A brief history of Corporations

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A very brief history of the modern corporation

The modern corporation is founded on a rich history, and evolving philosophies, dating back to Rome.  Originally the term corporation comes from corpus meaning body, or body of people.  These were legal entities the Roman Empire used to manage everything from business to religion.  Even the government itself was considered a corporation, although none of these exactly match what we currently know as corporations.

Europe went through a dramatic change after the fall of the Roman Empire, falling into feudal society, where the governing of people and the oversight and management of the generation of value and goods were combined.  Those in charge were responsible for both the generation of goods in addition to the well being of those they ruled. The educated, connected and noteworthy would rise to the top taking prominent positions, the rest would do what they could to put food on the table. Those positions would ultimately be based off of birthright, political prowess, and ability to lead and produce profits. But as the world’s philosophies on government changed, so to did the notions behind how goods were managed and ultimately the profits were distributed.

The simplest transition for those who were in positions of power in this new world, while still maintaining their status quo, was for those with money to invest in groups, and provide general direction.  In return the profits from these organizations would then be distributed based off of the shares these investors had, along with those shares retained by the individuals who created it in the first place.  This transition allowed the previous feudal elite to maintain their positions to some degree, while allowing the government to change around them.

The corporation, unlike the feudal government, was only partially responsible for the employee’s well being and generally led to the corporation taking advantage of those who worked for them.  Ultimately the government had to step in on the side of the employees.  The positive aspect of the corporation is that the individuals who work for them tend to have a stable source of income, independent of the profit fluctuations the company goes through.  Over time, shares in companies became publicly traded as commodities themselves.

The structure of a corporation

A corporation can be broken down into five classes of individuals: Shareholders, the board of directors, executives, middle management and finally the workers.  These entities work together, performing different roles, in order to predict and produce an overall increase in value in comparison to previous quarters and years.

Shareholders

Shareholders have a financial stake in the company, having paid for the privilege of holding stock.  The goal of the shareholder is for the stock to increase in value and/or to get paid dividends from the profits gained.  The shareholders as a whole own the company.  Their ability to influence though is limited to being able to elect those who will be on the board of directors.

Board of Directors

The board of directors provides more direct influence over the executives, providing oversight of those running the company, as well as making final decisions on large decisions including dividends, compensation policies, executive salaries and hiring and firing of executives.

Executives

The executive class provides oversight, direction and strategy for the corporation.  These responsibilities require a deep understanding of how businesses work. The result is a holistic understanding of how to direct different disciplines to work together to produce value which results in profits.  This manifests in the form of corporate vision and direction, or the why and where the company is going.

Middle management

Middle management takes on the tactical aspects of business.  These individuals have to balance the why and where, with the how and what is currently being made.  The ultimate value these individuals provide is the ability to work with contributors to allow the adjustments in order to align with the executive’s vision, but in a way which doesn’t sacrifice what is currently paying everyone’s paychecks.

The other role of these individuals is to keep things running smoothly, providing oversight, handling personnel issues and a source of day to day decision making when properly empowered.

Contributors

Contributors are those who create the value.  They work in different disciplines, but are the ones who actually perform those functions which contribute directly towards revenue.  In most corporations these individuals are highly specialized and silo-ed, having little interaction with members from the other disciplines.

The value of corporations

The Corporation has become a staple of society today.  Most businesses you’ve heard about is some type of corporation.  They tend to provide reliable employment, and structures which allow individuals to contribute in meaningful ways with a limited understanding of business.  No business entity has had more success, or grown as large, as the modern day corporation.  Many corporations also provide benefits to their employees which may include health, transportation, life insurance and various others.  These benefits provide a higher quality of life for those working for the corporation.

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Corporate Scarcity – The Contributor’s Mindset

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Previously, I walked through a brief history of Corporations, outlining some of the structure and value of corporations. This post will expand on that and discuss the scarcity aspects as it relates to the contributor’s mindset. Realize that one or all of these might apply to a corporation you research, but these are based off patterns of re-enforcement which I have seen in corporations.

