Book Review: John Micklethwait and Adrian Wooldridge,The Company: A Short History of a Revolutionary Idea

Is company a merciless economic institution or an altruistic commitment? John Micklethwait and Adrian Wooldridge in the book, The Company: A Short History of a Revolutionary Idea, examine and explain the evolution of the modern-day company and the various dimensions that shaped and continue to shape the future of the company. Interesting and entertaining, the book is full of historical evidence to substantiate the arguments laced with economic and political considerations. The central theme of this book is the evolution of the company and the genesis of modern-day organizations. Authors also look at the cultural variations that shaped the growth and decline of companies or financial institutions across different countries and continents. The book also discusses and analyzes the various antecedents and controlling factors to the emergence of companies. Even though most of the evolutionary dimensions discussed are economic in nature, human resource management (HRM) perspective can also be inferred. Loaded with surprising facts, this book is a voyage through ages.

Companies were formed centuries back to finance the voyages or expeditions that went in search of raw materials and exotic goods. The first sign of such companies was seen in Europe, the Islamic world and China. The Chinese companies were larger than European ones. Middle East had the strategic advantage of being in between Asia and Europe, making it the only option to trade on a land route. But, this did not ensure stability and growth for companies in the Middle East. Islam advocated equal sharing of property after death and this led to dissolution of the companies into smaller entities. Despite being huge and bureaucratic, the Chinese companies could not survive because the king had ordered an import ban or a trading ban, owing to the availability of all resources, which finally ended in collapse of Chinese companies.

During the same period, Europe grew from strength to strength. European companies had their earliest existence in the form of Compagnia in Florence—meaning breaking bread together—and Banchi in Italy—meaning the moneylenders. Then came the Guilds in London, which enjoyed monopoly of trade in an area in return for monetary funds. They were very much like modern day trade unions and took care of members’ interests. Later, the association of independent merchants was formed, which even trained its members and offered apprenticeship. It also had peer review system to screen out less successful members. As per the evidence provided by the authors, HRM perspective can be said to have started in Europe and in particular in the United Kingdom. Giving formal training to members and offering apprenticeship is a sign of importance given to human resource. All this happened in the fifteenth century when monarchy prevailed and people’s participation was limited or non-existing. An interesting fact is that unlike companies in other countries, the association of merchants was more democratic and participation oriented. This association might have resulted from the financial limitation that prevented merchants from forming self-owned large firms. A blessing in disguise, the participative nature of such associations aimed for parity and equality. Performance pressure in the market, combined with the participative nature, gave birth to peer reviews. In the absence of any other similar evidence from anywhere in the world, it can be comfortably assumed that these two steps—training and peer review—undertaken by the association of merchants could be considered as the first step of an informal emergence of HRM.

Micklethwait and Wooldridge cite more examples and sketch the growth of firms in sixteenth and seventeenth centuries that saw the birth of chartered companies. The largest of them was the East India Company which survived for 274 years and employed 350 members in its head office. The longest living of them is Hudson Bay, which is still active. Vasco da Gama and Columbus were awarded a royal charter to trade with a particular part of world and went on with expeditions that were financed by chartered companies. These companies borrowed the idea of shares, which can be traded in market, from the Middle East. Such principles helped chartered companies raise funds for future investment. Colonization in that era was seen as risky and limited liability was introduced to protect investors, since most investments were for colonization expeditions. Dutch East India Company or the VOC attempted state-sponsored collusion as a means of colonization. English East India Company on the other hand worked on private funding of each voyage as a separate venture. The culmination of such developments were stock market speculation and financial scandal. Quite similar to the current-day business scenario, scandals had emerged whenever business focused too much on profit. Even though share-holding patterns emerged, lack of participative nature and lack of human orientation of the business created troubles in sustaining the cause.

In spite of such scandals, English East India Company expanded into managing monarchy politics, financing multiple voyages and joint stock offering. A major development from a human resource perspective was the introduction of a two-tier structure for the organization with a general court of shareholders and a court of directors who were elected by the general court. In addition, the company also had seven specialized committees. Another HRM policy that English East India Company brought was to recruit sons of biggest shareholders for generous salaries to ensure loyalty. They called themselves an English East India Company family. Today, we see many firms espousing similar ideas as a measure of engagement and retention. The attachment to work that can be created in an organization by introducing the concept of family was recognized ages ago. Moreover, the company also encouraged diligence by asking members to go to church and penalized activities, such as drinking, extravagance and gambling. These dos and don’ts are similar to the code of conduct that we see in current-day organizations. English East India Company had also introduced the scrutiny of the performance of its members and asked for appraisal by friends and relatives. The next stage in the evolution of HRM was peer reviews, which were originally started by the association of merchants in England. Despite such efforts, English East India Company was on the verge of collapse and was reborn when King Charles gave powers of land and war to directors of the company.

