The Corporation against the Firm. Can research offer new corporate standards ?

1. The Corporation against the Firm. Can research offer new corporate standards ? Blanche Segrestin, Armand Hatchuel Armand.Hatchuel@ensmp.fr, Blanche.Segrestin@ensmp.fr Ecole des Mines de Paris Center for Management Science "La société contre l'entreprise ? Vers une nouvelle norme d'"Entreprise de progrès collectif". » Droit et Société, 2007, n°65: pp.27-51. "The shortcomings of the corporate standard: towards new enterprise frameworks" International Review of Applied Economics, vol. 2, 2008

2. summary • Research issue : increasing tensions between management (and social) issues and the corporate model of the firm • The corporate model vs. The firm : a short history of the corporate model • Redefining the firm ? A generic model of collective generative processes • A corporate norm for collective progress : a consistent utopia ? • Conclusion and discussion : can research offer new regimes for the « capitalist » firm ?

3. The shareholders’ ownership model has been widely criticized… • Debatable legatimacy (Aglietta & Rébérioux, 2004) • Risk for the company as strategic choices pursue shareholder value (Krafft & Ravix, 2005) • … But still prevailing in practice and theory! • Spreading governance principles • Employee-shareholder models • Stakeholders theory as an “extended theory of agency” (Hill & Jones, 1992), with extended property rights (Donaldson & Preston, 1995) • We introduce a new line of critic : • The standard model has colonized the essence of the firm with severe consequences on management and structure… • It creates perverse effects when competition is based on innovation and highly creative economy

4. Exacerbates the shareholder logic and a series of crisis • Incompetent boards : (Kaufman and Englander, AME 2005.) • Stock-options biased behaviour (Devers, Wiseman, Holmes AMJ 2007). • Enforced change creating recurrent organisational crisis ; failures in acquisitions (Probst et Raisch, AME 2005). • Cooperation failures in firms : difficulties of KM systems (Voelpel, Dous and Davenport 2005), • New types of systemic failure (firms, markets, prescribers) : Enron, Andersen Case, Subprime crisis, AirBus • Social insecurity and demotivation of managerial and skilled workers (« core group ») An increasing tension between management (and social) issues and the corporate model of the firm • the corporate model of the firm (limited liability, negotiable shares, control of management by assembly of shareholders) dates back to Renaissance : It was a managerial and institutional tool for short term collective trade : société anonyme ou « société momentanée » (Savary 1715) • 19th and 20th : supports the development of Big multinational companies within a set of strong national and professional regulations (BoS) • since circa 1990 : • Globalisation and deregulation of capital and financial markets • Theoretical bias reinforcing the corporate model : the instrument became the essence of the firm • new logic for CEO control, reward and performance (EVA, accounting with fair value…)

5. During the same period, a major transformation of competition (even with new emerging countries) :Intensive R&D, Innovation and creativity requiring highly performant collective action (Le Masson, Weil, Hatchuel 2006) • Growth of design and creative functions (Engineering, software, marketing, industrial design, advertisement.. ) • new forms of entrepreneurship (Open source movement, trading NGO) • Blurring of sectors and new business models • planned innovative clusters with universities (Lefebvre 2007) • Repeated and collaborative innovation : new product concepts, new business models, fast regeneration of competences (Apple, L’Oreal, Danone, free products..) • Explorative partnerships (Segrestin B. 2006) • New environmental and SR regulations as sources of innovation (Aggeri et al. 2007) • Strong organizational culture (Ravasi and schulz 2006) Conjecture : The reification of the corporate model ideology seems to hinder collective and innovative behaviour or increases its social cost yet do we have a theoretical alternative ?

6. How can we avoid the theoretical confusion between the firm and the standard corporate model ? • Two theoretical hypotheses : • there is no « natural » or « optimal » corporation model : these are inventions that are destined to build some performative and contextual rationalization of creative collective action (Hatchuel EMR 2005) • The corporate model of the western world was supported by a model of collective action dominated by the merchant and manufacturing rationalizations : Q = f( Work, capital ) ; • Design functions (Le Masson et al. 2003, 2005,…) offer a more appropriate rationalization principle for innovative collective action : • Instead of business activity seen as the combination of factors, it introduces the idea of several Potentials (Nature, artefacts, values, people, Knowledge…) that are transformed (or preserved) by creative collective action into new individual or collective potentials : no stable lists of goods, capital is only one type of potential, employees contribute to the generation of potentials and also take risks

7. The standard model • Shareholders’ association • A firm as a bundle of contracts • Ownership-model and agency A short history of the standard model Redefining the firm : Towards a generic model New possible legal frameworks from this model

8. 2- A short history of the corporate model Why and how has the S.A. emerged ?

