6. Public/Joint-Stock Companies

Social Triangle
Example Posters: Basic
Example Posters: Advanced

[6] Market Joint-Stock Company

This position represents the archetypical market role on which most of the corporate governance literature is centred: a public organization, non-governmental, profit-oriented for the provision of private goods. This is the type of entity most people refer to when they talk about ‘firms’ or ‘corporations’ or the ‘private sector’.

Agency Challenges

  • Information asymmetries: How to protect shareholders (owners) against value-destroying managers (fraud, unacceptable risk-taking, mismanagement/moral hazard);
  • ‘Agency costs’ relating to the costs of monitoring (checks and balances on information asymmetries), bonding costs (keeping managers aligned and accountable through contracts, profit-sharing and performance-related pay) and other residual costs;
  • Internal control mechanisms: Decision-making and representation structures/corporate governance;
  • External control mechanisms: public financial statements and accountancy control.

Typical Strengths

  • Relatively easy access to risk-bearing capital;
  • Mitigation of risk due to limited liability;
  • Transferability of shares/ownership;
  • No restriction of members;
  • Flexibility;
  • Efficient production and scaling;
  • Creation of (new) markets;
  • Competition;
  • Innovation (technologies; products; processes; organizational);
  • Risk-taking and risk management;
  • Generation of surpluses (profits);
  • Generation of spill-overs through applied mode of organizing: outsourcing, delegating, cooperating with suppliers.

Typical Weaknesses

  • Short-term orientation (profit driven);
  • Market concentration / monopoly surpluses / collusion / insider trading;
  • Fickle societal license to operate (trust; reputation);
  • Too big or too diversified to create value;
  • Too much risk-taking: high risk = high wins or high 'penalty';
  • Deficient capacity to internalize external costs;
  • Global free trade excesses: ‘race to the bottom’, ‘footloose capital’, tax evasion and manipulation; natural resource exploitation;
  • Abuse of information asymmetries and market power (e.g. misuse of patents on medicine, seeds).
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