The Corporate Logic
Our Greatest Common Obstacle.
All who sincerely want to work for a better future have one obstacle in common: The Corporate Logic.
This isn't about classical corporation bashing. I do believe that companies can be great instruments for creating and distributing value.
The Corporate Logic, by contrast, occurs in a subset of companies that share specific organizational design flaws, which I aim to describe here as ideology-free as I can.
If I had to name the one single focus for all that I've done over the past ten years, it would be "freeing humanity from the Corporate Logic". (In my view, this equals "establishing economic structures that enable sincere happiness.")
My experience is that most people share a vague feeling that there is something fundamentally wrong about the growing power of corporations. But when it comes to action, most people seem to narrow their focus on specific issues and symptoms, rather than taking coordinated action to address this fundamental cause.
Why corporations are inevitably harmful
The Corporate Logic is the core reason why we’re unable to overcome pressing global issues like climate change and extreme inequality.
It's also the reason why, despite all our progress and "enlightenment", we still grapple with issues like war, weakening democracies, rising autocratic regimes, and the currently looming 'AI arms race', which might result in unprecedented harms for all of us.
People tend to focus on these symptoms (which are huge and complex phenomena by themselves) - and then get caught up in ideological discussions about how to best solve them. This inevitably leads to polarization and distrust as these "problems" cannot be "solved" without addressing the root cause.
This brings me to the second main claim of the book: If we sincerely face our common obstacle of the Corporate Logic and if we cooperate strategically to overcome it, we're back on track for a much happier future.
Three key implications of the Corporate Logic
While many might share the view that the growing power of corporations is problematic, the theory entails three implications that might be less intuitive:
This isn't merely the doing of a vague demon called “capitalism” or "Moloch". Rather, it can be traced back to clearly identifiable flaws in the organizational structures that currently can be found in most large companies.
In the long run, there's no way to keep the consequences of these flaws effectively in check through public regulation.
Because the problem can be traced to specific structural design flaws, there exist effective ways to disempower the Corporate Logic altogether and for good.
But enough of big claims, let’s jump to the arguments:
Defining the Corporate Logic
A company is subject to the Corporate Logic, if it meets three conditions:
1. Its ownership is attributed to a fixed number of shares.*
2. The company (potentially) distributes profits through these shares and/or the shares are tradable.
3. The company is of large size.**
*Fixed here means that a fixed number of shares is internally determined by the company’s bylaws/documented shareholder decisions. The fact that companies can issue new shares through internal procedures is irrelevant for this condition, since it just means a change from one fixed number of shares to another.
**For the sake of a clear definition, I use the OECD’s definition of large enterprises: Companies that employ more than 250 people.
In the following, I'll call a corporation any company meeting these three conditions.
From the three conditions we can derive the three basic principles of the Corporate Logic:
1. Corporations are subject to chronic growth compulsion.
2. Corporations are subject to dehumanizing complexity.
3. Corporations are accumulating power.
Principle 1: Chronic Growth Compulsion
This principle follows from conditions 1 and 2: Because there is a fixed number of shares and profits are distributed through these shares, it follows that the (financial) value of shares rises with the expected growth in the company's potential profits.
By simple evolution logic, shareholders who aim to maximize the valuation of their shares will crowd out those who don't in the long run, since the "valuation maximizers" will accumulate more capital to reinvest and thus continuously increase their share of overall available investment.
Note that this implies that profitability by itself is not enough to make a company interesting to valuation maximizers. A corporation must grow its potential profits to see a rise in valuation.
Note that this also implies that the Corporate Logic "breeds" shareholders according to its growth "needs". It's not "greedy shareholders" who create growth-hungry corporations, it's the Corporate Logic that selects greedy shareholders over less greedy ones and thus breeds them, like humans breed cows that produce more milk.
One more point to make clear why condition 1 is crucial here: In companies where the number of shares fluctuates and instead the price of a share is fixed (like in many cooperatives for example), there is no chronic growth compulsion.
In this case, a rise in the companies valuation is likely to lead to more shares being issued. Thus, no individual shareholder has an incentive to push for growth for the sake of raising the price of their shares. Instead, they have an incentive at pushing the company to actually create value, leading to an appropriate dividend on their shares. Which means the company can concentrate on providing valuable products and services and on developing a healthy, profitable, sustainable business.
In companies with a fixed price of shares, a decision to grow the company is likely to be based on intrinsically relevant business factors, as for example an increase in demand, or better marginal cost/quality ratios. There is no chronic compulsion to grow, so the company only focuses on growth when it makes sense.
At the same time, the market dynamics among shareholders lead to a focus on shares that offer balanced dividends that reflect the real risk involved. This in turn creates incentives for transparency and real value creation, rather than incentives for spectacular storytelling and race-to-the-bottom strategies for market domination.
Principle 2: Dehumanizing Complexity
This principle takes into account that human beings have a limited cognitive capacity to create meaningful social relationships (the often cited Dunbar's number estimates the average maximum to 150 social relationships https://en.wikipedia.org/wiki/Dunbar%27s_number). Because corporations (as defined here) are large organizations with more than 250 employees, they have an inbuilt tendency to sideline the moral intuitions that come with personal social relationships.
