What about hierarchy?
Professor John Child explains his response to the Future of the Corporation findings. He argues that changing the purpose of corporations and the orientation of their leaders misses a key point on hierarchy and restructuring. This article is part of a series of responses to the Future of the Corporation findings and the views are those of the author.
The Autumn 2018 issue of the British Academy Review featured the BA’s “Future of the Corporation” Programme. Contributors highlighted the widespread mistrust of business and wrote of the need to avert future corporate crises. In the view of the programme’s director, Colin Mayer, “we need to redefine business for the 21st century as a matter of urgency”.
Seeking “a radical reinterpretation of the nature of the corporation”, the Programme has identified a “multi-pronged” approach to reform. While its proposals include some changes to current laws and regulations, their main thrust lies in a redefinition of corporate purpose and a change of corporate cultures. These would replace the idea that the sole purpose of business is to increase profit with “a new framework of defined corporate purposes, commitment to trustworthiness, and enabling cultures”. This appeal for a new sense of purpose and responsibility is directed primarily at business leaders. Although corporate governance reform is seen as one of the levers to change the nature of the corporation, the proposed way forward focuses on changing the purpose of corporations and the orientation of their leaders rather than on corporate restructuring.
This light touch on restructuring is in danger of missing a key point. The Future of the Corporation Programme is in step with many commentators who interpret the growing social crisis as being one of the capitalist system and its morality of private profit-seeking. However, as corporations and public authorities have grown, and continue to enlarge through mergers, acquisitions and other forms of “rationalization”, they develop extended hierarchies which steadily increase the distance between those who decide on policies (and get paid handsomely for it) and the rest. It is arguable that the contemporary crisis is as much rooted in the structure and operation of the hierarchical distance and asymmetry of power within capitalism as in the principle of capitalism itself. Indeed the abuse of hierarchical position and power historically reached extremes in non-capitalist state socialist societies such as the Soviet Union.
Detachment and distance from decision-making: a source of dissent?
That there is a widespread feeling among the general population of detachment and distance from key decision-makers and power-holders is undeniable, and it stems from the reality of everyday experience. Ordinary people are detached from decision-making, and the many are distanced from the powerful few particularly in their levels of economic reward. An analyst of the “Occupy Wall Street” protest movement noted perceptively that:
Occupy rejects the ballot box as a primary method for social change because the movement believes that electoral politics has been thoroughly corrupted by money. Corporate-sector experience has become a gateway to political power, and this inner circle is essentially closed to average citizens. Top political and economic institutions are not structured as representative bodies; corporate and political leaders just use the idea of representation to legitimize their vast decision-making powers.
This theme is echoed in many of the other widespread protest movements that are coordinated through the internet. For example, the demand of the Google employees who organized an international mass walk-out on November 1, 2018 was for “transparency, accountability and structural change” in the corporation. One of the concerns of the “Me-Too” movement has been to expose the use of non-disclosure agreements as the legal weapon of choice for the powerful and rich to silence exposure of their abuses and misconduct.
Hierarchy: creating distance and imbalance which erodes trust and mutual understanding
Much of the problem lies with the fact that large corporations and many public sector organizations operate through hierarchy, in the general sense of a system of structured relationships in which some parties are subordinated to others. Hierarchy by its very essence creates a distance and imbalance of power between people. As I detail with supporting evidence in my forthcoming book on Hierarchy, to be published by Routledge this summer, hierarchy leads to information asymmetry, lack of transparency, and low mutual understanding. The result is that senior managers fail to secure the trust and commitment of those in lower positions, while the latter are frustrated by, and often punished for exposing, inefficiency and malpractice at higher levels.
Sages of old such as Plato and Confucius, while believing that we need hierarchies as a foundation for social order, warned that their legitimacy depends on leaders not exploiting their advantageous positions for personal gain, but rather for the social good. This proviso is clearly not heeded in common practice today and in this respect the emphasis of the Future of the Corporation Programme on finding a new purpose for business is justified. However, both historical and recent experience suggest that declarations of enlightened corporate purpose and appeals to the morality of business leaders are unlikely to be sufficient without accompanying structural changes that provide an effective means of holding business leaders accountable to employees and other stakeholders.
In other words, declarations of worthy purpose are by themselves not enough to prevent abuses arising when there continues to be an inequality of power and voice between controllers and controlled. This imbalance has increased along with the rise of mega corporations and government ministries. Hierarchies in one form or another are here to say, and can only to some extent be reduced intrinsically through delayering and the decentralization of decision-making and responsibility. More optimistically, evidence from leading developed countries such as Germany indicates that the abuse of hierarchical power can be limited by measures to increase stakeholder participation and enhance “downward accountability” within systems of corporate governance. Despite being vociferously opposed by many business leaders, it has become clear that the social benefits of these measures are generally matched by a corresponding productivity payoff.
 Gautney, H. 2012. Occupy x: Repossession by Occupation. South Atlantic Quarterly, 111 (3), p. 605
 Jacobs, E. 2018. Loud and public: How employees are taking Silicon Valley to task. Financial Times, November 5, p. 14.
 On downward accountability see Child, J. 2018. Downward accountability. In Ciaran Driver and Grahame Thompson (eds.), Corporate Governance in Contention. Oxford University Press, pp. 193-225.