The Corporation in the Twenty-First Century: Why (Almost) Everything We Are Told About Business Is Wrong

by John Kay

A radical reappraisal of the nature and activities of business—what it is for and how it works
 
“A characteristically acerbic analysis of the archetypal organisational unit of capitalism.”—Andrew Hill, Financial Times, “Best Books of 2024: Business”
 
Shortlisted for the 2024 Financial Times and Schroders Business Book of the Year Award
 
In the world of Adam Smith and Karl Marx, capitalists built and controlled mills and factories. That relationship between capital and labor continued in the automobile assembly lines and petrochemical plants of the twentieth century.
 
But no products and production have dematerialized. The goods and services provided by the leading companies of the twenty-first century appear on your screen, fit in your pocket, or occupy your head. Ownership of the means of production is a redundant concept. Workers are the means of production; increasingly, they take the plant home. Capital is a service bought from a specialist supplier with little influence over customer businesses. The professional managers who run modern corporations do not exert authority because they are wealthy; they are wealthy because they exert authority.
 
John Kay’s incisive overhaul of our ideas about business redefines our understanding of successful commercial activity and the corporation—and describes how we have come to “love the product” as we “hate the producer.” This is a brilliant and original work from one of the greatest economists.

Genres: Business, Economics, Nonfiction, History, Finance

448 pages, Kindle Edition

First published August 22, 2024

About the author

I was born in Edinburgh, Scotland in 1948, and completed my schooling and undergraduate education in that city: I am fortunate to have lived most of my life in beautiful places. I went to the University of Edinburgh to study mathematics. But, after taking a subsidiary course in economics, I decided that I wanted to be an economist. The notion that one might understand society better through the application of rigorous and logical analysis excited me – and it still does. After graduating from Edinburgh, I went to Nuffield College, Oxford. I worked there under James Mirrlees, who was in due course to win the Nobel Prize for his contributions to economic theory.

On Mirrlees’s advice, I applied for and to my astonishment got a permanent teaching post in the University of Oxford at the embarrassingly early age of 21. Oxford is a collegiate university – members of the faculty generally have both University and College appointments. This post carried with it a fellowship at St John’s College, an association which I have maintained and enjoyed ever since. Through the 1970s I developed a conventional academic career, publishing in academic journals, and writing my first book Concentration in Modern Industry (with Leslie Hannah, an economic historian colleague). My particular interests were in public finance and industrial organisation.

But my rationale for studying economics had, from the beginning, been concerned for application. My career began to change direction when I was asked to join a group to review the structure of the British tax system. This group was established under the auspices of a newly established think tank, the Institute for Fiscal Studies, and was headed by James Meade, another economist who had achieved the ultimate distinction of a Nobel prize. Meade’s rigour was as demanding as that of Mirrlees, (both delivered it with extraordinary personal charm). But the most important effect of my experience with the Meade Committee was that I began to develop a taste for the popular exposition of economic concepts.

In this vein, I wrote (with Mervyn King, now Governor of the Bank of England) a more personal account of issues in taxation, The British Tax System which ran through five editions.

Pursuing these interests, I moved from Oxford and joined the Institute for Fiscal Studies as its first research director. Soon after I became Director of the Institute. IFS developed into (and remains) one of Britain’s leading think tanks, respected and feared by policymakers and journalists for its fiercely independent analysis of fiscal issues.

After seven years, I decided it was time to move on. The success of IFS had been built on serious economics accompanied by a commitment to popularisation and application. If this could be done for public policy issues, could the same be done in the area of business policy? This was the thinking that led me to accept a chair at the London Business School in 1986 and, at the same time, to establish a consulting company, London Economics.

Over the next few years, the application of economics to business issues became my intellectual focus. During this period, London Economics grew rapidly, largely on the back of the wave of privatisation and regulatory change in Britain in the 1980s. By 1991, managing the company had become a major responsibility. I revised my arrangements with London Business School. My new contract was as Visiting Professor but my job as executive chairman of London Economics took the larger part of my time. London Economics grew until, by its tenth anniversary, its annual turnover exceeded £10m with offices in three continents and assignments in over sixty countries.

London Economics gave me insights into the business world. These came both through consultancy work with major corporations and first hand observation of the growth and development of a small business. Other activities have enriched my more scholarly work by broadening the experi

Reviews

[Jurgen Appelo · Rating 5 out of 5]

Brilliant, illuminating, and funny.

[Ralph · Rating 5 out of 5]

It would be highly interesting to read in the announced successor volume about Mr Kay’s views on policy and corporate models that will lead to the durable flourishing of the corporation and its stakeholders.

[Aditi Verma · Rating 2 out of 5]

Quite mundane and unnecessarily complex!

After reading the first few pages of the book, where the author exposes the underlying motivations of new age pharma firms, I felt like I already knew it, how they woo physicians and what not!
The title of the book makes you believe it would be replete with case studies or corporate scandals/ controversies but instead the author rambles on about industrial revolution and then goes on to make multiple references of multiple economists about who said what!
it was hard to maintain focus while reading this book!

