Of Course Corporations Are People
I was just reading about Fred DeLuca, who borrowed $1,000 from family friend Peter Buck to open a sandwich shop in Bridgeport, Conn., to help pay for college. That day in 1965 marked the humble beginning of the largest fast-food chain in the world, Subway.
Subway may have more than 44,000 restaurants and $18 billion in annual revenues, but its mother company, Doctor’s Associates Inc., is still co-owned by the two partners. And DeLuca ran the company as its only CEO until he died on Monday. He was diagnosed with leukemia in 2013.
DeLuca’s only sister, Suzanne Greco, was recently named president, so it’s a good bet she’ll be running the show going forward. And while there are far bigger family-run businesses, Subway is nevertheless one of the great entrepreneurial success stories of the past 50 years.
I bring this up to dispel a popular myth, that corporations are not people. This has to be one of the most ludicrous memes in recorded history. And frankly, I’m sick of hearing it and nauseated by how dumb people sound when they say it.
Literally speaking, of course, the statement is true. Corporations are entities, not people. But if I take the phrase’s meaning correctly, it’s that corporations have a life of their own and they act in their own best interest, not in the interest of their stakeholders. So when they do bad things, it’s the corporation’s fault.
That’s entirely false. Even the biggest corporations in the world are just small businesses that grew up. They simply have more stakeholders – owners or investors, employees, and customers – than when they were small. And the way they are run – good, bad, and everything in between – is very much a function of those in charge. People.
Corporations are founded by people, organized by people, owned by people, and run by people. And all the products and services they offer are developed, made, and sold by people to customers – who are also, incidentally, people.
Having spent 23 years of my career working in corporations big and small – from the very bottom to the very top of the corporate ladder – I have never, in all that time, seen or heard of any decision made on behalf of any of those companies that wasn’t made and carried out by people.
There were times when some shareholders disagreed, which is why we have a legal system that allows for shareholder lawsuits. And when companies defraud their stakeholders – as occurred with Enron, WorldCom, Adelphia, and many others – it was their leaders who did the dirty work. People.
In every case of corporate wrongdoing I’ve ever seen, heard of, or written about over the decades, the companies and all their stakeholders suffered by the actions of a few remarkably selfish and dysfunctional executives and directors. Again, everyone involved on both sides of the equation was indeed human.
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Now let’s talk about how corporations are organized and managed. While there are all sorts of ways to structure a company, they are almost always controlled in one of two ways: by a relatively few or a relatively large number of people.
The latter type includes the vast majority of publicly traded companies you hear about every day. They were all startups or small businesses at one time whose ownership became dispersed through multiple rounds of private investment, mergers, going public, or some combination. Nevertheless, their owners or investors are all people.
The former type, also known as closely held companies, can either be public or private. Subway, Mars, and Trader Joe’s are examples of large, closely held private companies. Facebook, Google, and Walmart are examples of large, closely held public companies. In any case, they are all owned by people.
Regardless of its structure, every corporation is run by a leadership team. The entire management team, including the CEO, serves at the pleasure of the board of directors, which is elected by shareholders. One way or another, every decision that affects a company’s stakeholders is in the hands of people.
Now, don’t get me wrong. I’m not saying that our system of corporate governance is flawless. On the contrary, it’s pretty damned dysfunctional, if you ask me. But the reason for that is because people are dysfunctional. In other words, there are ways to manipulate the system, but that’s always in the hands of individuals.
The bottom line is this. Corporations are all owned and run by people on behalf of their stakeholders. And anything they do, good or bad, is the result of decisions made by people. It’s not corporations that are good or bad. It’s people who are good or bad. And the decisions they make impact their stakeholders, for better or worse.
And the only real difference between those who make decisions on behalf of their corporations and those who incessantly whine about it is the choices they make in life.