Text 3. A matter of choice (continued)

Choice, glorious choice

None of the three main proposals for the future of the company looks definitive. Together, they leave behind a set of contradictory impressions: the fashion for "networking" has coincided with a greater emphasis on focus; a period of mergers and acquisitions has coincided with an efflorescence of small companies; and the fashion for shareholder capitalism has coincided with a flattening of hierarchies. So does any pattern emerge?

Another way to look at the future of the company is to focus less on structure than on the environment that will determine it. That environment is dominated by one thing: choice. Technology and globalization open up ever more opportunities for individuals and firms to collect information and conduct economic activity outside traditional structures.

As Robert Reich, a secretary of labour under Bill Clinton, points out, "we are entering the Age of the Terrific Deal, where choices are almost limitless and it -is easy to switch to something better." While the age of mass production lowered the costs of products at the expense of limiting choices—Henry Ford famously said that you could have a car in any colour, as long as it was black—modern "flexible" production systems usually both lower costs and increase choice. Consumers have more choice over where they spend their money. Producers have more choice over which suppliers to use. Potential shareholders have more choice over where to put their money.

It is hard to argue that this environment invariably favours one sort of structure over all others. The world's most successful company over the past five years, according to a recent Stern Stewart study of "wealth added", has been an unwieldy conglomerate spread across umpteen unconnected businesses, many of them (for example, light bulbs) distinctly unfashionable. General Electric (GE) has thrived because it has been well run.

But even if the ever more competitive environment does not predetermine the firm's future structure, it will, surely, make some characteristics more valuable.

Four, in particular, stand out:

•Leanness. This is not the same as size. GE is huge, but it is also lean. Layers within firms will continue to flatten out as improvements in communication technologies increase the number of employees that supervisors can manage effectively. The chances are that more tasks will be assigned to ad hoc teams with substantial discretion over what they do and how. Rather than sending orders down a hierarchy, managing in new organizations will be about weaving such networks together.

•Flexibility. Mr Drucker's classic 1946 portrait of General Motors, "Concept of the Corporation", barely mentions shareholders at all: the managers ran the company as if it were their own. Now no chairman of a big American company can guarantee life-time employment even to himself.

Managers need to have the freedom to expand and contract their workforce to deal with uncertain times.

•Reputation. With "hard" competitive advantages becoming ever scarcer, companies will look more to brands and images that can cut through the clutter of all those choices. The real economic value of a corporation increasingly comes not from the assets that it owns, or the employees that it supervises, but from the domain of trust that it has established with its customers.

One of the central challenges for future firms will be to ensure that they maintain the quality of their name while at the same time sub-contracting much of their production to companies elsewhere.

•Talent. The human side of management is set to become more important rather than less. In the first half of this century, managers tried to take the human element out of business by turning people into interchangeable machines.

Nowadays, what sets companies apart is their ability to create and innovate. McKinsey, a consultancy, argues that the key battle of this century is the war for talent: the war to hire and retain the best people. Mr Drucker's knowledge workers are a demanding lot. They are less and less likely to want to work full-time for one company, seeing no reason to pledge their loyalty to an organization that can no longer reciprocate the favour.

One way to look at the future of the firm is as a battle between different groups of stakeholders. The virtues listed above favour different ones. Flexibility and leanness mostly benefit the firm's owners. An obsession with talent gives more power to workers. A good reputation means that companies have to look after their local community, the environment and so on. Only customers, it seems, gain from all four characteristics.

In general, the joint-stock company is skewed towards its owners. The whole point of a corporation is to make investors feel safe: they cannot be sued if it goes bankrupt; they can sell their shares if they want to; and they never lose more than they invest.

The last century saw all sorts of challenges to shareholder capitalism: from state-owned capitalism; from mixed stakeholder capitalism (notably in Germany); from the managerial capitalism of 1950s America; from the keiretsu and chaebol; even, to some extent, from the virtual economy, of the Internet. But it has survived them all. Even countries that once looked on the idea of equity capitalism with suspicion are turning back to it. Germany has introduced more IPOs in the past five years than in the previous 50. There are now more German shareholders than there are trade unionists.

From this perspective, the future of the company would seem to be assured. Any idea of the joint-stock company disappearing looks wildly premature. In many places, it is only just beginning to thrive In most commercial endeavours, it is still the best and easiest structure for individuals to pool capital, to refine skills, and to pass them on. And it has proven enormously adaptable: look at the gap between General Motors and Monorail.

Yet this very adaptability points to another truth: that the corporation will surely become ever less corporate. Monorail is not a firm that most 1950s organization men would recognize. Technology is shifting the advantage gradually away from organizations towards individuals and markets. The erosion of transaction costs will make it ever easier for small companies –

or just collections of entrepreneurs—to challenge the dominance of big companies; and ever more tempting for entrepreneurs to enter into loose relationships with other entrepreneurs rather than to form long-lasting corporations. In order to deal with these challenges, corporations will have to break themselves down into small entrepreneurial units.

The unpredictable Leviathan

There remains one great unknown about the future of the company: the role of the state. Whatever the anti-globalization protesters might say, the state still has enormous influence over the corporate sector, although most advanced nations have become a bit schizophrenic about it. On the one hand, governments are ceding ever more of their own territory to profit-making institutions. Recently, for instance, Pennsylvania decided to hand over some control of the worst schools in the Philadelphia school system, the sixth biggest in the country, to a private-sector firm, Edison Schools.

Yet even while they yield ground to the firm, governments are increasingly using regulation to force companies to pursue what used to be their own social ends. What began as a mixture of accident prevention (workplace safety rules) and administrative convenience (organising pensions through companies) has become much more aggressive. Firms are now being regulated by governments in ways intended to clean up the environment and to balance social inequality. Multinationals are now seen as tools, via fair-trade regulations, to sort out the evils of third-world poverty.

The costs are huge. The Office of Management and Budget calculates that the cost of meeting social regulations in the United States could be as high as $289 billion. Thomas Hopkins, of the Rochester Institute of Technology, reckons the cost is almost three times that amount. And the numbers are likely to get larger as politicians discover that it is far cheaper (both in financial and electoral terms) to get companies to do their work for them.

From the viewpoint of society as a whole, this thicket of rules may be efficient. From the company's perspective, however, it represents an increasing threat—just as the corporation is losing some of its advantages over lone-wolf entrepreneurs. If the company yields ground in the future, it may have as much to do with politics as economics.

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