[Jung · Rating 5 out of 5]

In the modern era, capitalism is undergoing a profound transformation. The traditional model of industrial production, where companies owned factories and tangible assets, is being replaced by a new way of doing business. This shift is not only about globalization and outsourcing but also about a fundamental change in how value is created. The companies that dominate today’s economy don’t necessarily own the assets they rely on; instead, they focus on ideas, coordination, and the strategic assembly of resources. This shift has led to what can be described as the “hollow corporation,” where businesses no longer need to own the capital they utilize but rather procure it as a service. This transformation has significant implications for how businesses operate, how power is distributed, and how wealth is generated in the twenty-first century.

Human progress has always been driven by collective knowledge and collaboration. Organizations, from ancient guilds to modern corporations, have enabled people to work together to achieve what individuals could not accomplish alone. The power of collective intelligence is evident in various fields, from scientific discovery to technological innovation. A striking example is Wikipedia, where thousands of contributors collectively build a vast repository of knowledge far greater than any single individual could compile. The same principle applies to economic progress. By organizing work and expertise effectively, businesses amplify human potential, creating value that exceeds the sum of individual contributions. This collective intelligence is one of the main forces behind innovation, competition, and overall economic development.

The concept of specialization has been central to economic growth since the Industrial Revolution. The Scottish economist Adam Smith famously illustrated this idea with the example of a pin factory, where the production process was broken into specialized tasks. Instead of a single craftsman making an entire pin, multiple workers performed distinct roles, increasing overall efficiency. This division of labor made production faster and more cost-effective, enabling businesses to scale operations in ways that were previously impossible. Over time, this specialization extended beyond factories, influencing entire industries. The ability to coordinate specialized labor efficiently became a key factor in economic success, shaping the way corporations structured their operations.

In today’s world, some of the most successful products are not just individual items but carefully designed systems that integrate multiple functions. The smartphone is a perfect example of this principle. Before its invention, people used separate devices for calling, taking photos, sending emails, and navigating maps. The genius of the smartphone was not that it introduced entirely new functions, but that it seamlessly combined existing ones into a single device. Similarly, companies like Airbus rely on a vast network of specialized manufacturers across different countries to produce highly complex products like commercial aircraft. No single person—or even a single company—could design, manufacture, and assemble a modern jetliner alone. Instead, thousands of experts contribute specialized knowledge and skills, demonstrating the power of collective intelligence in large-scale industrial projects.

Traditionally, capitalism was closely tied to ownership. Karl Marx analyzed this system in terms of capitalists controlling the means of production—factories, tools, and other physical assets—while workers had no choice but to sell their labor. This model accurately described industrial enterprises of the nineteenth and early twentieth centuries. For example, ironworks and automobile companies owned the raw materials, factories, and infrastructure necessary to produce goods. Ford Motor Company, in its early days, controlled every aspect of its production process, from rubber plantations for tires to the steel mills for car frames. This ownership structure ensured that those who controlled capital also held economic power. However, this model is no longer the dominant one.

The business landscape of the twenty-first century is increasingly defined by corporations that separate ownership from control. Unlike Ford in the past, Apple doesn’t own the factories that manufacture its products. While Apple designs its devices in California, the actual production takes place in facilities operated by other companies, such as Foxconn. Even the components inside an iPhone are sourced from multiple suppliers, including competitors like Samsung. This shift marks a fundamental change in how companies operate: their value is no longer based on physical assets but rather on design, brand, and intellectual property. The production process itself has become something that businesses outsource rather than manage directly.

Many of today’s largest companies operate under this "hollow" business model. For example, airlines often do not own the planes they use; instead, they lease aircraft from specialized leasing companies. Even the engines on those planes are frequently owned by different firms that provide maintenance services rather than simply selling the engines outright. A similar pattern can be seen in Amazon’s operations. While it is one of the world’s most powerful corporations, it does not own the warehouses or delivery vehicles that handle its logistics. Even Amazon Web Services, its most profitable division, relies on data centers owned by other companies. The same trend is evident in industries ranging from hospitality to consulting, where brands like Marriott and IBM focus on managing operations and branding while outsourcing much of their actual work.

The implications of this shift are profound. In the past, business power was closely linked to ownership of tangible capital. Today, control over business decisions generates wealth, rather than the direct possession of physical assets. This is evident in the rise of figures like Jeff Bezos and Elon Musk, whose fortunes are built not on owning factories or land, but on their ability to coordinate, innovate, and attract investment. The economy has moved from a system where wealth flowed from asset ownership to one where it is tied to the ability to harness and direct human expertise.

This transition also signals a broader trend in economic value creation. Modern products are increasingly defined by knowledge and intellectual property rather than by material inputs. For instance, in the eighteenth century, a few pounds of manufactured pins were worth a few dollars. Today, a small quantity of a specialized pharmaceutical product can be worth hundreds of thousands of dollars. This change reflects the growing role of innovation, research, and specialized knowledge in determining the value of goods and services. Instead of focusing on producing more physical products, companies are focused on producing better, more advanced solutions.

The transformation of corporations into asset-light, knowledge-driven entities reflects the larger shift toward a service-based economy. The most valuable firms no longer accumulate physical infrastructure but instead manage relationships, ideas, and processes. This approach has allowed businesses to become more agile and scalable. However, it also raises important questions about power, accountability, and economic inequality. If wealth is increasingly derived from the ability to organize and direct human expertise rather than from ownership of tangible assets, what does this mean for workers, policymakers, and society at large?

