The role of corporations in society

¶ … corporation existed?

Establishing a precise date for the beginning of the corporate form of doing business is subject to considerable debate. There are vestiges of businesses that operated as a continuous organization with changing memberships dating from ancient times. Both the Greek and Roman civilizations had businesses and groups that functioned in this manner but the true development of the corporate form as we know it today began to take hold in the Middle Ages. First, the Church, as the era's dominant institution, began recognizing non-business forms of corporations for ecclesiastical purposes. As the world began emerging from the isolation of the Middle Ages and trade began to increase a need for different forms of business organization became more necessary. With the discovery of the New World and the accompanying increase in costs, it became impossible for sole proprietors and partnerships to afford the costs of international trade and the corresponding risk of liability. This reality, plus other considerations, provided an impetus for the use of the corporate form. In England, which eventually came to dominate international markets, the corporation began to develop as a legally recognized form of business organization.

An important consideration in the development of the corporation in Britain and the rest of Europe was that they did not develop as independent entities separate from the government. Corporate existence in Europe occurred as a right granted by the state and not as a separate legal entity. In the United States the situation was much different and this factor would eventually cause corporations to develop much differently in the United States. Corporations in the United States were able to develop more freely and creatively.

In the United States, the corporate form of business was passed down through English common law but took on increased importance and prominence during the advent of the Industrial Revolution. Manufacturing firms, with their substantial capitalization costs and high liability risks, were the perfect fit for the corporate form of business and quickly became the business form of choice. As the corporate form became more popular, state governments in the United States began to enact legislation governing the operation of corporations with each jurisdiction adopting its own specific requirements (Micklethwait, 2005).

2. What is the difference between the British and European corporation and the U.S. corporation? What does Dr. Novak feel is the result of the difference?

The essential difference between the British and European corporation and those formed in the United States was in the method that they were created. In Britain and the European continent, the corporate form of business arose out of business' relationship with the monarchies. Unlike the United States, where corporations developed largely without the presence of any monarchial form of government, Britain and the other European nations developed economically while monarchies were in power. As a result, in order for corporations to exist they had to seek such organization rights from the monarchy. Operating a business as a corporation in Europe became to be looked upon as a right and not merely the result of filing the necessary documents in a government office. In the United States, meanwhile, corporations were created through filing documents and there was no rights conferred by a monarchy. Becoming a corporation was not a right but merely a formality. In Europe, the continued existence of a corporation was a function of the corporation's relationship with the ruling monarchy. In the United States, the continued existence of the corporation was a function of the corporation's ability to satisfy its customers (Forbes, 1986). In the United States, the corporation was independent of the state and provided the corporation with an ability to develop and be creative in its operation and direction. According to Dr. Novak, this freedom from state control allowed the American corporation the flexibility to develop and grow in areas that was not possible under the European system (Maier, 1993).

3. What are the two definitions of stakeholders?

Dr. Novak describes two different types of stakeholders. The first type of stakeholder is the one that establishes ownership over a piece of property such as the settlers that moved West in the early years of the American republic. These stakeholders, Novak argues, were an important part of the American experience because they ensured that the country would develop westward as free states as opposed to slave states and, secondly, they would perpetuated private ownership over state ownership of property. Members of this type of stakeholders are viewed as owners and private risk takers and are the foundation of a free society.

The other type of stakeholder, according to Novak, is based upon the socialist model where each stakeholder considers himself to be entitled to make demands on the system and to receive these demands. Novak argues that Britain is an example of such stakeholder society where "each citizen is entitled to make claims on others according to his or her needs." Novak further argues that stakeholders in such society have needs that are expansive and, as a result, ultimately not capable of being satisfied. In such society stakeholders are always frustrated because all their needs are not satisfied which leads to a generalized state of anxiety. Novak considers such societies to be unhappy and discontented (Phillips, 2003).

Novak's critical evaluation of social democracy offers a glimpse of his views toward the different types of stakeholders. He obviously favors the type of stakeholder that promotes private ownership and that helped develop the American West over the form of stakeholder that allowed the condition that he now feels exists in Britain. In his article Novak does not openly express his preference but his indictment of social democracy and his clear identity of Britain as representing such governmental form is a strong indicator of his preference.

4. Describe the effects of social democracy. What is the danger of perpetual demand without responsibility?

In his article Novak describes Britain as an example of a social democracy. He views Britain negatively and argues that in such society satisfying the perceived needs of the citizenry is impossible and therefore the citizenry lives in a constant state of dissatisfaction. Further, because the desires of the citizens are being satisfied by the government the individual members of society never develop any real sense of personal responsibility. Novak points out that governments built on social democratic theory present a wonderful ideal of unity, a sense of belonging, a feeling of being cared for but, in practice, the system works much differently (Berman, 2006). In such societies, the citizens become too accustomed to demanding and receiving. There is no personal responsibility. Self-interest becomes the driving force and there is little or no social cooperation or concern. The result of such form of government is a society dominated by unhappiness and discontent (Hewitt, 1977).