This structural condition is further exacerbated by the resulting tendency to form subgroups, in form of departments, sub-companies, specialized units etc. Each subgroup tends to optimize for their specific performance indicators, reducing the perceived sense of responsibility for the collective impact of the total organization for every individual.
Such structures make it impossible for our human moral intuitions (and emotions) to be effective. The sidelining of our intuitive moral accountability mechanisms tends to increase with the size and complexity of the organization, hence the principle's name dehumanizing complexity.
Never mind all story telling about “corporate social responsibility", shiny mission statements etc. Our brains tend to adopt narratives that align with our self-image and the image of subgroups we identify with. We can reflect and revise these images, if our social intuitions and emotions are sufficiently triggered, but the complexity of large organizations prevents these intuitions from being effective checks on both our actions and the narratives our brains embrace.
When this principle is combined with the Principle of Chronic Growth Compulsion, it follows that the Corporate Logic inevitably leads to harmful behavior, as soon as the corporation's overarching goal to grow is not 100% aligned with the goals of society. This is the case, even if all people active in the corporation are morally well-meaning people.
Representatives of corporations will go out of their way to come up with compelling narratives why in their corporation the goals of growth and value creation for society are perfectly aligned. But their willingness to embrace these narratives is a result of our brain's adaptive strategies in complex situations, rather than grounded in consistent moral intuitions.
Moreover, corporations tend to proactively promote identification of employees and managers with the company and its "mission", because this identification is helpful for growth. And the hierarchies and incentive structures in corporations tend to promote the "ego" in us, making us even more receptive to self-affirming narratives.
Principle 3: Power accumulation
The predominant economic paradigm in democracies claims that we have public institutions to regulate corporate activities in order to align them with the goals of society, which should make corporations net beneficial.
This claim doesn't hold, because of the third principle: Corporations accumulate power, which enables them to influence the very regulations that are supposed to contain their harmful behavior.
The derivation of this principle is pretty straight forward: The Chronic Growth Compulsion leads corporations to prioritize their growth over all other goals, leading them to maximize the means they need to achieve this growth. Such means includes financial assets, employees, PR and lobbying budgets, political ties etc. Each of these are factors of public power that can be used to influence public regulation and opinion.
There are various further mechanisms by which power accumulation happens, like exploiting information asymmetries, network-effects, targeted sponsoring of academic research, sponsoring of popular personalities and influencers etc.
Since these factors aren't just accumulated within one corporation, but also collectively across multiple corporations, it's simply impossible to effectively contain the Corporate Logic through regulation in the long run. Of course, civil society can do its best to push back, but the principle of power accumulation leads to an inevitable and increasing imbalance of resources in favor of the Corporate Logic.
Note that the Corporate Logic doesn’t “care” about the fate of individual corporations. It’s indifferent to one corporation being eaten by another or being pushed out of the market. What counts is the net accumulated power of all corporations in the system.
This cannot be reduced to a “too big to fail” problem. Even if no corporation in a system has yet risen to such size, the collective net effects of the Corporate Logic can lead to large scale influence over public institutions and social realities.
For example, corporations can engage in complex tax avoidance schemes, playing out governments against each other and out-competing local small and medium enterprises through sub-market prices that are "subsidized" through these schemes.
It's no surprise that regulators always lack behind in reducing both tax avoidance and tax evasion. On the contrary, it simply follows from the Corporate Logic.
The Corporate Logic creates an automatized rebound effect
The rebound effect means that efficiency gains in one part of a system free resources that can be used for increased activity in another part of the system. This can lead to the seemingly contradictory effect that a local improvement in resource efficiency results in an overall net increase in resource use.
One often cited example is a hypothetical family that insulates their home to decrease the amount of energy needed for heating. If the family now uses the saved money they did not spend on heating to pay for a flight to a beach resort in their summer holiday, when they would have normally spend the holiday on a farm in the countryside nearby, this can invoke a rebound effect: The increased energy efficiency of their home results in higher total climate gas emissions.
The Corporate Logic can be regarded as an automation of the rebound effect. Whenever some efficiency gains are achieved that could be useful to society, this creates an opportunity for some corporation, which can use the freed resources to fuel its growth.
Let's look at a hypothetical example: Imagine an increased use of electric cars leads to less overall fossil fuel use in private cars. The resulting reduction in demand for fossil fuels leads to a lower oil-price, which in turn reduces the costs for industrial fishing with ships running on crude oil. The resulting lower price of fish then leads to a worldwide increase in fish consumption and therefore an increased use of crude oil in fishing ships, which has a much worse climate impact per ton than fuel used in private cars.
The overall environmental effect of a decrease in fossil fuels used in private cars would be thus: Accelerated overfishing of the oceans and a net increase in total climate gas emissions.
While this is obviously a highly constructed example, it shows the underlying dynamics: Because corporations want to grow, there will be always a corporation around the corner that takes advantage of any efficiency gain to serve its growth compulsion, thus annihilating any potential reduction in overall resource use through new technologies or public policies or "good intentions" of some companies.