The evolution of capitalism in the twenty-first century highlights the increasing importance of specialization, coordination, and collective intelligence. Unlike traditional industrial corporations that relied on owning factories and raw materials, today’s leading businesses operate as networks of expertise and outsourced production. This shift has given rise to the "hollow corporation," where firms focus on strategy, branding, and innovation while relying on external partners for production. As capital becomes more intangible, economic power is increasingly concentrated in the hands of those who can orchestrate and manage this new model. Understanding this transformation is crucial for navigating the future of business, work, and economic development.

[Alfred Holmes · Rating 2 out of 5]

Not particularly interesting, other than the observation that the largest corporations (e.g. Google, Amazon, Microsoft etc) don't actually own anything and 'outsource their ownership of capital' but leasing warehouses and things. Observations like these are made but not really elaborated on - I would have preferred some discussions on what it means for society that companies are made up like this, but the book ended up being just a series of observations without any clear structure of arguments.

[Sarah Cupitt · Rating 3 out of 5]

also obvs an american book I really need to start reading blurbs ugh

notes:
- The blame for lost jobs and crumbling regional identities is often pinned on “offshoring.” But the Asian countries that profited from the global division of labor now have rustbelts of their own.
- Today’s leading companies – the corporations that will dominate the twenty-first century – aren’t like the capitalists who built the industrial age’s factories and assembly lines. Their business model doesn’t require them to own capital – like Amazon, which doesn’t even own the server farms on which its most valuable product relies, they buy capital as a service.
- As businesses move away from traditional ownership toward more fluid, asset-light models, our understanding of economic life needs an update.
- The word “corporation” comes from the Latin corpus, meaning “body,” and is typically defined as an organized group of people acting in common.
- running as an example of collective intelligence
- It’s impossible to tell the story of humanity’s progress over the last two centuries without talking about capitalism. And once you start doing that, it’s impossible to avoid the name of a famous Scottish economist: Adam Smith.
- Skilled hands are hired for complex work; unskilled workers for the rest. The factory now purchases the precise quantity and quality of labor it needs for each stage of the pin-making process.
- entrepreneur, a French word that literally means “to take between.” It referred to the organizer of a particular kind of assemblage – the manager of theatre productions – before taking on the wider meaning it has today.
- Airbus A350. Assembling one of these jets requires the combined and coordinated efforts of some 10,000 people dotted around half a dozen countries. In other words, it’s collective intelligence, not individual genius, that keeps these planes airborne.
-
The Corporation in the Twenty-First Century
“We used to make things in this country,” a dock worker grumbles in HBO’s gritty drama, The Wire. It’s a complaint shared by millions of disgruntled voters in the West’s multiplying rustbelts. From Pennsylvania’s steel mills to Yorkshire’s coal mines and Turin’s car factories, many once-iconic industrial hubs have gone silent.

The blame for lost jobs and crumbling regional identities is often pinned on “offshoring.” But the Asian countries that profited from the global division of labor now have rustbelts of their own. While globalization partly accounts for painful economic dislocations in Pittsburgh, Yorkshire, or Turin, there’s another factor in play: the “dematerialization” of economic life.

Today’s leading companies – the corporations that will dominate the twenty-first century – aren’t like the capitalists who built the industrial age’s factories and assembly lines. Their business model doesn’t require them to own capital – like Amazon, which doesn’t even own the server farms on which its most valuable product relies, they buy capital as a service. Even the things they do make are mostly vessels: iPhones, for example, aren’t valuable because of the materials that go into them, but because of the idea they represent.

This shift, British economist John Kay argues, is transforming capitalism. As businesses move away from traditional ownership toward more fluid, asset-light models, our understanding of economic life needs an update. And that’s exactly what we’ll be doing in this Blink as we explore how corporations have evolved from the owner-operators of “dark satanic mills” to today’s practitioners of a “hollow” business model.
The word “corporation” comes from the Latin corpus, meaning “body,” and is typically defined as an organized group of people acting in common. Corporations, like tribes, guilds, universities, and nation-states, are part of a long history of human collaboration – allowing us to achieve things collectively that we couldn’t accomplish alone.

The power of collective knowledge is evident in many areas of life. Take Wikipedia, for example. One person might know a lot about butterflies but little about bridges, while a civil engineer may be well-versed in structures but clueless about Turkish grammar or tort law. Wikipedia thrives because a group’s combined knowledge far exceeds that of any individual – one of the key benefits of collective knowledge. At its core, this is about efficiency, many hands making light work. But collective effort goes beyond just pooling information. When shared knowledge is transformed into problem-solving capabilities, it becomes collective intelligence, the driving force behind innovation and progress.

Consider the history of running. For thousands of years, human speed barely changed. Then, in the twentieth century, records started shattering. The first Olympic marathon winner in 1896 took just under three hours to complete 25 miles. By 2019, Eliud Kipchoge ran 26 miles in under two hours. At the New York City Marathon today, it’s not unusual for 2,000 or more runners to finish in times that would have won gold in 1896.

