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 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.
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 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 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.