IF COMPANIES ARE SO IMPORTANT, WHY DON’T WE SEEM TO LIKE THEM

It is fair to say that Joel Bakan is no fan of profit-making companies. Bakan describes the corporation as a ‘pathological institution’ which wields ‘dangerous levels of power over people and society’.

Bakan’s concern lies mostly with large companies, especially those with global reach. But the fundamental disconnect he sees between the ‘rationalised greed’ built into companies and the ‘public’s interest’ applies generally. All companies are potentially evil, some are just better at it.

Bakan argues that the current role companies play is unsustainable and that some form of reckoning is due. His views are, perhaps, a little extreme. But they are not uncommon. For Bakan, and those like him, major change is needed and the faster the better.

Echoes of Bakan-like concern sat behind the Occupy movement of the early 2010s. Occupy was triggered by government actions which seemed to protect the very companies protestors saw as responsible for the Global Financial Crisis. They had a point. Some companies, notably Lehman Brothers, did collapse and some company executives lost their jobs and freedom. But many other companies lived on, thanks to the support of government.

Even advocates of market driven capitalism see a need for change. Rebecca Henderson, for example, thinks companies need to focus more on benefiting all stakeholders – not just owners. If this could be achieved, she argues that business could ‘help save the world’.

It is almost 20 years since Bakan’s book was first published and more than 10 since the Occupy movement’s moment in the global spotlight. No reckoning has taken place or seems likely. While many companies are placing more emphasis on making a broad contribution to society, business is no closer to saving the world.

Calls for a reckoning may have subsided from global consciousness but concerns about companies still simmer. Locally, Qantas’ recent travails suggests that serious discontent is not far from the surface.

The bunny-hopping kangaroo

Qantas is one of Australia’s most iconic companies. It has projected itself, and been seen, as much more than a pathological money maker. Yet even Qantas has flown into unexpectedly turbulent skies recently. Perhaps its moral navigation instruments were on the fritz.

For Qantas’ owners and managers, it must feel like the current storm has come from nowhere. After all, the company had just recorded a record-breaking profit after three years of pandemic induced losses. But rather than a national celebration, the result has triggered a wave of anger and the early exit of its CEO.

The proximate causes of this anger are varied. Customers are angry about the prices they have paid and the service quality they have received while Qantas rebuilt profit. Citizens are demanding the company repay government assistance it received during the pandemic. Questions are being asked about whether Qantas is being unfairly protected by government from fare-reducing competition. Debate also surrounds the appropriateness of executive remuneration and the treatment of Qantas workers.

Even shareholders (owners) seem to have some concerns.

Qantas is in no danger of crashing and will likely find smoother conditions ahead. In the meantime, its main response has been on seeking to rebuild confidence with customers. The logic of this seems impeccable. After all, don’t companies owe their primary loyalty to the customers who buy their products and to the owners who supply their capital?

The questions currently being asked of Qantas (and government) all seem reasonable. They are a normal part of the ongoing debate needed in a good society. What is more surprising is the level of heat in the discourse. Nothing Qantas has done goes close to the type of egregious corporate behaviour documented by Bakan and others.

Qantas’ experience suggests that concerns remain about the exact role profit making companies should play in our society. The gap between societal expectations and company behaviour may not as large as Bakan suggests. But some level of disconnect seems to exist. Making profits does not seem to be enough. How they are made also matters.

A quirky history

Concerns about companies are nothing new. What has changed over time is the nature and source of those concerns. Indeed, in a delightful quirk of history, the greatest defenders of corporations today - liberal economists - were once amongst its strongest critics.

Adam Smith, who is generally seen as the father of market economics, was one. Fathering economics must have been a big job because Smith never married (he was not known to be gay) and had no children. But we digress.

The companies of Smith’s time were somewhat different to those of today. Companies were individually ‘chartered’ by government and generally given exclusive rights over an area of, often trade-related, activity. Each charter was supposedly designed to align company interest with public interest (one of Bakan’s key concerns).

Whether this alignment was actually achieved in practice is a different matter. The most famous, infamous might be more accurate, of these companies was the (British) East India Company. The Company, as it became known, was one of the most immorally rapacious entities in history. It was certainly not a bastion of public interest activity.

For Smith, companies had two problems. One was the monopoly power and relationship with government it established. The other – which remains a core feature of companies today – was the separation it created between management and ownership.

Smith’s view was that ownership and management should not be separated. His thought that company managers would not pay sufficient regard to the interests of owners, leading to ‘negligence and profusion’ (waste) rather than efficiently created profit. History suggests it was not one of Smith’s better judgements.

While Smith was a detractor, Karl Marx (the very same Karl Marx of Communist Manifesto, Das Kapital and breathtakingly bushy beard fame) was a quiet supporter of some form of company. His starting point was surprisingly similar to Smith’s. But rather than seeing separation of management and ownership as a problem, Marx thought it would better align management decisions with worker interests. History suggests that this judgment was also a little askew.  

Looking at companies today, it is tempting to believe that both Marx and Smith might want their words back. To be fair though, evidence of both views exists. Smith, for example, would likely see his concerns reflected in what is pejoratively titled woke capitalism. Marx, on the other hand, might (although, one suspects it would be grudgingly) see his position reflected in the emphasis some companies are voluntarily placing on worker well-being.

For those interested, Marx had ‘at least’ seven children. Abstinence (he was also a notoriously heavy drinker and smoker) and math (seemingly) were not his strengths. It might also be that parenting communism allowed for more free time and better parties, than parenting market economics.

Utopia, Limited

A later, and more melodic, criticism of companies came from the Savoy theatre in London’s West End. 

The Savoy, which opened in 1881 two years before Marx’s death, was built to showcase the talents of theatre legends W S Gilbert and Arthur Sullivan. Its stage was the first to exclusively use a new-fangled invention – electric lighting. At the time, the British Empire was in full pomp and the world (well much of it anyway) seemed to lay at the feet of a stern and long grieving Queen Victoria. 

In 1893, G&S shifted their satirical gaze from seafaring types to companies. The result was the operetta Utopia, Limited which was also known as The Flowers of Progress. The show was modestly successful, having an initial run of 245 performances. G&S’s greatest success - The Mikado - had an initial run of 672.

Utopia, Limited was not just about companies. It also took a broad swipe at the arrogance of the British Empire in its dealing with other nations. While in many ways typically Victorian, G&S could also be rather edgy.

Two features of the company attracted G&S’s ire. The first was the notion that companies represented a legally created form of (non-sentient) life. The other was that owners of a bankrupt (dead) company could retain the benefits of past profits while leaving company creditors unpaid. Adam Smith, who had long shuffled off stage, would have recognised both concerns. You can almost imagine him applauding in the front row.

Utopia, Limited was written and performed at a particularly important time in the history of the company. Through much of the 1800s, British legislation had evolved to support the creation of limited liability companies without the need for any form of government charter. This legislation set the basic rules for forming and operating a company but was agnostic about what the company actually did.

It was the beginning of the age that led to Bakan, Henderson, and Qantas. To draw from Gilbert’s libretto, a new form of life – the modern company - had been ‘set free’. It is likely that no one, certainly not Smith and Marx, could have foreseen what would happen next.