Competing priorities

In a corporation the typical contributor has competing aspects to their work and personal life which compete for their attention. With a set amount of time in the day, week and year, contributors must make decisions about what they spend their time doing and which goals are important. This is the basis for the wide varieties of motivations which effect how the individual sees their work life.

Every contributor has to find a balance between their personal life, peer camaraderie, increasing their skill sets and gaining status or rank. These priorities have different weights depending on the individual, and are valued differently depending on the company. An individual who values status is often called political. One whom values camaraderie to an extreme is considered a social butterfly and a distraction to their peers. The individual whom values their personal life and time to the extreme would be called a slacker. And one whom values increasing their skill set to an extreme tend to over complicate solutions based on what they’re currently studying.

Corporations tend to value specific attributes, although each corporation, and each discipline, values a different combination of these aspects. This tends to result in the corporation trying to re-enforce behaviors which are valued, while discouraging those they don’t see as valuable. This results in what some managers call “team fit”. The dilemma for the contributor is what to do if these valuable aspects do not align with their own. For a few they will move on, attempting to find another place which does more closely align. Although that would be the best scenario, most attempt to blindly change themselves to match the perceived desired aspects, with little to no reconciliation with their own values. If there isn’t a reconciliation, the result can cause discontentment and a gap to emerge between the contributor and their manager.

In one company I worked for the company had set up an environment where the contributors were asked to continually work overtime and weekends. Although the company didn’t officially value this, the internal culture and peer to peer pecking order did. With this aspect where overtime was apparently valued, the contributors began to develop a gap in communicating with their management about their discontentment with the environment. Ultimately when management attempted to change the culture, the contributors listened, but never bought into management’s goals, which included work life balance. Without feedback to the management, the contributors continued the current culture and many ended up leaving.

Some corporations try to communicate values up front, providing a mold by which workers can self assess. A problem emerges with the interpretations of these values. Some individuals are good at reading between the lines of the values, others are not. With those who aren’t, the individual is often time seen as struggling to buy in, or struggling to fit in. This is not really a deficiency on the part of the worker, but rather a conflict in what the individual values vs what the company values. Great managers can identify the differences and is able to adjust in order to accommodate.

Scarcity

The contributor can face various aspects which introduce a scarcity mindset, which in turn reduces the actual value and can warp the perceived value created. The main contributors to this mindset are: assessments/reviews, peer to peer comparisons, the rat race and compensation.

Assessments / Reviews

Assessments are a great tool in and of themselves. The problem comes in if limitations are put in place which causes the individual receiving the review to view it as a critique of areas outside their control. This often occurs when feedback isn’t given at other times throughout the cycle or the viewpoint of the individual and the manager are inconsolable. Often times these issues can be fixed, but can make the employee perceive the review as a losing something. This results in an instinctual loss aversion, where losing something is an order of magnitude larger than a gain of equal value.

Reviews and assessments can also create scarcity when rules are applied to how well a group can do. A common example of this is the 20/10 principle, or that 20% of people can exceed and 10% must under achieve. This creates an environment where one contributor’s success has a negative impact on his or her peers. This can lead to individuals fighting over high profile tasks, not mentoring or helping others and political posturing.

Peer to Peer Comparisons

Contributors will tend to compare themselves to their peers, often times understanding only a small portion of the other’s tasks and accomplishments. The gaps in knowledge which exist are filled in with projections of personal experiences or expectations. To some an unequal amount of recognition of a peer without an understanding of how to get similar accolades can trigger scarcity mindsets. An instant trigger is often times the pay others receive. The same scenario plays out as previously described, but is interpreted as a potential devaluation of the individuals perceived worth to the company, also triggering loss aversion.

The Rat Race

The rat race is used to describe how the processes of promotion occur. Often contributors associate skill mastery with promotions and influence. This is especially true in “high distance of power” cultures. The result is a drive to gain prominence and influence as the contributor is disillusioned as to the skill gap between themselves and their manager in the area they specialize in.

