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New Bottom Line Volume 5.11 Requisite Variety: If a Corporation "Is" a Person, Where Is Its Head?

May 21, 1996

Some forty years ago, in their prophetic novel Space Merchant, Frederick Pohl and CM Kornbluth visioned a future world dominated, nay all but owned, by a handful of large global corporations. This handful owned everything, or at least everything of value, including most governments. Their names were plastered over most every visible surface. Life had no moments without marketing.

Fortunately that was just fiction. In fact since it was classed as “science fiction” people could dismiss it–except that it seems strangely all too familiar. The ubiquitous corporate logos of the mid-nineties, slapped on everything from clothing to sports stadiums, are the least of it. Transnational corporations have become arguably the dominant world force of the late twentieth century. The rising tide of the religion of “free trade” additionally shifts the balance of power from politics to commerce. The accelerating velocity of money in a world of microsecond international financial transactions opens vast new leverage and profits, as well as unknown–and unknowable–vulnerabilities in the resilience of global markets. In this emerging new world of unknown dimensions, where is the locus of control, of steersmanship? And what is the impact of this shifting control point on the lingering hope that humans can somehow learn to conduct economic activities in balance with the laws of nature?

One of the ironies of our time is that in many ways these large profit-maximizing creatures have claimed the leadership of sustainable development. It’s a mixed bag, like the song says, “a walking contradiction, partly truth and partly fiction.” There are many cases of companies leapfrogging the often defensive imagination of NGOs and government regulators with visions of industrial ecologies, zero waste systems, and dematerialization. (Of course at the same time many companies still hammer away at environmental protection regulations; weapons proliferation, resource extraction, pollution and poverty sap the strength of whole nations; and the freedom dawning behind the corroded iron curtain seems to have somehow tossed social infrastructure on the scrap heap along with the soviet bureaucracy. But that’s for a future column.)

Yet these corporations are still creatures of their own making, constrained by a monochromatic internal logic of short-term profit-seeking efficiency. Even those companies that seek the holy grail of sustainable development have to “make the numbers”. Perhaps even more challenging, they have to make the decisions that get them to both the numbers and the grail–and serving two masters is never easy.

Ultimately it requires a larger wisdom than our current institutions seem to be able to muster. Nearly 50 years ago Ross Ashby declared the “Law of Requisite Variety,” which simply stated, asserts that “only variety can absorb variety”–or, only sufficient variety (a measure of complexity) of management can hope to effectively regulate a high variety institution or environment.

How does a corporation get “requisite variety”? One way is with information and management systems that support what management cybernetician Stafford Beer called “autonomy within a coherent whole.” That’s what the mathematicians call a necessary but not sufficient condition. Navigating a complex, changing world demands also incorporating the perspective (and if you’re lucky the wisdom) of multiple stakeholders. Seen in this light, workplace diversity isn’t just a good thing to do in terms of social justice or legal requirements; in a “global village” world, it’s an essential element of the cybernetics of management. Involving customers, vendors and community in a business is challenging task–too challenging for some–but also not sufficient. Sustainable development and long-term business success require recognizing biology, living systems and future generations as stakeholders as well. It’s just too dangerous to drive down a highway with one eye closed, able to see objects but not depth.

Gregory Bateson offered an important clue when he dismissed the notion of the corporation as a “person” by observing that it isn’t even a collection of people, but a collection of parts of people. The intrinsic danger is that this collection of parts of parts may be incapable of decisions that are whole, unless there is a way to bring that full depth of wisdom to the fore.

The legal fiction of the corporation as a person, a social creation treated by the law as a “body,” meanwhile persists, with a growing body of law granting these social creations, and their creations, “human rights.” Richard Grossman and Frank T. Adams, in their provocative little broadside “Taking Care of Business: Citizenship and the Charter of Incorporation” (from Charter, Ink., PO Box 806, Cambridge, MA 02140), reveal and challenge the legal history behind that legal fiction. Corporation are creations of states, granted existence by state charters, and — until recently — impermanent and highly conditional existence at that. Until the late 19th century, when several court decisions set the stage for our modern world by granting corporations the legal status of natural persons, the states could, and sometimes did, revoke the charter of corporations that violated it–capital punishment for rogue enterprises, if you will. This pamphlet might make a thoughtful gift for your elected representatives.

(c) 1996 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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