From time to time there comes a book that transcends across disciplines to change the way the world views a subject. Peter Drucker’s Concept of the Corporation written in 1946 is one such classic.
John Kay’s The Corporation in the 21st Century, already shortlisted as the Financial Times Business Book of the Year vies to enter that league.
It cuts across economics, business strategy, philosophy and, I daresay, anthropology to challenge our perspective of the modern corporation.
Economics and philosophy are close cousins in any case – but Kay wears two extra badges of honour having been Dean of the Oxford’s Said Business School and held Chairs at the London Business School. So, he cuts effortlessly through the three verticals to establish his fascinating thesis. Business vs society
The book starts by examining the ambivalent relationship between big business and society — represented not just by consumers but also investors, employees, partners, associates and other stakeholders. He captures this succinctly with the chapter title “Love the Product, Hate the Producer”.
This complex “love-hate” phenomenon can be best understood by the examples of the Investment Banking and Pharmaceutical industries. Think Goldman Sachs and Pfizer for quick recall. This can now be easily extended to mixed feelings people have about what Wall Street called ‘the FAANGs’ – Facebook (Meta), Apple, Amazon, Netflix and Google (Alphabet).
As Kay writes in his introduction, “business has evolved but that the language that is widely used to describe business has not. The world economy is not controlled by a few multinational corporations; such corporations have mostly failed even to control their own industries for long”.
He refers to his earlier book, Foundations of Corporate Success, where he expounded the theory of what he called the ‘nexus of contracts’ — which translated into a layman’s language means — a firm is an assembly of relationships between individuals. But now he has come to realise that these relationships are not transactional but have a larger social dimension.
Intellectual capital
As intellectual capital took precedence over financial capital, “command and control” gave way to a collaboration, involving employees in decision-making and a shared sense of purpose.
The cliché: “Our people are our greatest asset” was literally true for the slave owners of the West Indies and the Confederate States” says Kay. Today, it means, “the commercial value of the collective intelligence developed within the corporation”.
The asset is the capability of individuals and teams within the business to solve problems, to devise and deliver new products. Collective intelligence is the basis of the competitive advantage of most successful corporations.
Thus, new economy companies are founded on human capital rather than financial capital. Most successful companies today – such as Apple – outsource almost everything which actually involves the use of physical or financial capital. “Capitalism without capital” is the new mantra.
By the end of the book, he arrives at the conclusion that businesses also follow Darwin’s theory of evolution.
“Adaptation with selection, the basic mechanism of evolution, is the process through which collective intelligence develops and the means by which successful firms find products and business processes appropriate to the needs of their customers.”
From there he goes on to develop the theory of “disciplined pluralism” which allows freedom to experiment but quick to end unsuccessful experiments in the ruthless world of business. This is where private enterprise succeeds over state owned behemoths which are loath to change.
Disruptive innovation
Worse still are giant corporations who have succumbed to the affliction of proclaiming failures as successes. That is why, he says, disruptive innovation comes mostly from outside.
This is not an ordinary business book. Some readers may find it heavy. It is neither a “self-help manual” nor an easy explainer of how modern corporations rake in enormous profits or stack up astronomical stock valuations. Nor is it a rant about ‘How Capitalism is Fuelling Inequality, damaging our wellbeing and Destroying the Planet’.
It is an intellectually serious book for people who read popular science or history (hence, anthropology and theory of evolution) and those who look at business beyond just financial reward.
Finally, it is for those who believe — “ambiguity is a feature (of life and business), not a bug”.
(The reviewer is Managing Director and CEO, Birla Corp)
Check out the book on Amazon.
