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2013-12-02 Fordism and the Rise of the Modern Corporation.docx

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Western University
Political Science
Political Science 2211E
Adam Harmes

Fordism and the Rise of the Modern Corporation December 2, 2013 Today’s Topics 1. The Rise of the Modern Corporation 2. The Fordist Structure of Business-Labour Relations 3. The Rigidities of the Fordist System Corporation -Business is legally separate entity from owners/shareholders -Limited liability -Pays corporate taxes -Perpetual lifetime -Ownership based on shares -corporation considered to be a person under the law -limited liability: if your business goes under, owners are only liable to a limited amount of company’s debt -their loss cannot exceed the amount they invested -owners don’t have to sell personal assets to pay corporation’s debt -this is to reduce amount an investor could lose -makes people more willing to invest -CEOs and executives don’t have to go to jail – lay blame on the “corporation” -“corporation” gets fined -corporation required to pay corporate taxes -individuals can’t sue individuals who own shares of corporation, but can sue corporation -perpetual lifetime -corporation as institution survive regardless of whether investor died Corporations Before the Depression -Industrial revolution led to the emergence of big corporations -Many founded and run by individual industrialists known as “robber barons” -J.P. Morgan, Andrew Carnegie, Rockefellers (Standard Oil), Vanderbilts, etc, -J.P. Morgan financed mergers in rail and steel and set off M&Awave -M&A: companies buying up other companies -merger: one company in partnership with another -acquisition: one larger company buy of fthe smaller company Corporations Before the Depression -Private corporations owned by individual or families -centralized in the hands of a single individual or family rather than owned broadly by shareholders -Integration of ownership and control 1 -person owning the company is also running the company -Owners often specialized in the products they produced -e.g. JP Morgan had a financial background and founded financial institution 1. Centralized to Decentralized Ownership -Robber barons retired and sold their shares -Many firms “went public” through an IPO -OPF: Initial Public Offering -many billionaires earn money through IPO (sell stock) -Came to be owned a large number of small, unconnected shareholders Types of Corporation Private Corporation -small number own shares – often person or family -Shares do not trade publicly -Financial info not made public -e.g. Rogers Communication Public Corporation -Large number own shares -Shares do trade publicly -Financial information is made public Crown Corporation -a.k.a. Public Enterprise -Majority of shares owned by government -Nationalization vs. privatization? -nationalization: government comes in and takes over private corporation and makes it a public enterprise -privatization: take government-owned crown corporation and sell shares -e.g. Reagan, Mulroney, Thatcher -e.g. VIARail, CBC, LCBO 2. Separation of Ownership and Control -Decentralized ownership meant owners no longer ran corporation -1932 Berle-Means model of the modern corporation -Adolph Berle and Gardiner Means -identified this trend of where many companies are public companies owned by many shareholders (not owned/controlled by few people) 2 -individual shareholders don’t run the day-to-day operations of the company 2.Separation of Ownership and Control Shareholders (large number of small and unconnected shareholders) | | | | Board of Directors (represent shareholders and oversee management) -elected by shareholders to represent shareholders’interest -can vote in big decisions -make sure management is making decisions in the interest of shareholders | | | | CEO and Management (specialized managers) 2.Separation of Ownership and Control -Board of directors can veto management decisions -Shareholders can vote on certain decisions atAGM or through ‘proxy votes’ -don’t need to physically go toAGM and vote; can vote through mail -this was the theory 2.Separation of Ownership and Control -Reality was that modern corporation was characterized by “managerial autonomy” -Shareholders had little influence over management for 3 main reasons: 2.Separation of Ownership and Control -Unconnected shareholders don’t organize votes -Own shares in many companies – therefore “exit” rather than “voice” -stock portfolio – diversify portfolio -don’t put all your eggs in one basket; if the company goes bankrupt, you lose all your investment -voice: you try to influence -if you don’t like something your corporation is doing, sell your stocks and move on (easier) -Compliant Boards rubber-stamp CEO -CEOs able to stack board of directors -politicians, ex-politicians sit on corporate board of directors -not businesspeople, no experience with business -CEOs put their friends on board of directors – acting in the interest of CEO and management (which is opposite of the actual definition of board of directors) 3 3. Managerial Revolution -Managers no longer owners -Specialists in management itself -Professionalization of managers and business schools -origins and emergence of MBAs and political management course -Apply scientific principles to maximize efficiency Taylorism -F.W. Taylor’s “The Principles of Scientific Management” (1911) -Focus on efficiency in factories -Led to mass production -outlined scientific way of management? To make it more efficient -Taylorism led to rise of mass production Taylorism -Standardized goods -every iPod produced is the same; not customized -exactly the same -Separation of conception and performance of work -separates ideas of work from manual of work -ideas: design factory, products itself -greater specialization: managers, engineers, scientists doing ideas work and you have labour-skilled workers doing the manual work -take advantage of greater and greater specialization -Hyper-specialization into low-skill, repetitive tasks
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