What explains this dramatic progress? One key factor is that we now know much more about running. But two other forces also played a role. First, the rise of a commercial market for running fueled investment, encouraged specialization, and expanded participation. What was once an amateur pursuit for European men evolved into a global professional sport, dominated by East and West African athletes. Kipchoge, a Kenyan who wears American running shoes and consults Dutch sports scientists, embodies this transformation. Second, competition fostered cooperation. Organizing marathons – let alone the Olympics – requires massive coordination, drawing together organizers, sponsors, scientists, and athletes. This infrastructure enables runners like Kipchoge to turn shared knowledge into new capabilities.

That, in short, is how humans got faster. But it’s not just running. Collective intelligence also explains how we got better at, well, pretty much everything.
It’s impossible to tell the story of humanity’s progress over the last two centuries without talking about capitalism. And once you start doing that, it’s impossible to avoid the name of a famous Scottish economist: Adam Smith.

Capitalism was still in its infancy when Smith began analyzing it in the eighteenth century, but he intuited its revolutionary future. In a famous passage, he invites us to take a tour of a pin factory. The manufacture of this common household item, he promises, will unravel the secret of the wealth of nations. We look on as one man draws out a length of wire and a second cuts it. A third points it; a fourth grinds it. Adding the head requires three workers, and wrapping the finished pin in paper is a trade in itself.

This, Smith tells us, is the division of labor. The production process has been broken down into specialized tasks. The artisan with his encyclopaedic knowledge of pin-making has been replaced by a dozen workers who each know one specific thing about it. The whole is greater than the sum of its parts: collectively, a dozen comparatively unskilled laborers can outproduce the most skilled craftsman by orders of magnitude. Smith tells us why. Workers who perform the same job all day achieve greater dexterity and time is no longer wasted moving between workbenches. But it’s the elimination of redundancy that changes everything.

When the entire work of pin-making is in the hands of a single artisan, the factory has to hire someone sufficiently skilled to perform the most difficult tasks. This master craftsman thus spends a portion of his day doing menial work that could just as well have been done by an apprentice. Dividing the production process does away with this inefficiency. Skilled hands are hired for complex work; unskilled workers for the rest. The factory now purchases the precise quantity and quality of labor it needs for each stage of the pin-making process.

Smith’s factory is an assemblage of parts, each with its own specialized role yet cooperating in pursuit of a common goal. The biological equivalent would be the human body, an assemblage of limbs, organs, and faculties organized into coherence by the brain. As we’ll see, in economic life, the corporation – the entity running the pin factory – plays an analogous role: it’s the seat of the collective intelligence ensuring the combination and coordination of parts.
There’s a term for someone who combines and coordinates: entrepreneur, a French word that literally means “to take between.” It referred to the organizer of a particular kind of assemblage – the manager of theatre productions – before taking on the wider meaning it has today.

Entrepreneurship in the original sense of combining and coordinating is the secret sauce in one of our era’s most iconic products: the smartphone. There’s little this device can do that we couldn’t do before Steve Jobs unveiled Apple’s iPhone in 2007. We had telephone booths to make calls when we were out and about and regular cameras to take pictures. We opened emails on desktop computers, called specific numbers to order taxis, and watched the weather forecast to see if it was going to rain tomorrow. But the smartphone combines all these functions in a device that fits in your pocket. That’s what makes Apple so profitable: it has a knack for creating highly desirable assemblages that are more valuable than the sum of their parts.

Then there’s Airbus, an aerospace corporation that makes what is arguably the most complex mass-manufactured product on the planet: the civil aircraft. Airbus’ production process practices the division of labor on a continental scale. Every part of its flagship airliner, the Airbus A350, is manufactured by a specialist. The engines are English-made; the wings are built in Wales; the vertical stabilizers come from Germany; the fuselage is welded in Spain. The only part of the production process that occurs anywhere near the corporation’s headquarters in Toulouse, France, is the final assembly.

The plane that finally rolls off that assembly line is extraordinarily complex. We can imagine an eighteenth-century apprentice mastering the craft of artisanal pin-making within a decade. We know that it took the Wright brothers around seven years to get a prototype of their plane off the ground. But two lifetimes wouldn’t be enough to learn what you’d need to know to put together an Airbus A350. Assembling one of these jets requires the combined and coordinated efforts of some 10,000 people dotted around half a dozen countries. In other words, it’s collective intelligence, not individual genius, that keeps these planes airborne.
So far, we’ve talked about capitalism without mentioning ownership. That concept inevitably brings up the name of another famous economist: Karl Marx
- For Marx, capitalism is all about ownership of the things humans make in order to make other things – the “means of production,” as he calls them. That includes tools, looms, assembly lines – and pin factories. If you don’t own capital (or land), you have to work for the people who do: the capitalists.
- Control over what gets made under which conditions is entirely in the hands of the owners. Ownership and power are synonymous.
- (American) If you assumed that the plane you’re sitting in belongs to the company whose logo is printed on the fuselage, you’d be wrong. Most aircraft bodies in fact belong to aviation leasing companies like the Irish-American business AerCap. These companies don’t employ pilots, but they do have lots of accountants and lawyers on hand to draft contracts.
- It’s the same with Amazon warehouses and delivery trucks, which are also leased. Amazon doesn’t even own the servers it needs to run its most profitable product, Amazon Web Services – that’s hosted on data centers entirely owned by a company called Equinix.
- Airliners and Amazon are just two examples of an increasingly common business model: the hollow corporation. McDonald’s is another example. The brick-and-mortar shops emblazoned with the iconic “golden arches” are operated by franchisees and owned by a third party. What McDonald’s sells is the branding and the manuals that tell you how to make cheeseburgers.
- What this suggests is that the nature of capital has changed. It’s not the means of production Marx had in mind. Really, it’s a service. Hollow corporations buy it in the same way they buy accounting services or mineral water for their offices. The upshot is that power no longer flows from the ownership of capital.
- Today, control of business creates personal wealth – that, in short, is the story of a Jeff Bezos or an Elon Musk.
- Companies like Alphabet, Amazon, Apple, Microsoft, and Tesla are closer in spirit to Smith’s pin factory than they are to the command-and-control model of a midcentury giant like Ford, let alone a Victorian ironworks. Even when they own tangible capital – think, for example, of Tesla’s assembly lines – that’s not the key factor in their production process. What they specialize in is combining and coordinating the associated skills of software engineers, accountants, marketers, dealmakers, and consultants. These workers are the means of production; it’s the know-how contained in their heads that makes the hollow corporations profitable.
- production is increasingly dematerialized, meaning that growth is about better, not more stuff. Back in Smith’s day, a couple of pounds of pins would have cost the equivalent of around $11. Two pounds of Pfizer vaccine, by contrast, will set you back around $500,000. That’s an extreme example, but it’s an illustrative one. The value of products increasingly resides in the collective intelligence that goes into them, not the raw materials.
- so consultants??

[Jakub Dovcik · Rating 4 out of 5]

I feel like there is a genre of books by British popular-public intellectuals, reading which feels a bit like watching a BBC documentary - the author goes descriptively through something which is fascinating in itself, but a reader (well, speaking for myself) gets a bit bored. This one by John Kay feels a bit like that halfway through but improves in the second half.

The book is not just about changes in how corporations look or behave (usually, that is summed up under the 'move towards shareholder value' since the 1980s, which is analysed thoroughly here) but also how that arises from and is reflected in the changes in the understanding of ownership (which he largely argues should be understood as the ability to resolve disputes/pursue activity beyond the established legal structures) and other terms that are usually used quite liberally, yet have been actually shifting in meaning.

Kay also nicely destroys the simplistic arguments about companies having ‘fiduciary duty to increase shareholder value’, showing that it is a made up fiction of selfish businessmen. In this part he also shows the differences between the social roles and responsibilities of organisations across countries, and jurisdictions - showing how civil law systems lean more towards the ‘shareholder capitalism’ model and wider responsibilities of corporations than common law systems (especially the Delaware model prioritising the interests of the management over almost anybody else).

The book is mostly built on ideas that Kay has already developed or argued for in other of his books, such as radical uncertainty (management within complex systems), the collective intelligence of organisations (and the difference it makes), hollow company (outsourcing model - the chapter on it is actually one of the best in the book, particularly parts about the companies owning real estate for large tech firms), understanding of a company as an individual vs company as a nexus of contracts (leans towards the former, doesn’t discuss much of the US constitutional jurisprudence on that topic). It all builds to a coherent narrative that is insightful, yet not fully novel.

A good, informative and analytical book that is to be followed by a policy-focused sequel. Looking forward to that one as well.

[Szymon Woźniak · Rating 4 out of 5]

Pretty interesting read. Authors shows lots of business anecdotes and occasionally has a humours language (unfortunately, often the language is pretty dry as well). The main premise of the book is that modern corporation delivers value by offering problem solution capabilities by growing internal collective intelligence. Author argues that claim in a convincing way. The problem I have with it is that author says: corporation in the title which seems to encapsulate all corporations while then he focuses explicitly on few, mostly technological companies. Not sure if the same claim can be given to e.g. mining or purely trading corporations (definitely one can argue that those corporations deliver problem solving capability but I have a feeling that in those cases those capabilities come from ownership of resources or networks rather than from some form of better intelligence)

[Tom McInnes · Rating 3 out of 5]

Adheres to the 1st law of Big Business Books, which states that any solid LinkedIn post can be spun into a £25 best selling hardback if you can attach enough case studies to it.

This one, that in the 21st century, the workers ARE the means of production and the modern corporation is not a “nexus of contracts” or a holding of assets but a vessel for collective knowledge is clearly and digestible laid out, and then laid out again and again ad nauseam.

No shade though, this is how all these books work: a soupçon of insight and a lot of padding. But the fact that this one also withholds its most cogent findings for a promised (but assumedly unwritten) follow-up volume does somewhat take the biscuit.

[Navdeep Pundhir · Rating 3 out of 5]

You finish this book with a feeling that even though it made you a bit more aware and a little wiser, what was the objective of writing this one!

[Sumudu Perera · Rating 3 out of 5]

This was such a difficult review. This book encapsulates the very Charles Dickens quote the author cites in one of his penultimate chapters, “it was the best of times, it was the worst of times”. On one end, this book is written by such an esteemed author and lecturer, and clearly he is very knowledgeable about the topic. On the other end, I just can’t quite place it but this was such a difficult book to plow through. Maybe it was the writing style? Not sure, but at times rather than a coherent narrative, the book may introduce a concept, then every few chapters change to different examples that are seemingly related at times and other times not so related. Maybe I expected it to be more like regular economics books (or textbooks) where the authors introduce a concept, give the key summary of the concept first, subheading the chapter with its key ideas and nest the examples within?

