Since the 1980s, capitalism has undergone major changes that have profoundly transformed industrial structures and the nature of large corporations, in terms of both governance and organization.
Two major elements are at the heart of these upheavals: on the one hand, the development of market finance and financial systems, and on the other hand, the rise of what has come to be known as a « knowledge-based » economy.
The main attempt to reconsider firm theory in light of these changes was formulated by Rajan and Zingales. These authors simultaneously emphasized the « financial revolution » and the central position occupied by human capital in the « new enterprise ».
They first developed a theorization that reconsiders the question of the nature of the firm and the relationship between ownership and power, making the relationship of authority the primary characteristic of the firm.
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The starting point is that the entrepreneur – or manager – can acquire power over workers, i.e., over human capital, by controlling, through ownership or other means, a « critical resource, » which may be a tangible or intangible asset.
The major problem arises when this critical resource is not an alienable asset, subject to control by legal devices (especially through ownership), and capable of being acquired on a market.
Moreover, what is important is not so much possession as access to critical resources, i.e., the ability to actually use them. When knowledge and intellectual capital become the critical resource instead of means of production, the characteristics of the firm are bound to change.
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Control of key knowledge and skills is placed at the heart of the company’s organization. This would imply a profound rethinking of what corporate governance should be.
This means, for them, a major break, leading to treating the firm as a whole, built around « organizational capital, » and which cannot be created instantaneously by mere legal procedures.
Here, we have a characterization of the firm close to the one found in competence-based theories, to which the authors make repeated references.
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In addition, they take into account issues of power and control of knowledge and skills, the relationship between conflict and cooperation within the company, and the question of sharing the surplus created by the enterprise.
All this implies considering the role of internal organization in value creation by the firm. (Michael Porter considers the value chain as the study that allows the company to identify its key activities, i.e., those that have a real impact in terms of cost or quality and that will give it a competitive advantage.
According to Michael Porter, we can distinguish among the activities involved in the value chain:
- Primary activities: those directly related to the physical creation and sale of the product;
- Support activities: they support the primary activity and form the infrastructure of the firm.
Value is the amount that customers are willing to pay for the product or service. It results from different activities performed in sequence by suppliers, the firm, and distribution channels.
The value chain should enable a company to build its competitive advantage (a set of characteristics or attributes (for a product or brand) offering superiority over its immediate competitors. This superiority is a relative superiority established by reference to the best-placed competitors in the segment.).
Each company will seek to obtain the position in the industry that corresponds to the activities that allow it to maximize its value contribution and, in parallel, to organize itself to maximize the internal value chain of its activities.
The main types of value strategy are:
- Offering lower costs than competitors;
- Offering unique features that customers are willing to pay a premium for;
- Offering to a very specific market segment with the aim of avoiding competition.
Rajan and Zingales question the role of property: the ownership of assets by an agent can reduce their incentive to make specific investments.
Controlling intellectual capital raises issues that are entirely different from those of material capital, which could be ensured by the legal system of property.
Besides the fact that it is not possible to appropriate individuals as one does with means of production, two aspects of the evolution of economic structures in the last thirty years contribute to making this control difficult.
These are, on the one hand, the existence of a large market for high-level skills, which are less specific to the company than they were in the large managerial firm until the 1970s; and, on the other hand, the greater ease of access to significant financing due to the evolution of finance (including the expansion of venture capital).
As a result, it would be possible to exploit « growth opportunities, » in Rajan and Zingales’ terms, opened up by the innovation strategy and market developments, outside of existing companies.
These two factors have made it much easier for highly qualified employees to leave their company, either to join another one or to start their own business.
Therefore, controlling intellectual capital must become a central function, if not the most important function of the company’s governance system.
The conclusion drawn by Rajan and Zingales is that since the ownership of tangible assets can no longer be the primary source of power for the company and its management, the latter must focus on controlling and holding together the different components of the company, based on their human capital, and aim to ensure its « integrity » in terms of its production and growth capacity.
This would imply paying more attention to relations with highly qualified employees than to relations with shareholders.
This leads to the promotion of a stakeholder conception (stakeholders: all actors with an interest in the company, including internal actors such as managers and employees, and external actors such as customers, creditors, and shareholders).
Their interests may diverge from the corporate governance model, which is most often the target of criticism of the currently dominant shareholder conception, or from the idea of a cooperative or partnership-type enterprise.
Thus, it is possible to question the dominant legal model on which the capitalist enterprise has rested for more than a century: the publicly-traded corporation. It would then remain to precisely identify what this radically new enterprise, which these reflections seem to call for, could be.
