Corporate Citizens Must Become Global Catalysts

Since the advent of the modern firm, businesses have had to contend with a fundamental paradox: society needs large organizations to solve complex collective problems, but also fears centralized authority and decision-making. It is the latest incarnation of this paradox that is now driving large firms to move beyond the «shareholder first» mantra.

GENEVA – By last month, 183 corporate CEOs signed on to a statement affirming their commitment to move beyond the “shareholder first” mantra to account for the interests of all stakeholders, including employees, customers, suppliers, and communities – many responded with skepticism. But dismissing the statement by the US Business Roundtable as a mere public-relations stunt fails to recognize the fierce headwinds businesses are facing – and their proven capacity for adaptation.

Since the advent of the modern firm, businesses have had to contend with a fundamental paradox: society needs large organizations to solve complex collective problems, but also fears centralized authority and decision-making. As Robert D. Atkinson and Michael Lind explain in their latest book, Big is Beautiful: Debunking the Myth of Small Business, in the United States, large companies outperform small ones on almost every indicator, from wages and productivity to exports and innovation.

Yet public opinion surveys rank large companies among the least trusted institutions (above only television news and the US Congress), with small businesses among the most trusted (below only the military). This trust paradox has shaped several dramatic shifts in corporate governance over the years.

The first transition occurred in the nineteenth century, when the Industrial Revolution shifted production away from small, owner-led enterprises to modern multiunit firms, and gave rise to a professional managerial class. The great merger movement of the late 1800s, when thousands of small firms were replaced by a few dozen large trusts, accelerated this reshuffling of the corporate landscape.

The new corporate giants propelled societies forward, but also created new imbalances – and almost immediately ran into resistance. “If we will not endure a king as a political power,” US Senator John Sherman declared in 1890, “we should not endure a king over the production, transportation, and sale of any of the necessaries of life.” With those words, the Sherman Antitrust Act was born.

 

 
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