I almost wish the author’s introductory paragraphs and chapters encompassed the brilliant closing paragraphs that concluded the book as it would have provided a much better foundation for the rest of the book! For example:

“The modern business is defined by its combination of capabilities, not its production function

The success of 21st century firms is derived almost entirely from the diverse capabilities of the people who work in them. The workers are the means of production. Is this still capitalism? Or has socialism arrived? Doesnt matter!
Emphasis of principle agent models within a nexus of contracts diverts attention from the many issues raised by organisational theory, business history and corporate strategy
The focus on the firm as a collection of capabilities gives a different and more illuminating perspective for understanding the extraordinary diversity of business organisations and the business people over geographies and over time “

“Core ideas of book
- collective intelligence
- Radical uncertainty
- Disciplined pluralism
- Relational contracts
- The mediating hierachy
In the modern world successful commercial relationships are not simply instrumental and transactional, they are social and are embedded in a wider framework of communities and teams. “

And while a big chunk of the book (almost half the book) is devoted to dispelling the notion of how many view 21st century companies in a 20th century lens, through detailing examples that many readers of these types of books may already be aware of, I was hoping the book would be better devoted to examples of the 21st century instead.

Regardless, I would say there are lots of nuggets of gold in this book, but you may need to wade through a few pages to get there

Maybe it’s on me for expecting more out of this one given the reviews on The Economist; I must say maybe what I was expecting out of this is what is said to come in Kay’s upcoming follow up work on policy and corporate models of the modern corporation

[Rajesh Kandaswamy · Rating 4 out of 5]

The Corporation in the 21st Century, by one of the world’s prominent economists, is an opinionated exploration of the ills of modern corporations—how we got here and what must be done. Kay points out how we still love the product but not the producer. He blames the relentless pursuit of shareholder value, at the expense of everything else, as a core issue. He argues that other stakeholders must have a larger say in what a corporation does—not exactly a novel idea, but he makes a deeper on why so. He suggests that corporations have shifted from being groups of people creating value together for society into fragmented, disintegrated entities. Yet he insists we must still treat them as collectives of people—and hold them accountable as such.

He discusses the evolution of the corporation, focusing primarily on the U.S., with some references to the U.K. He explores different definitions of a corporation, including Ronald Coase’s famous theory of the firm as a structure that minimizes transaction costs, the evolution of the firm into a legal entity with person-like rights, and Milton Friedman’s argument that a firm exists to maximize profits. Kay draws a compelling arc connecting these theories across time. He also introduces the concept of “disciplined pluralism,” where a variety of ideas emerge and are systematically weeded out, leaving the good ones to stand. I found that especially thought-provoking.

He discusses the emergence and importance of economic rent—the surplus earned by a resource owner above what is needed for its upkeep. He emphasizes how human-driven capabilities are the core of a corporation’s success. He analyzes the growth of firms thriving on intangible capital (for a deeper treatment, see Capitalism Without Capital by Jonathan Haskel and Stian Westlake) and the rise of the “hollow corporation”—one that assembles the capabilities of many others to deliver its value proposition. Throughout, Kay weaves together history, economic theory, and cross-country comparisons. Some examples feel a bit shallow—like the one on Morgan Stanley.

Overall, this is a valuable book to deepen your understanding of the evolution of capitalism and the role of business and corporations today. It is not a perfectly structured work, but it is compelling and worthwhile.

[Mahmud Siraj · Rating 4 out of 5]

John Kay provides a convincing case for why the modern successful Western corporation must be understood in very different terms to the firms that succeeded in the formerly prevalent industrial economies. Whilst some of the ideas in the book feel like they could be further fleshed-out in a follow-up, the main ideas are thought-provoking enough to earn this book a strong recommendation.

The general argument made is that there are emergent collective capabilities within successful corporations that cannot be easily replicated. Whilst capital and labour in industrial economies was to a large extent fungible allowing fast expansion and replication of successful productive processes, successful modern day corporations capture economic rents from creating collective knowledge and capabilities that other firms will struggle to replicate even if they had the same level of factor inputs.

One of the highlights of this book is the best and most accessible description I have read to-date of the mediating hierarchy between shareholders and management within modern corporations. He deconstructs the idea that it is the shareholders who own a company, using Tony Honore’s model of ownership to show that shareholders have some rights related to the company but not to the full extent we would associate with ownership. He then details the development of the idea that the objective of corporations is to create ’shareholder-value’ and the maladaptive impact such a simplistic mode of management can cause. Such a model of ownership and management leads naturally to a model of capitalism where firms become viewed simply as ‘black-boxes’ spitting out financial returns rather than as the complex set of social relations they truly are. John Kay uses the example of the British water industry to show how between a management obsession with delivering the right financial returns to shareholders, and shareholder interest (typically pension funds) being limited to only the performance of the corporation's stock rather than the corporation itself leads to the ‘leaky pipe and overflowing sewage’ problem where the service delivered to all other stakeholders (such as customers, non-management employees etc.) suffer in the long-term.