Another landmark measure taken by English East India Company was to start competitive exams for its staff in the eighteenth century. Meanwhile, many big companies that did not have such resource pooling measures had collapsed, such as South Sea Company and Mississippi Company in the eighteenth century. English East India Company continued its measures and started calling its administrators as civil servants. In nineteenth century, partnership firms were preferred over joint stock options, and limited liability was considered as a weakness. Most companies wanted someone with direct interest in the profit to supervise. But the English East India Company continued with its business orientation and went ahead with policies and practices that were aimed at creating and developing the right resource pool. If we were to single out one company that had started and pioneered the development of human resource development, then undoubtedly that would be the English East India Company and deservingly so, owing to measures, such as loyalty aimed recruitment, family concept of employees, performance appraisal and competitive exams. Even today, many firms limit their HRM interventions to these basic measures only.

During the same period in America, monopoly rights to build roads, canals and universities were given to companies. State had loosened its control on companies and this happened even in France. Registration of companies was made mandatory to get the benefit of limited liability. Similar to this, most countries also relaxed norms for companies. In America, the demand for railways, telegraph and propeller-driven ships set in the need for large corporations that could build, operate and progress such heavy machinery. Companies were formed as a result of political and social requirement and not technological innovation. Companies were not an association of private people, but a public one for public interest. The concept of managers was new to agrarian society but companies started having such positions. Little equity and more debt was mostly the financing method. Civil war saw a rise in industries that could manufacture weapons and ancillaries. Then came the concept of integrated firms that brought in economies of scale through technological innovation and larger market clout. Such firms did horizontal and vertical integration. These requirements propelled mergers, acquisitions and cartel formation. Social Darwinism and survival of fittest were the guiding principles. In such a competitive environment, even trade unions started growing. America had passed the antitrust acts and introduced the concept of central bank. Later, for more growth, companies started participating in politics by controlling resources. The commitment to community grew and saw the emergence of concepts, such as corporate social responsibility. Companies improved the lives of millions and this prevented the growth of socialism in America. These developments sound very inspiring and intriguing, but unfortunately the authors fail to provide the human resource perspective and changes that took place in America at that point of time. It will be foolish to believe that mergers and integration happened without complex and dynamic human resource interplay. Nonetheless, introduction of the concept of professional managers and the emergence of corporate social responsibility in America can be considered as some of the initial human resource developments. In the midst of such information, Micklethwait and Wooldridge missed out giving more substantive details and the explanation was limited to just being normative.

Britain adopted a policy of laissez-faire, but chased profit, whereas Germany and Japan were to serve profit. A new dichotomy emerged—shareholder capitalism against stakeholder capitalism. Britain preferred family firms and personal management and rejected industrial capitalism, cited as the main reasons for their failure. Britain mostly relied on personal relations and family traditions. There were no organization charts and manuals. This spoiled the organization structure wherein many talentless amateurs rose high and talented professionals were kept low in the hierarchy. As we know, most businesses in the past were trading and the traders belonged to the same family. The common thread that bound them was blood relation. But the face of employment relation had started to change with the focus on proper structure and organization charts. The English East India Company had such professional relations even though much of Britain did not follow it. This could be one of the reasons why English East India Company survived and thrived, while most other British companies perished. On the other hand, British students studied classics and not trade or technology. A semi-aristocratic outlook with no or less business exposure was common in the young talent pool. An anti-utilitarian bias robbed the British of scientific expertise and business acumen. The expertise quotient of British companies decreased and recruitment was faulty owing to less availability of industrial manpower. Management training schemes for graduate employees were missing. This talent pool scarcity and attitude towards work could be another reason for the failure of most British firms. In spite of this, for the betterment of society, they built garden cities in rural areas, formed labour party, encouraged trade union mobilization and enrolled women in clerical jobs. They also developed an internationally oriented business approach. British firms took on American firms in the global market, despite such lacunae. In this section, the authors bring good observations and comparisons with respect to human resource development. This comparison was inevitable as the English East India Company had pioneered in such measures. Such a perspective and comparison was missing in the earlier chapters when the companies of America were discussed.

