William Magnuson is an associate professor at Texas A&M Law School. Previously he taught law at Harvard, worked as an associate in Sullivan & Cromwell, and as a journalist in the Rome bureau of the Washington Post. He is the author of Blockchain Democracy: Technology, Law and the Rule of the Crowd, and has written for numerous leading publications including Harvard Business Law Review, Stanford Journal of Law, Business and Finance, and the Wall Street Journal.
Below, William shares 5 key insights from his new book, For Profit: A History of Corporations. Listen to the audio version—read by William himself—in the Next Big Idea App.
1. Don’t overthrow the republic.
The idea of the corporation began in ancient Rome, and it was created to solve a problem. In the second and first centuries BC, the Republic was growing exponentially, conquering or acquiring much of Europe and the Mediterranean, but it never developed a large government apparatus. And so it faced a dilemma: how was it to administer this growing empire?
The answer was the corporation: the Republic relied heavily on private companies to provide government services, and in return, it granted them special rights and privileges.
Roman corporations did things like collect taxes, build roads and equip armies. They were so important to Rome that Cicero called them an “ornament of the state.” But over time, as the societates grew more powerful, problems started to emerge.
They were accused of oppressing the provinces and bribing the Senate. They even encouraged Rome to launch aggressive wars of conquest. And they favored the rise of friendly politicians, like the Triumvirate of Caesar, Pompey, and Crassus, who would soon topple the Republic and usher in the Roman Empire.
“The Republic relied heavily on private companies to provide government services, and in return, it granted them special rights and privileges.”
The fate of the Roman corporation provides us with a lesson. Corporations are purpose-built for business and commerce, and they are very good at accelerating economic growth. But they are also dangerous: their interests are not always aligned with the interests of the people, and this can lead them to undermine the governments that create them.
2. Think long-term.
One of the most common mistakes that a company can make is not to think for the long-term. Too often, companies fail to plan for the future because they are thinking so much about the here and now—about this year’s profits, or next month’s sales goals, or the company’s real-time stock price. But when you focus too much on the short term, you can lose sight of your true goals. One example of this is the Medici Bank.
The Medici Bank was the most powerful financial institution of the Renaissance. It acted as bankers to the pope and Europe’s nobility. It is perhaps most famous for financing the artistic genius of masters like Michelangelo, Leonardo da Vinci, and Donatello. But its fatal flaw was that it failed to plan for the future.
Managers of the bank didn’t think hard about succession plans or the bank’s long-term business interests, focusing instead on extracting quick profits for themselves, and soon it lost the favor of the church as well as powerful guilds within Florence. And within a century of its founding, the bank was gone and the Medici family was exiled from Florence. The Medici Bank is a powerful reminder that companies have to think long-term and plan for the future.
3. Compete, but fairly.
Capitalism is based on competition. We want companies to compete for your business. We think that if they do, it will lead to better products at better prices, and this should be good for all of us. But we also want corporations to compete fairly.
“We don’t want corporations to engage in industrial espionage, or spread lies about their competitors, or buy out rivals in order to raise prices.”
Just like a sports game, there are rules to competition. We don’t want corporations to engage in industrial espionage, or spread lies about their competitors, or buy out rivals in order to raise prices. One example is the Union Pacific Railroad.
The Union Pacific, in one of history’s great feats of engineering, built the transcontinental railroad in the 1860s and was celebrated across the nation. But after it finished the railroad, the Union Pacific came under the control of a robber baron named Jay Gould. Gould then set about destroying or buying up all of his competitors, either by spreading false rumors about them or by secretly acquiring their shares. Soon he had a monopoly. He then raised rates on farmers and ranchers. The Union Pacific reminds us that we should compete, but fairly.
4. Don’t take all the pie for yourself.
Corporations are really great at growing the economic pie. They are efficient, they are fast, and they know how to respond quickly to consumer demand. But as they grow the economic pie, corporations should also think about how big their slice is, and how much is left for others.
If all the benefits of capitalism are going to the few, the powerful, and the wealthy, that is a problem. There is nothing inevitable in the free market that says each party will receive their fair share. All too often, for example, corporate executives take the lion’s share of the pie and leave only crumbs for others.
“We want everyone to benefit from the profits of enterprise, not just corporate executives.”
We should be thinking about workers, customers, and societies. We want everyone to benefit from the profits of enterprise, not just corporate executives. We need corporate executives to commit themselves to divvying up their pie fairly and equitably, and to ensure that everyone gets a slice.
5. Don’t move too fast or break too many things.
Corporations take risks all the time. They launch new products, hire new leaders, and spend money on research and development. But there is a difference between deliberate, considered risk-taking, and excessive, reckless risk-taking.
We don’t want corporations to play fast and loose when it comes to the welfare or safety of consumers, or the privacy of users. In today’s world, tech companies like Facebook and Twitter have hundreds of millions of users. When they “move fast and break things,” dire consequences can follow.
We have all seen the dangers of social media, from misinformation and election interference to division and violence. Companies should think seriously about the risks and harms that might flow from their decisions, even if those risks might not directly affect their profit line.
To listen to the audio version read by author William Magnuson, download the Next Big Idea App today: