We take corporations for granted as a primary way that business is organized. But in reality they’re grounded in a specific legal structure with its roots in the Roman republic whose evolution and application has been uneven.

In his recent book, For Profit, William Magnuson examines this history of the corporation, wrestling ultimately with the question of whether it serves the interests of society.

“Today, we define a corporation as a business entity that possesses a particular set of traits,” writes Magnuson, a professor at Texas A&M Law School. “It has shareholders. It lasts for an indefinite period. It grants its owners limited liability. It is treated like a person—at least insomuch as it is empowered to transact and be bound on its own account.” (p. 18)

As Magnuson points out, these traits bring major advantages for conducting business, such as allowing corporations to continue beyond the death of their founder, insulating owners from risks they realistically couldn’t personally assume, making it easier to raise capital, and treating a group of owners as a single entity to contract with.

“In short, the corporation is based on a single premise: when we unite individuals into a single body, not just abstractly but in the formal mandates of the law, they can accomplish more than they could even accomplish acting alone,” Magnuson writes. “This premise explains both why corporations exist and what they are.” (p. 37)

For example, the societas of ancient Rome performed the key functions of a republic with insufficient infrastructure for its size, building roads and supporting armies in return for fees and tax revenues. The Union Pacific Railroad Company, a private corporation created by the US government during the Civil War, made the distant dream of a transcontinental railroad reality.

The central argument in For Profit is that “from their very beginnings, corporations have been institutions designed to promote the common good.” (p. 10) Magnuson concludes that corporations have been behind many of humanity’s greatest achievements, which is a “cause for celebration and optimism, both about human nature and about our capitalist system.” (p. 299)

But he also acknowledges “the shift from the corporation as public entity with a public purpose to the corporation as mindless engine of profit.” (p. 302) Indeed, For Profit is worth reading to understand the failings of corporations from the very start in ancient Rome, and the urgency for both government intervention and new innovations in business structure and governance—even though Magnuson distances himself from key aspects of what those should look like, calling them “difficult questions” and “tricky.”

To the critical question (and obsession of Charter) of whether the corporate structure is well suited to creating workplaces where people can thrive, the history covered in For Profit doesn’t convincingly answer yes. Workers and citizens are exploited in shocking fashion in every chapter.

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The book is structured around eight institutions fundamental to understanding the corporation and its history:

