Abstract
Corporate governance is undergoing a quiet, but quick transformation. The rise of digital technologies is forcing companies to reconsider existing business models, but also how they organize themselves and structure firm governance. This chapter introduces the main features of the modern corporation and corporate governance, outlines how digital technologies are disrupting this business form, and describes the new business “ecosystems” that are emerging to replace the modern corporation. The chapter argues that in a networked age, all businesses need to “go digital.” Companies need to become innovation machines, and this means that every firm needs to become a “tech” company and a “media” company. If they do not, younger and more agile competitors better attuned to the realities of the new digital world will replace them. For incumbents, the risks are existential. Established firms must adapt to the new digital environment by embracing the ecosystem model, or they will die.
TopIntroduction
We are witnessing a quiet but quick transformation in corporate governance. The rise of digital technologies and social media are forcing companies to reconsider existing business models, but also how they organize themselves and structure firm governance. In this chapter, we introduce the main features of the modern corporation and corporate governance, outline how digital technologies are disrupting this business form, and describe the new business “ecosystems” that are emerging to replace the modern corporation.
Our conclusion? In a networked age, all businesses need to “go digital.” Companies need to become innovation machines, and this means that every firm needs to become a “tech” company and a “media” company. If they do not, younger and more agile competitors better attuned to the realities of the new digital world will replace them. For incumbents, the risks are existential. Established firms must adapt to the new digital environment by embracing the ecosystem model, or they will die.
Compounding the challenge for incumbents, existing regulatory approaches are failing business organizations. In short, many corporate governance rules and regulations are programming institutions to be dysfunctional. There is an ever-widening gap or disconnect between regulatory strategies and the business needs of companies operating in fast-moving, technology-driven markets. Consequently, many businesses and other organizations are ill-equipped to meet the challenges of today’s digital world. Instead, we need to design regulations that incentivize firms to establish the organizational structures and practices that will allow them to succeed. A new corporate governance focused on supporting a firm’s capacity to innovate — as well as promoting compliance and risk management — needs to be developed.
Key Terms in this Chapter
Empty Corporation: This is a corporation in which the relationships of the company are defined by contract and circumscribed by corporate law like the nexus of contracts; it denies the reality of the corporation as social unit.
Corporation: In this chapter, the term ‘corporation’ is used to refer to limited liability joint stock companies, both publicly traded corporations and private (‘closely held’) companies. As such, single proprietorships and partnerships are excluded from our definition of a corporation. The definition used here, therefore, differs from a broader, more everyday definition of a company as any organization that engages in business.