The only way to effectively avoid this would be a global, 100% effectively enforced regulation system that outrules 100% of all potential options to externalize costs. I think it's safe to say that this has a 0% chance of being established in a world dominated by the Corporate Logic.
An abstract account of the harmfulness of the Corporate Logic:
Claim:
In any system with actors who adhere to a set of non-trivial values (e.g. humans who value happiness, health, peace, environmental sustainability, personal freedoms etc.), the conditions for these actors to pursue their values will be compromised, if there exist other actors in the system that are subject to Corporate Logic (e.g. corporations that meet the three conditions as defined above).
Reasoning:
Any actor who is subject to the Corporate Logic essentially turns into a means maximizer. Over time, their competitive behavior invariably diminishes the resources available for value maximizers to pursue their goals.
This effect will be even more detrimental for the value maximizers, if they are adaptive. Meaning, if they have properties that adapt to the conditions they exist in. In this case, the means maximizers can use the means they accumulate to influence the conditions in which the adaptive value maximizers exist, in order to optimize the adaptive behavior of the value maximizers for the purpose of their goal of means maximization.
To be more concrete: Corporations can wield their accumulated power to shape the conditions we live under, including influencing our public institutions and social norms, thereby molding us into more effective contributors to their growth objectives.
They can use our adaptive neural structures and create conditions for us that nourish our egos, our material greed, our fear of unemployment, our hunger for social status, our mindsets of self-optimization etc.
Unless we choose to believe that such characteristics are thrown onto us by some mystical external force, they must result in one way or another from our interaction with the conditions we exist in. And if means maximizers (like corporations) can use their means to influence these conditions, it follows from their definition as means maximizers that they will do so in ways that are conducive to their goal of accumulating means.
The unavoidable, self-accelerating result of this pattern is that the more means the means maximizers accumulate, the more effective they get at squeezing out means from the value maximizing actors, thereby distracting them further from pursuing the values they were originally striving for.
Real consequences of the Corporate Logic
The influence of corporations on nearly every aspect of our lives has been growing for decades.
In the book, I'm discussing seven major areas of impact of the Corporate Logic, each of which could be a book by itself. Here just a list of the section titles:
1. Corporations are systematically changing our values and identities
2. Corporations are producing inequality
3. Corporations are undermining our democracies
4. Corporations are fueling climate change
5. Corporations are impeding peace
6. Corporations are harming our health
7. Corporations are promoting insincerity
Just two paragraphs on the last point, which in my view is the most basic one:
The growing power of the Corporate Logic is pushing a general mix of pressures and incentives on our societies that make it hard for us to actually be in touch with ourselves. Unless we withdraw into monasteries or nature retreats, it takes enormous inner strength to even try to look sincerely into questions like "Who am I? What do I really want? What is really important to me?"
This is also our entry point for liberating ourselves from the Corporate Logic. Getting in touch with ourselves - meaning proactively taking action to become more conscious and sincere - can get us to a point from where we can reclaim our future.
So what can we really do?
The primary purpose of this post is to argue that the most crucial step towards a better future is disempowering the Corporate Logic.
My second point is, let's be sincere and really face this challenge.
We humans have an inclination to blame people. It’s the capitalists, or the politicians, or the bankers, or the tech entrepreneurs, or this or that billionaire, or this or that ruthless dictator. Our instinct is to project far more agency and power to others than they actually possess. But we are all influenced by the Corporate Logic, as consumers, as workers, as managers, as shareholders, even as famous founder-owners of corporations.
Some claim that technological progress will magically solve all our problems for us. But this hope doesn't take into account that the Corporate Logic is currently controlling the path technology takes.
My goal here is to encourage a discussion, where we step back and take a sober look at the specific structural aspects that we can actually change.
Being sincere gives us the chance to cooperate
The good thing is that if we do that, we can actually see the fascinating chance we have now:
We have the chance to form novel organizational structures that let us work and live without all the unnecessary pressures, lies, injustices, and power games we grapple with today.
The organizational models are there, the success stories are there, the digital tools are there. All we need to do now is to take a decision to cooperate.
I know this is not easy for many of us, given the numerous responsibilities and pressures from our day-to-day affairs. But this is actually the crucial point: At given moment, we have the chance to ask ourselves: "Do I really want to accept these responsibilities and pressures?"
No-one but ourselves is forcing us to accept them.
It's not my goal here to press you to join our efforts to free ourselves from the Corporate Logic.
But I hope it comes across why I chose to do so. I know from experience how beautiful and fulfilling it is to collaborate with people on projects we really believe in, in a sincerely respectful way, where we can all be in the room as the humans we are.
This isn't about endless discussions and consensus seeking. This is about everyone taking on roles they really feel well with, including leadership roles that allow the leaders themselves to be sincere.
If you feel like joining up, please reach out. If you don't feel it yet, you're invited to join at any point later.
We don't need to convince everyone from the start, but we do need all who clearly feel that this is the right thing to do now.