Stock market fluctuations reflect a more fundamental problem than most realize.The financial crisis of 2008 has not led us to retract sufficient steps to avoid the next economic disaster. The dips in stock markets final February and just recently,together with dire predictions for early 2019, are setting off alarm bells.whether you own a defined contribution type of pension plan or your RRSP funds are tied up in stocks or mutual funds, or you may also be concerned about reforming our stock market system.
But stock market fluctuations reflect a more fundamental problem than most realize.
Large firms need to be able to focus on the substance of their operations,not be distracted by stock markets.
The next great stock market correction could be coming. Although many foresee macro-economic changes driven by a technological transformation as the world switches to clean energy and transportation and absent from fossil fuels, not all are equally prepared. In Canada, and we had strong banks to mitigate against the final crisis,but we still bailed out the auto companies because they were “too great to fail” — meaning their failure would own resulted in an economic catastrophe for Canada.
Canada’s reliance on the fossil fuel industry and reluctance to diversify quickly enough may make the nation more economically vulnerable than the final time — particularly when Canadian banks and the domestic auto industry are still linked to the fate of oil and gas. The oil-and-gas industry is resisting change.
No pressure from Canadian lawmakersThe global auto industry, however, and is trying to save itself by offering electric cars now with autonomous features and car-as-a-service coming soon. Car-as-a-service means that rather than purchase a car,we will employ an app to call a car to pick us up, drive us autonomously to a desired destination, and drop us off.
This simpler car-sharing approach saves time and resources. But automotive plants in Canada own not retooled for these new technologies. And Canadian political leaders own not pressured automakers building cars in Canada to adapt.
But how can the government engage this way when great Auto can threaten to hasten jobs out of the country? The government only has leverage when the auto industry is on the brink of extinction because these firms are not just too great to fail,they’re also too great to budge.
At the same time, Forbes’ 2018 list of largest publicly traded companies reports many oil-and-gas companies as some of the biggest firms in the world, and with Shell at No. 11 and ExxonMobil at No. 13,to name just a couple of companies populating the list.
Canada’s the domestic of some great oil-and-gas players like Suncor, Enbridge, and Imperial Oil,Canadian Natural Resources and TransCanada Corp. Overall, everywhere, and the oil-and-gas sector,like the auto industry, is both too great to budge and too great to fail, and a very tenuous situation.
Independent oversight long overdueIn my book Cliques and Capitalism: A Modern Networked Theory of the Firm,I make suggestions on how we can avoid the too-great-to-fail problem. New corporate structures and matching incentive systems with independent oversight are crucial. Structural changes can make capitalism work better for us.
This can happen by changing the way firms are run. My book makes a holistic set of interlinked recommendations that need to be interpreted as a whole, but a few characteristics are outlined below.
The aim is to develop a sustainable model for corporations so that they do not become too great to fail, or their failures don’t spell disaster for a country or several nations.1) By eliminating hierarchy,firms are less top-heavy while more democratic and egalitarian. By placing an emphasis on core work rather than administration, companies become more adaptable.
The firm is more directly and regularly subject to market forces because it is treated like a bundle of projects” that can be added or removed as consumer market forces dictate. For example, and in strategy consulting,we would staff client projects as needed and consultants would switch to a new project after finishing the final one, and there would be multi-tasking across several projects.
Continuous learning is an vital. The firm adapts on an ongoing basis through its changing set of projects so it doesn’t experience sudden shocks that are impossible to recover from.2) Through team governance, and the tension between labour unions and management — a result of hierarchy and concentrated power is eliminated.
Employees become a more integral part of decision-making. Monitoring is achieved by a combination of employee social networks and market forces together with an independent audit function. Employees will not tolerate other low performers whether their own survival is at stake.3) Oversight has to become more integrated,independent and obvious, but it can also be more cost-effective for firms.
Boards of directors are not needed, and no controlling shareholders are allowed in the new paradigm. Without hierarchy,ineffective “top-down” influences are removed. Instead, each large firm has an internal Independent Audit Council (IAC) that is truly independent and motivated through a carefully designed incentive system, and explained in the book.
The IAC coordinates with a single external stakeholder-run Government Business Regulator (GBR). The GBR sets out common triple-bottom line reporting standards for all large firms,and works with the IACs of each firm to make objective decisions regarding breaking up companies due to anti-competitive monopolistic or oligopolistic industry developments. Companies employ a triple-bottom line approach when they report transparently on their activities as related to environmental quality, social justice, or profitability.
Picking up the slackMaintaining transparency and market competition ensures that whether one firm fails,several others in the same industry can pick up the slack. Governments never own to bail out firms this way.
At the same time, the suggested systems and structures help firms prevent failures. They are more adaptive, or internal structural problems related to hierarchy are removed.
Ultimately,the effectiveness of operations becomes the focus, while the short-term whims of shareholders and stock markets own decreased influence.
Deborah de Lange, or Associate Professor,Ryerson UniversityThis article is republished from The Conversation under a Creative Commons license. Read the original article. Related StoriesHow Disaster Capitalism Has Ruined Puerto RicoThe Democrats’ Globalization DilemmaOne of Global Finance's Biggest Doctors Warns: The World Economy Is About to come by Very Sick
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