[Tõnu Vahtra · Rating 4 out of 5]

Economic theory and economic history, how some beliefs become mainstream/cultlike and then good intentions turn into negative downward spirals (i.e. pushing for "maximizing shareholder value"). Theories from Adam Smith, Karl Marx, Taylor, Drucker, hollow company (command&control vs collaboration&inclusion) theory and others. Author tries to explain the complexities around modern organizations and why it's extremely challenging to keep them in a sustainable path or as a progressive force in development of human society.

Despite the innovation that modern companies bring, there’s a growing public distrust towards big business, largely due to unethical practices and widening inequality. Author argues that the twenty-first-century corporation is facing a legitimacy crisis, as consumers are increasingly sceptical of the very entities that produce their favourite products (the paradox of loving the goods while loathing the companies).

“New economy companies such as Meta, Apple and Alphabet, distinguished from their predecessors in relying on intellectual rather than financial capital, redefined management. Out went command and control and transactional relationships, in came collaboration, involving employees in decision-making and a shared sense of purpose.
Outsourcing and the purchase of specialist services replaced in-house self-sufficiency in hollow corporations. Problem-solving replaced lean production as the principal competitive weapon, requiring a softer management approach with social as well as commercial consequences.”

"When executives deliver that routine cliché of modern management – ‘Our people are our greatest asset’ – the commercial value of the collective intelligence developed within the corporation is probably what they have in mind. The asset is the capability of individuals and teams within the business to solve problems, to devise and deliver new products and to win the commitment of suppliers and the trust of customers. Collective intelligence is the basis of the competitive advantage of most successful corporations, and it is enshrined in its people.”

[Ka Long Chan · Rating 5 out of 5]

An ambitious book written by a 77-years-old Oxford economist that attempts to reject (1) Marx's capital + labour framework of production for homogeneous goods (and any subsequent factory model of business including Taylorism), (2) the individualistic-legalistic framework that reduces economic relationship to a nexus of contracts (for me including the recent quiet quitting response), and (3) the financial market's single-minded focus on shareholder value, by proposing an alternative understanding of modern business that is grounded in (1) the rise of knowledge economy and value-creation becoming a process combining intelligence from talents, (2) communities with bonding and shared social expectations within and across busiensses, (3) sustainable competitive advantage (that comes from collective intelligence) being the core driver of continous business success. If true, this framework would transcend the age-old left vs. right division in economics and set the new basis for many economic debates to come in the 21st century. Though its heavy reliance on brief case studies without quantitative data makes it more inspirational than solid by standards in economics.

Won't recommend if you skip the above paragraph to read this line. But yes if you have the patience or passion to finish reading it.

[Celestine See · Rating 3 out of 5]

This book highlighted the directions and realities of corporations in today’s world with good examples of some of the large organizations. Two particular topics got me reflecting deeper; The Hollow Corporation and Collective Intelligence.

Outsourcing has been a trend and going asset light is always favoured by investors compared to the industrial evolution period. However, I was looking to seek out more nuanced discussions of the implications and the long term outlook for such corporations, but to little avail. Likewise I was hoping for deeper analysis over the implications of collective intelligence but to little avail.

It’s still a good book to understand the general trends shaping corporations today but you will have to do more research thereafter to understand the topics further.

[Synthia Salomon · Rating 3 out of 5]

“specialization and the division of labor drive efficiency and economic growth.

Modern products – smartphones, aircraft, software – are intricate assemblies that require the coordination of countless individuals. The result is a collective intelligence greater than the sum of its parts. Unlike traditional industrial giants, today’s leading corporations don’t rely on owning physical capital – they buy it as a service.

Together, these factors signal a shift towards “hollow corporations” that rely on outsourced production and specialized knowledge workers.”

[Blair · Rating 2 out of 5]

“The Corporation in the 21st Century” is about business and how it’s evolved over the past two centuries.

While it touts itself as being “A radical reappraisal of the nature and activities of business” it is more of a history than a radical reappraisal.

The book is well researched, logical, and well written; however, I also found it dull, not very insightful, and hard to get through.

If you want to know how business evolved as an academic, then consider this. But if you know how business has evolved, it probably isn’t helpful.

Meh. I’d give it a pass.

[Francis Parfitt · Rating 5 out of 5]

The key point in the book is that a corporation is a unique bundle of assets, not a network of contracts, nor a firm as defined in standard microeconomic textbooks. thrives from using these assets by capturing economic rent in the marketplace. This is why shareholder value approach to corporate strategy fails - because it destroys those assets in favour of short term profits.

This an idea that John Kay develops from Edith Penrose, who wrote a book on "The Growth of the Firm" in the late 1950s.

[Pearse · Rating 1 out of 5]

I can’t really tell what the book’s argument is. The book is supposedly about corporations of the 21st Century, yet the majority of it is about the history of corporations and relevant societal/technical forces which supported the growth of business. IMO it spends way too much paper on that setup and not nearly enough on what might come next. He had an opportunity to suggest possible futures of the idea of a corporation, but never really shed light on them.

