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Group: Purpose of the Corporation

Discussion: John Kay on the purpose of the corporation

Burgess COMMENTARY

Peter Burgess

Purpose of the Corporation Private Group 359 members Paige Morrow Options menu Paige Morrow Head of Brussels Operations at Frank Bold 2 days ago John Kay on the purpose of the corporation 'The purpose of a corporation is to produce goods and services to meet economic and social needs, to create satisfying and rewarding employment, to earn returns for its shareholders and other investors, and to make a positive contribution to the social and physical environment in which it operates.' Good corporations should drive the economy - FT.com ft.com•we will cut spending but not as fast or as nastily as the Conservatives; we be­lieve in a market economy but not very strongly.” These were central elements of the Labour party’s economic policies in last week’s UK general election. They do not Comment(3)Like(0)FollowReport spam Paige Morrow Christopher Halburd And so say all of us! 1 day ago Like(0)Reply privatelyReport spam Paige Morrow Paige Morrow Kay also succinctly summarised the 'disarray' of left-wing political parties and their failure to put forward a new vision for progressive, sustainable public companies. His call for the return of 'stakeholding' was also interesting. 1 day ago Like(0)Reply privatelyReport spam Paige Morrow Edward Beale Companies come in a range of different shapes and sizes. Whereas the above definition may be appropriate for a large quoted company, it is definitely not appropriate at the smaller end of private companies. So what is meant by the term 'corporation'? If we take it to mean 'company' without any size or type constraints, then a more preferable definition is: 'The purpose of a corporation is to to earn returns for its shareholders by producing goods and services to meet economic and social needs, and rewarding other investors. In addition, a sustainable ('good') corporation needs to create satisfying and rewarding employment, and to make a positive contribution to the social and physical environment in which it operates.' My other concern with the article is that it is small business that generates growth in employment which is essential to economic growth. These are the sorts of company whose growth can easily be curtailed by increases in red tape. A re-definition of the purpose of a company which downgrades the importance of shareholders, and introduces additional 'protections' for other stakeholders, will lead to more red tape for small business.

I am really bothered by the mess that is the modern world ... though there have also been plenty of bad messes in the past as well. What on earth is wrong with us? Nature is amazingly complex, and left to itself tends towards equilibrium situations. People tend to have a high opinion of the human race relative to everything else in nature ... and this view is probably gravely mistaken. We seem to have figured out how to do a few things way better than our ancestors, but with relatively little understanding of the true cost of these accomplishments. We have little understanding of the complex dynamic of the socio-enviro-economic system and instead have embraced some very simplistic assumptions about how this system works. I learned about Adam Smith as a student many decades ago ... but recently went back to reading his work again. I think he understood how the economy worked better than most of us seem to nowadays. It reminds me of my gut reaction to the dangers of the concentration of economic power, and indeed, any power. Adam Smith understood self interest to be a driver of human activity, and the natural manner in which the market worked to optimize the outcomes of economic activity. As far as I understand, he never contemplated the sort of modern economic structures where really huge economic entities dominate on top of everything else. TO BE COMPLETED