sees, thinks, believes, and wants, at any given time, must be accepted by management as an objective fact and must be taken as seriously as the reports of the salesperson, the tests of the engineer, or the figures of the accountant. And management must make a conscious effort to get answers from the customer herself rather than attempt to read her mind.
Legitimacy of the Corporation
Unless the power in the corporation can be organized on an accepted principle of legitimacy, it will disappear.
No social can endure unless it is legitimate power. And no society can function unless it integrates the individual member. Unless the members of the industrial system are given the social status and function that key lack today, our society will disintegrate. The masses will not revolt; they will sink into lethargy; they will flee the responsibility of freedom, which without social meaning is nothing but a threat and a burden. We have only two alternatives; either to build a functioning industrial society or to see freedom itself disappear in anarchy and tyranny.
Governance of the Corporation
What does capitalism mean when knowledge governs rather than money?
Within a fairly short period of time, we will face the problem of the governance of corporations again. We will have to redefine the purpose of the employing organization and of its management, to satisfy both the legal owners, such as shareholder, and the owners of the human capital that gives the organization its wealth-producing power, that is, the knowledge workers. For increasingly the ability of organization to survive will come to depend on their “comparative advantages” in making the knowledge worker productive. And the ability to attract and hold the best of the knowledge workers is the first and most fundamental precondition.
What does capitalism mean when knowledge governs rather than money? And what do “free markets” mean when knowledge workers are the true assets? Knowledge workers can be neither bought nor sold. They do not come with a merger or an acquisition. It is certain that the emergence of the knowledge worker will bring about fundamental changes in the very structure and nature of the economies system.