The New Firm: Staying Relevant, Unique & Competitive

Abstract

This paper argues that the key to success for any business enterprise is to build and maintain relevancy in the market place, whilst also remaining relevant to all the various stakeholders within the firm (e.g., employees and investors). Relevancy in the market means delivering products or services that matter for consumers. Relevancy to stakeholders means offering a meaningful experience that allows individuals to develop a unique identity and related capacities; communicate an image; and participate in a fulfilling collaborative project. These two objectives are interconnected in the sense that a firm that remains relevant to stakeholders gives itself the best opportunity to remain relevant in the market place.

One recent trend amongst large public companies - often encouraged by activist investors - is to go down the “break up” route in an attempt to remain relevant or recapture relevancy. There is something to this strategy of splitting up or selling off certain parts of the business. The idea is that these newly formed - and smaller - companies will be able to better focus on their respective core competencies. We, however, suggest that firm size does not matter. What is important is to realise that the most innovative firms currently seek to achieve relevancy via the implementation of various “new” corporate governance practices. This paper offers an interpretation of the principles underlying these practices - namely, flat hierarchy, open communication and inclusivity.

Equally, these principles provide a starting point for a critical review of the existing legal framework. The current regulatory framework has a tendency to over-emphasise investor interests and this has created a number of unintended side-effects, namely “Dinosaurs” (companies that find themselves in a process of slow and terminal decline); “Unicorns” (large companies that remain private in order to avoid the stifling effects of post-IPO regulation); and “Governance Renegades” (public companies that adopt unconventional corporate structures in order to retain the pre-IPO - start-up - feel). In the light of these unintended side-effects, we propose a recalibration of existing regulation based around the three principles, i.e., a relevancy based approach to regulation.

Keywords: capital markets, corporate culture, corporate governance, corporate reorganisations, ecosystems, entrepreneurship, growth, innovation, networks, theory of the firm

JEL Classification: D20, D23, D85, G24, G32, J40, K22, L14, M14, O16, O31