The decline of the public company

The May 19^th edition of The Economist carries an intriguing Briefing on “The endangered public company”.  It leads with the note that “public companies have had a difficult decade, battered by scandals, tied up by regulations and challenged by alternative corporate forms.” This is not surprising to co-operatives. We have long seen the pitfalls in the public shareholder model and have championed an alternative designed to avoid the excesses and tendency toward scandals that is inherent in that model.

The Economist notes that: “Public companies are in danger of becoming like a fading London club. Their membership is falling. They spend their time fussing over club rules. And, as they peer out of the window, they see the bright young things heading elsewhere.” The number of public companies has declined by 48% in Britain’s main markets and by 38% in America since 1997, according to the article.

This does not mean that those rejecting the public company form are necessarily choosing the co-operative model. In fact, the article notes that private-equity firms are enjoying some of the rout; and state-owned enterprises (SOEs), which list on the stockmarket, account for 80% of the value of China’s market, 62% of Russia’s, and 38% of Brazil’s. Interestingly, partnerships are reversing a decline that began in the latter half of the Nineteenth Century. These might be Limited Liability Limited Partnerships (LLLPs), Publicly Traded Partnerships (PTPs), or Real Estate Investment Trusts (REITs), but they are partnerships in structure. Family-owned businesses are also on the rise. And the article gives a nod to employee-owned businesses.

This shift toward a more diversified economy is good news for co-operatives, regardless of whether the shift is yet predominantly into the co-operative model or not. ICA’s public policy priorities lead with the assertion that we need a more diversified global economy. We may indeed be getting one.

A second reason to take heart is the increasing recognition in these alternative legal forms of the need for a more-responsive legal and regulatory environment. The more various parties are arguing for model-specific treatment, the more receptive we can expect policy-makers to be of our argument that we need a regime that recognises the unique nature of the co-operative model.

It’s not all good news, of course. Some of the alternative models are as susceptible of abuse as the public shareholder model, and some are formed by individuals looking for the greatest opportunity for exploitation with the least amount of regulation. A movement toward models like partnerships, family-owned businesses, and employee-owned business, however, is a directional move toward models where the owners have direct engagement in the business. It may be a move to a more co-operative society and one that the co-operative movement should embrace.