Reinventing the Company

  • 2016-01-25
  • The Economist

NOW that Uber is muscling in on their trade, London’s cabbies have become even surlier than usual. Meanwhile, the world’s hoteliers are grappling with Airbnb, and hardware-makers with cloud computing. Across industries, disrupters are reinventing how the business works. Less obvious, and just as important, they are also reinventing what it is to be a company.

To many managers, corporate life continues to involve dealing with largely anonymous owners, most of them represented by fund managers who buy and sell shares listed on a stock exchange. In insurgent companies, by contrast, the coupling between ownership and responsibility is tight (see article). Founders, staff and backers exert control directly. It is still early days but, if this innovation spreads, it could transform the way companies work.

Listing badly

The appeal of the insurgents’ model is partly a result of the growing dissatisfaction with the public company. True, the best public companies are remarkable organisations. They strike a balance between quarterly results (which keep them sharp) and long-term investments (which keep them growing). They produce a stream of talented managers and innovative products. They can mobilise talent and capital.

But, after a century of utter dominance, the public company is showing signs of wear. One reason is that managers tend to put their own interests first. The shareholder-value revolution of the 1980s was supposed to solve this by incentivising managers to think like owners, but it backfired. Loaded up with stock options, managers acted like hired guns instead, massaging the share price so as to boost their incomes.

Image Credit: Chris Davis