[Knap Konijn · Rating 4 out of 5]

Kay is obviously well read, experienced, and has much to say on how companies are and should be conceptualized. The many anecdotes and factoids make the book a little longer and less clear than it could have been. Those words could perhaps have been used to make the work more accessible to readers not versed in business and economics literature. Nevertheless, I found it an interesting and enriching read that has changed my perspective on the business world.

[Dirk · Rating 3 out of 5]

A little disappointing, the book is very descriptive and gets a little lost in anecdotes. It spends a lot of time on 2oth century firms. It also lacks a good definition of the 21st century corporation.

The refutation of shareholder value is quite good though.

[Pete Markos · Rating 5 out of 5]

I think this book is fantastic! A great way of explaining modern business.

I'm surprised it's not that well known.

[Bill · Rating 2 out of 5]

Disappointing. Too many anecdotes and just-so stories which was not the case with the author’s earlier work.

[Simon Hohenadl · Rating 2 out of 5]

I had a hard time connecting all the anecdotes to an overarching statement. I considered quitting several times, but finished it in the end as I found some of the anecdotes helpful.

[David · Rating 4 out of 5]

Review to come...

[Zach Simpson · Rating 5 out of 5]

Favorite book I’ve ever read. Wish I could give it 7 stars.

[Francisco Verón Ferreira · Rating 4 out of 5]

Excellent historical and theoretical overview of the corporation in the 21st century. It's not case-study driven, but it does have lots of anecdotes and real-life examples. If you decide to read it, you will certainly learn a ton, no less because the author is incredibly knowledgeable and experienced in his field.

[Marks54 · Rating 5 out of 5]

John Kay is a distinguished British industrial economist and consultant. His particular focus in writing about large firms concerns the economic basis of their strategies. He combines an outstanding understanding of serious economic research on firms, industries, and strategies with considerable insight into how these firms develop their strategies and practices and how they combine social and cultural foundations with firms’ economic profiles to explain how really successful strategies come about and allow their firms to prosper, even flourish. This brings up the concept of distinctive capabilities of firms - how firms put all of their strengths and experiences together into a particular package of capabilities that allows a firm to shine in the right conditions. This is all on disaplay in Kay’s 1993 book - Foundations of Corporate success

In addition to the strong story Kay tell, his work is exceptionally clear and well written, which is a scarce commodity in the world of high end business books. He is always fun to read and informative. In addition, he is valuable for American audiences who might lack to particular detail and context of how large firms conduct themselves in the UK and Western Europe.

The current book appears to be an effort by Kay to update his prior work and incorporate a variety of developments in academic and legal research on firms (for example, the growth of game theory in the economic analysis of firms and the “law and economics” movement to understand firms in terms of a “nexus of contracts” rather than more traditional views of firms as social organizations. This book also seeks to discuss the development of economic and business life in Europe in the 21st century, as seen in the growth of securitization, the hollowing out of traditional firms, the financial crash of 2008 and follow-up crises such as the COVID pandemic. A major emphasis is how the nature of capitalism changes when the traditional categories in economics have been replaced by the increased importance of intangible assets, the decline in importance of physical assets, the growth of importance in information technology, the rise of China and Asia more generally, and the like. The premise for the volume is summed up early by his noting how the largest and most successful corporations in the mid-1950s have largely declined and failed, such that the ideology of capitalism that was so popular for so long no longer seems relevant in the Information Age.

Kay promises additional work on how firms succeed under new conditions. That is a very different story from the one told in this book, but I cannot wait to read it and with Mr. Kay good fortune in his continued writing. If this book is any indication, further follow-ups will be well worth the wait.

[Richard Fourie · Rating 5 out of 5]

Notes for self

Your value is your competitive advantage. It is worth owning that source (hierarchy/ vertical integration) vs buying in the market.

Evolution and Disciplined Pluralism - allows freedom to experiment but is quick to end unsuccessful experiments, is inseparable from economic progress.

Nexus of contracts vs cooperation and trust (side note: emotional bank account vs gives and gets, need balance) - successful collective action requires belief.
Selfishness of motive, narrowness of objective and instrumentality of behaviour are corrosive of collaborative and cooperative activities. Honesty (and humility) may be the best policy, but they who adopts that policy is not an honest man - feigned benevolence.

Nexus of contracts vs legal corporate personality

Leaky pipes and overflowing sewage & evolution of finance - accounting, quarterly results, cost cutting vs waste elimination, M&A - reality and value first, what does it have to do with the business. Good and bad rents

Shareholder value is a result not a strategy. Your main constituencies are your employees, your customers and your products - Jack Welch

Ideas have to win, not hierarchy

Ownership and accountability- CIA’s sabotage manual, committees and meetings

The ‘proper channels, the official channels’, were there and were used to confirm and to record agreement already reached by far quicker and friendlier means of communication. If an officer had to use them before that point was attained, it is rightly regarded as a confession of failure, an admission that the organisation arrangements were not supported by good personal relations - Urwick Orr (ratifying hierarchy).

The modern hollow corporation, leasing and ‘as a serive’ model, and corporation value (comp advantage) from people’s joint ideas, learnings and cooperation (combination of diverse capabilities, not its production function - workers are now the means of production) vs capital ownership.

Principal - agent problem

Final page (and chapter) has brilliant summary