  • The societas. These groups of Roman knights contracted exclusively with the government, providing services like building aqueducts and outfitting the army. They had shareholders and were recognized as a legal entity apart from their owners. But “the desire for profit led the societas to oppress foreign peoples and clamor for new military conquests,” Magnuson writes. (p. 38)
  • The Medici Bank. The Medici family created a sophisticated financial system virtually from nothing and fueled the artistic genius of Renaissance Florence. Their bank constructed elaborate financial instruments to circumvent a Catholic church ban on money-lending with interest, or usury. In the process, it created an early form of bank holding company, with separate entities across Europe.
  • The East India Company. On New Year’s Eve of 1600, Queen Elizabeth I granted a charter for exclusive trading rights covering a majority of the earth to this company of roughly 200 men based in London. They had formed a joint-stock company, a structure well-suited to collecting money from investors to pay costs for a trading voyage upfront and provided a tidy return of 300% to investors in their first voyage. The East India Company connected distant parts of the world via trade and “capitalism became a game within a game,” Magnuson writes. “The stock exchange brought the corporation into stormy new waters, where it was lifted up and tossed down, pulled to and fro, in violent and unexpected ways, all by the fickle will of the market.” (p. 101)
  • The Union Pacific Railroad Company. President Abraham Lincoln and the US congress imagined that a private monopoly would be more efficient than the government for laying tracks to connect the coasts by rail, providing extensive funding and land grants along the route. Against the odds, it succeeded, and one railroad president in the 1880s even argued for giving workers a voice in its management. But “robber barons hell-bent on turning the corporation into a monopoly that could extract the highest possible prices from citizens, farmers, and businessmen soon turned a company that was once a national champion into a national villain,” writes Magnuson. (p. 142)
  • Ford Motor Company. “If people would go into business with the idea that they are going to serve the public and their employees as well as themselves, they would be assured of their success from the start,” Henry Ford wrote. (p. 148) In 1914, he more than doubled employee pay on his Model T assembly lines to $5 per day, and in 1926 he introduced a five-day workweek. But the pay raise was in part to stem unmanageable worker attrition due to grueling factory conditions meant to increase efficiency, and Ford declared “labor unions are the worst things that ever struck the earth.” (p. 172)
  • Exxon. The oil giant is representative of the multinational corporations that have outgrown their nation states. “I’m not a US company and I don’t make decisions based on what’s good for the US,” former CEO Lee Raymond declared. (p. 208) Being so freed from their creators, multinationals can seek out countries with more favorable regulations, such as “lower taxes, or fewer restrictions on employment conditions, or laxer environmental rules,” Magnuson writes. (p. 214)
  • Kohlberg Kravis Roberts & Co. (KKR). The private-equity firm used leveraged buyouts and hostile takeovers to acquire companies such as Safeway, Duracell, Avis, Motel 6, Tropicana, and RJR Nabisco and then hope to sell them for a massive gain a few years later, usually having cut costs, staff, and tax payments along the way. “Employees of companies KKR bought often found themselves out of work soon afterward or, if lucky enough to keep their jobs, suddenly found them crushing, if not unbearable,” Magnuson writes. (p. 239) One expert calculated that bankers and lawyers collected more fees on the 1989 Nabisco deal than the US had spent on research to cure AIDS.
  • Facebook. “No corporation in the history of the world has ever come anywhere close to the sheer size and scope of Facebook (or Meta, as it has now rebranded itself),” Magnuson declares, noting that users spend an average of 50 minutes a day on Facebook services, compared to 19 minutes exercising and playing sports. (p. 253) But “much like the ancient Roman corporations had done during the first century BC, Facebook had ignored, dismissed, or simply not known how its behavior affected the common good,” he writes. (p. 294)

To be sure:

  • For Profit devotes too many pages to recounting the founding stories of famous corporations—such as Ford and Facebook—that are well documented elsewhere, and not enough to approaches to corporate structure and governance aimed at better serving the public good, such as B corporations, the Long-Term Stock Exchange, and corporate committee reform.
  • The book also doesn’t examine whether institutions other than corporations—such as cooperatives or government programs—are ever better alternatives for societal projects.
  • Magnuson’s concluding rules for corporations—such as “don’t take all of the pie for yourself,” “treat your workers right,” and “don’t destroy the planet”—are both obvious and unsatisfying in light of corporate behavior to the contrary. For Profit surprisingly doesn’t discuss the recent vogue of “stakeholder capitalism” or environmental, social, and governance (ESG) guidelines aimed at steering corporations more directly toward the public good.

Notable quotes:

  • “Corporations have grown and multiplied and yet they are rarely asked any more to give public-minded reasons for their decisions. Market morality has given way to market efficiency.” (p. 11)
  • “We have abandoned the founding purpose of the corporation as a tool for crafting a flourishing society.” (p. 11)
  • “Ironically, though, for a concept that is so universally derided, monopoly power is something of a Holy Grail for corporations themselves.” (p. 106
  • “We believe in making 20,000 men prosperous and contented rather than follow the plan of making a few slave drivers in our establishment multi-millionaires.” —Henry Ford (p. 146)
  • “In practice, the Ford factory was less about the triumph of machine over man and more about turning man into machine.” (p. 164)
  • “There is roguery here, to be sure, but there is also something mystical. The corporation is, at its heart, a testament to the power of cooperation, of people working together toward a common goal.” (p. 299)
  • “This dynamic—innovation, exploitation, reformation—has played out over and over again in the history of corporations.” (p. 303)

The bottom line is that For Profit is a well-written history of the corporation, an unexpectedly important topic for us all. But it falls short of convincingly answering the questions it raises, failing to engage in sufficient depth with the ways that corporations could operate more consistently in the public interest.

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