Given that there are fewer positions at each level of the corporate pyramid, contributors who want to advance higher must position themselves for when and if the opportunity occurs, while often not understanding fully what lies between them and that opportunity. This example of scarcity creates friction with peers, but can create a highly political environment with their manager if the individual feels unduly passed over. This is often mitigated by management through carrots, such as opportunities to show worth, but can become disingenuous if the path to the contributor’s advancement seems to lag on without the contributor understanding and being able to properly evaluate themselves.

Compensation

Compensation is a tricky one. The problem is that compensation directly ties to quality of the contributor’s life, as well as reflecting how valuable the company sees the individual. The other side to this coin is that when you pay an individual more, then they can re-adjust their expectations of their own ongoing value regardless of contributions.

Contributors make assessments as to what they believe they are worth. If they perceive they are undervalued, then pay increases produce less good will. If there is a gap in understanding between the manager and employee a small pay increase can be as bad as no pay increase at all, as both will re-affirm to the contributor that they continue to be under valued.

As stated previously, people tend to fill in gaps in knowledge with imagination and personal experiences. Due to this, contributors make guesses as to the compensation their peers receive based on title, life style, appearance, etc.  These assessments are then tied back to the value they perceive is generated by those individuals. This can cause their own expectations of compensation to inflate, trust in managements decision making to falter, create a perception of favoritism or even cause a deterioration of their morale as a member of the team.

Conclusions

The perception of the environment from the contributor’s perspective is one where information can be scarce and decisions are made off of a variety of their own values which may or may not align with the corporate culture. These differences and risks around scarcity can be mostly mitigated by good management, but are inherent to the structure a corporation provides. The risks become larger as the corporation grows, and the values must be interpreted second hand by those outside the founding team. This should be expected though as a corporate culture is ever evolving based on influences, external and internal, to it.

The Breakthrough

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I started working in software in 1999.  Since then I’ve worked in pretty much all aspects of how software gets built, including working with customers to produce sales directly.  Through my experiences I’ve been a part of processes, and have tried to bring in processes in order to “improve” productivity, reliability or something in between.  Having seen the motivations, reactions and various results, including one where the employees vigorously rejected the new approach, I have built up a unique point of view about business.

Over the past 3 years I started researching business, in an attempt to build my own.  Over that time I slowly started to discover that the current model for doing business didn’t match my principles.  My real breakthrough was when a company I worked for hired a psychologist to do some leadership training.

My Breakthrough

The company I worked for as a manager had decided that some across the board management training would do the company some good.  Over the course of 3 or so weeks he worked with the middle management and upper management teams on building up the relationships and tools which we could use to do our jobs.

So what is a middle manager really? The middle management’s job is to constantly fix things. Upper management tries to identify what can generate value, from processes to products.  Those directives are then handed down, sometimes very rapidly, to the middle manager, whose job it is to implement.  The problem is that a lot of the directives provided are long term in nature, and therefore must be balanced with what’s necessary in order to keep doing what makes the company money in the first place.  At the same time, the middle manager must work with the people who report to them, and often those who don’t report to them, in order to organize and resolve interrelationship issues.  Finally, the workers also expect direction as to what needs to happen and in some cases corrections to get them back on track.  It got interesting as I found and worked with more and more people with varying backgrounds and personal goals.

Break Through

My personal breakthrough occurred when I was speaking to the psychologist about the motivations of the workers not being in alignment with those of the organization’s.  He stated to me that it sounded like I was talking more about a female organization than a male one.  I thought that was an interesting comment and started looking into the differences.  A male organization is focused on building hierarchy, and the struggle to rise to the top.  A female organization focuses on the relationship between individuals, but tends to be less or non-structural in nature and not for profit.  While neither of these match up exactly with what I had started to envision, it created a clear contrast between the business world I was trying to take part in, and the one I wanted to take part in.

With this insight I started to try to define what it was I was really looking for, and trying to define why it wasn’t.  After a few years of research, discussions with friends and colleges, as well as a couple of trial and errors, I finally believe I’ve identified what the problem ultimately is.

Scarcity.

This breakthrough has lead me to construct a concept I call Community Style Business.