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Why Do Corporations Exist?

© Stuart Bourhill

When one considers the raft of downsizing and reengineering that plagued the early 1990s, it seems right to criticize and question the whole idea of corporate values. Loyalty? Commitment? Security? Indeed, the pendulum has swung in the opposite direction today with growing expectations of workers and a "Me Inc." focus. As a result, corporations and individuals are taking a close look at defining a "new contract." This contract is not exactly a scenario depicted in Dilbert, but enough of a discrete change in thinking to provide some encouraging hope to Generation X and the surviving Baby Boomers.

Let's consider the value of human capital. With growing numbers of knowledge based industries (KBI) today, human capital and its associated IPR must be considered the number one (#1) corporate asset.

Shareholders invest money in our companies; employees invest time, energy, and intelligence. Employees invest capital - their personal human capital. However, the company's stock of human capital is created when the employee's investment, the investment of other employees, the company's other intangible assets (such as processes, intellectual property, and customers), and the financial capital provided by shareholders are combined to become a source of wealth.

The ability to invest human capital in one's employer is not a function of status. Increasingly, we are all expected to be knowledge workers. There are many examples where corporations use an enthusiastically managed suggestion system to harvest millions of dollars' worth of ideas. (In fact, there are assocations being formed to figure out how to return some that worth to the employees...)

"So Why Do Corporations Exist?"

According to Gerhard Schulmeyer, CEO of Siemens Nixdorf, there is only one reason: "The corporation exists insofar as it provides a place where the individual can do what she is good at, at a lower cost than she could do it alone."

So Why Work for One?

First is to be a magnet for intellectual capital - that is to provide a place, a purpose, a culturing medium, and a culture: a community of practice. People work for Microsoft because the presence of so many other bright code writers stimulates and challenges them, gives them help when they need it, and allows them to do work faster and better than they could do it alone. The existence of a talented community, (a la Suite 101), is, in turn, a magnet for customers.

Second, the company's brand and reputation are umbrellas under which the employee shelters. Because someone works for Motorola, people return their phone calls who might not if they were an individual contractor. Why leave a huge brand, especially when you are not famous enough to create your own?

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