9. Legal form of collective actions « common liability  »company ‘société ’ Loans or lease contracts Limited partnerships Unlimited liability Family partnership Partnerships Société de personnes Fixed purpose, no transfer Unlimited purpose

10. Legal form of collective actions « common liability  »company ‘société ’ Loans or lease contracts Limited partnerships Limited liability for all with negotiable share Unlimited liability SARL(Intuitu personae, but non liability) Société anonyme Public corporation Family partnership Partnerships Société de personnes Mixed liability partnerships Commandite Commenda Quirataires, uchaux… Fixed purpose, no transfer Unlimited purpose Compagnia With share Commandite par actions Simple limited partnerships

11. Legal form of collective actions « common liability  »company ‘société ’ Loans or lease contracts Limited partnerships Limited liability for all with negotiable share Unlimited liability SARL(Intuitu personae, but non liability) • A highly specific legal form of the firm • A rift between the reality and corporate law • The result from a rationalization of financing • Financial mechanisms are a condition, not the firm Société anonyme Public corporation Family partership Partnerships Société de personnes Mixed liability partnerships Commandite Commenda Quirataires, uchaux… Fixed purpose, no transfer Unlimited purpose Simple limited partnerships With share Commandite par actions

12. 3- Redefining the firm : a new generic model The corporate law framework has became a legal representation of the firm (relayed by microeconomics) A new model of the firm? Not liability issues but activity issues “Starting with initial “potentials” the firm develops multiple activity flows oriented towards the generation of new potentials guaranteeing its continued existence. Management is the link between activity flows and the creation of new potentials”

13. Various activity flows Individuals’ or groups’ works, loans, exchanges… Normal remuneration of activities Flows are organized into contributions to the collective action prices, wages, dividends… • Collective purpose: not profit as such but future potentials for individuals and for the collective • To transform flows into potentials for future flows… • i.e. to create new potentials, i.e. further action capabilities, generated through a combination of activity flows • Profit is only a condition of existence From activity flows to potentials, the role of management

14. Activity Flows Collective creation of Potentials Management A model sufficently generic to model past forms of the corporation A basis for various legal forms By specifying Who is in and out? What can members claim for? Who decides (board members)? Accounting for existing forms and innovative ones which build new models with existing corporate laws (de Jong and van Witteloostuijn, Succesful corporate democracy : sustainable cooperation of capital and labor in the Dutch Breman group, AME, 2004, vol.18, n° 3). Non profit organization Public Limited Company Workers’ cooperatives

15. Activity Flows Creation of Potentials Management A very generic model 3- Redefining the firm : a new generic model Non profit organization Public Limited Company Suggesting new form? Workers’ cooperatives Enterprise of collective progress ?

16. Members are all the individuals who have contracted reciprocal commitments relative to activity flows Members who contribute with a potential have rights on the collectively created potentials, but with sharing with the firm The creation of new potentials cannot be totally attributed to individuals Unexpected rules : profits from the sale of shares to be shared with the firm ? Employees leaving before time contract could have to pay for increased individual potential Board members demonstrate affectio societatis, their voting rights are proportionate to shared potentials The collective potential may outweigh the sum of the potentials contributed by partners ? 4- The Enteprise for collective progress: a constituent utopia? Members Benificiaries Board members

17. A company statutes Other forms ? The shareholder-oriented model Collective progress Limited partnerships Limited liability for all with negotiable share Unlimited liability SARL(Intuitu personae, but non liability) LLP Société anonyme Family partership Partnerships Société de personnes Mixed liability partnerships Commandite Commenda Quirataires, uchaux… Fixed purpose, no transfer Unlimited purpose PLC Appel public Simple limited partnerships With share Commandite par actions

18. Discussion : • the invention of collective forms of action (not necessarily institutions) transforms the definition of Capitalism • Corporate law, management theory and macro-economic theories are transient rationalizations of these forms • The shareholder-oriented model is not the “optimal” one, there is growing evidence that • It gives rise to contemporary tensions, perverse inequalities, conflicts and destructive doctrines • It inhibits collaborative innovation and collective motivation • New models are possible • Compatible with competition, free entreprise, liberal principles • Can research contribute to the design of such models ?