Tag: corpocracy

It’s not just big established companies that are being managed into irrelevance and eventual extinction. A good article on the “mismanagerial class” doesn’t quite get down to the roots of the structural problem with the US corpocracy:

The problem of companies being enthusiastically managed into irrelevance is often simplified to blaming MBAs, but this doesn’t tell the whole story. Although Intel’s Otellini and Boeing’s McNerney were MBAs, Sony’s Idei was just a career manager who went to college in Japan. Jeff Immelt, an MBA, presided over the precipitous decline of General Electric from 2001 to 2017. Yet his notorious predecessor for twenty years, Jack Welch, is often held equally responsible—and he had a PhD in chemical engineering. Westinghouse, once an American industrial conglomerate with a major line of business in building nuclear reactors, undertook a seemingly absurd and ultimately fatal pivot into becoming a media company in the 1990s. The man who led that change, Michael H. Jordan, was a chemical engineer by training too—though also a former McKinsey partner.

Rather, the problem seems to stem from a particular way of thinking about what a company even is, what its goals are, and what measures are or are not appropriate to achieve those goals. In simplified terms, we can think of companies as organized to create value and sustain themselves by capturing a portion of the created value as financial profit. When executives, board members, and major investors manage companies by and for the bottom line, they operate on a theory of the company as a vehicle solely for capturing profit. When this happens, the difficult and holistic question of creating value in the first place—a question unique for every company—simply goes unaddressed. It is treated as a permanently solved, one-time problem that no longer merits attention or resources; at Boeing, for instance, senior engineers were reportedly told they were no longer needed because Boeing’s products were “mature,” as if it was impossible for further progress in airplanes to ever be made. The focus is instead on raising profit margins and share prices through cost-cutting and various other attempts to improve efficiency or appeal to investors. This school of thought appears to be the dominant one in the influential U.S. financial sector and might be termed “shareholder capitalism.”

Outside of software and the few domains where former software entrepreneurs have already founded new market entrants, creating more unique and tangible value is at best a secondary concern after capturing more profit or contributing to the intangible value of a society with socially conscious firms.

This implies that much of the modern economy is not even trying to undertake productive economic activity as it is commonly understood. Though surprising, this conclusion seems to provide a satisfying and elegant explanation for many contemporary socioeconomic mysteries. Though MBAs, financiers, managers, or accountants are perhaps more inclined to view a company as a vehicle for capturing profits or intangibly contributing to society, there is nothing preventing trained engineers from inclining toward the same views as well. After all, engineers are formally trained in engineering, not in an alternative theory of business management.

From startup to giant government-supported effective monopoly, the core concept of the “company” has changed. Until the 1980s, a company was understood to be an organization that existed in order to profitably provide goods and services to its customers. But with the onset of financialization, a company became seen as a vehicle for the transfer of money from the government, from venture capitalists, or from Wall Street to the primary stakeholders. The customers were secondary, the goods and services tertiary. The existing businesses and customer bases are nothing more than mines to be stripped of all their assets, then abandoned, barren and empty.

This is why deplatforming – unthinkable in “the customer is always right era” – is now very common and the quality of the goods being produced and the services being provided is in free fall. The convergence of the corporations is rendering them totally incapable of fulfilling their nominal core functions, and combined with the financialization of the corporate sector, means they’re not even incentivized to attempt to fulfill those functions.

If Lockheed Martin can arrange to get a government contract paying $100 billion for a single jet fighter that cannot even fly, that’s great business by today’s standards. If a startup can receive $1 billion in venture capital without ever generating a single dime of income, that’s a home run by today’s standards. And yet, there is no actual economic activity. There is nothing being produced and no services provided.

In other words, it’s a fragile system with a foundation that isn’t built on sand, but thin air. Which is why it is vital for those who wish to survive, and perhaps even thrive, amidst the system’s inevitable ruins to ignore the way business is done today and focus on the age-old principles of providing genuine value to actual customers.

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