Micklethwait and Wooldridge go on to discuss and examine the rest of the world in the next chapter, which makes the reading more interesting with multiple other considerations coming to the picture. German firms became superior in the 1900s and emphasized social role along with business focus. Pension, health insurance schemes for workers and less expensive holiday excursions were promoted in Nazi Germany. To the utopian world, which hated Germany for wars and holocaust, such labour-oriented schemes would come as a pleasant surprise. German companies owed less to stakeholder capitalism and more to vocational education. Corporate apprenticeship and research thrived in Germany. This is explained as a contrast to Britain wherein the focus of study in colleges was on classics and literature. Another fact, similar to an English East India Company measure, was that low-level managers were called private civil servants, which showed the respect and focus Germany had for work relations. Germany also had a large pool of technically qualified resources, unlike Britain, and technicians here were given managerial positions and salaried people were on boards of the companies along with shareholders. Meanwhile in Asia, Japan had a similar outlook and orientation as that of Germany. Professionalism and nationalism became the essence of these two nations. The whole of this chapter revolves around these two themes as an additional consideration that was missing in the earlier chapters. Moving professionally ahead, Japan shed the feudalistic mindset of samurai and invited foreigners to start joint stock companies. Electrification and infrastructure were given importance. Keiretsu or holding company principle began and at the same time micro-enterprises were also promoted in Japan. They started direct manager recruitment from universities transforming the feudal loyalty into corporate loyalty. Human resource recruitment was given very high importance and this could have been the beginning of recruitment practices in Asia.

In the later sections, authors take us back to America to elucidate the professional development of the companies. Sloan’s revolution in America advocated the separation of ownership from control. Sloan and Du Pont started decentralization of the companies. Scientific studies and research for new products and sales were given more prominence. Professional management and professional marketing were introduced as key drivers. Multinational companies were formed to source raw materials from different countries. Companies had been part of every major event in the past and had shown the ability to condense social changes. The secret of success of a company was its acquired ability to evolve. Companies had transformed themselves from instruments of government to small republics on their own. It had changed the old social order and enriched the lives of people of all strata and classes. The company man changed the company from an organization to a smooth running bureaucratic set-up and later into an entrepreneurial venture. Many examples were provided to enunciate and support these developments that happened in America. Micklethwait and Wooldridge set the tone for a conceptual and philosophical understanding of the development of a company in this chapter. The following chapters continue with a future-oriented discussion before summarizing the reading.

The final chapters attempt to make a concise representation of what the whole book has articulated and have successfully done so. The two underlying dimensions that became the backbone of the company were economic and political. Economic dimension dealt with the tussle between transaction cost and hierarchy cost, while political dimension was about control and commitment to society. Even when companies were free, political leaders, especially in America, espoused about the regulation of the companies for the welfare of the entire community. Many conflicting views about the future of the company had emerged. One view talks about companies merging and taking over the entire market leading to an era of large corporations. While another view completely contradicts this and says that companies are becoming less substantial. A third view takes a middle path saying it is not large corporations but large network of small or less substantial companies that will rule the world. All these views ignore the influence of politics which holds the real power irrespective of the wealth a nation holds. When taking the socio-ethical dimension, the concern of corporate scandals and corporate social responsibility arises, both of which coexist in a very complex manner. Companies have behaved without heart in the past, but it cannot be denied that companies have supported the society as well. Companies have earned the trust by their good deeds. Today, most companies struggle for the right talent and this has become a fight for existence. Ethical and human resource consideration, if not taken care properly, haunt in the long run.

Companies need society as much as societies need companies. Future will be decided by how societies treat companies rather than the opposite. Even though unpredictable, companies are inevitable. John Micklethwait and Adrian Wooldridge ended this historical and evolutionary voyage in the same fervour as they started the voyage from civilization that existed 5,000 years ago. The Company: A Short History of a Revolutionary Idea is an antithesis of communism and will be an eye-opener to all those who think communism and its allied discourse have shaped the modern-day work relations. This book has discussed the turbulent and complex evolution of modern-day business firms in a fascinating and beautiful manner. This is not a history book, but a business book born out of history.