An Aristotelian vision to the business organization

Philip II of Spain.
Philip II of Spain. (Photo credit: Wikipedia)

Nowadays, the ancient Aristotle’s political theory can seem obsolete for the public sector because of the size of the current states but many companies have a size more similar to a Greek city-state. Aristotle considered three natural forms of government: monarchy (government of a person), aristocracy (government of the best), and democracy (government of the majority). He noticed that there are three degraded forms of the first ones: tyranny (government of military chieftain), oligarchy (government of the rich), and demagogy (government of the poor).

In general, enterprises are government under some kind of monarchy or aristocracy, a democratic way of company is what we call worker cooperative that are not very extended, because the other ones are more efficient and less complex (it is easier to make decisions) when the market volumen grows.

An example of monarchy can be a familiar enterprise when it is driven by his founder, and the directorate is usually composed by his sons and daughters and other people with the trust of his owner. It is well known that this kind of enterprises has a problem when they grows, it arises a need of establish a professionalized management losing the founder a large part of his decision power in the same way as old monarchies have evolved towards parliamentary monarchies.

An example of aristocracy can be a law firm where the best lawyers are promoted to the directorate as fellows when they show their work capabilities to maintain the business. This kind of organization is well suited for service companies of professionals, but it is less fitted to the industrial ones because in the latter ones the division and specialization of the work is fully implemented. For instance, a good seller or technician can be excellent in his area of work but it is possible that he will be less efficient if he is promoted.

Industrial corporations are fed by professionals with different level of training and education and expertise that are contracted by the company to develop a certain task in the same way as an army is composed by commissioned officers, non-commissioned officers and troop with different expertise. Then, it seems that industry should be managed by a monarch (elected among its senior managers) or a board of generals (aristocracy of the commissioned officers or managers). Sometimes this model can degenerate to a tyranny if the CEO is imposed selected by powerful contacts and not by his management abilities.

If we look at the real world, we will find that many actual enterprises can seem oligarchies, or demagogies, when the management of a company seems to be defending the interests of banks (main shareholders) or governments (that increases the power of unions in the companies), instead of the interest of all shareholders and all workers of the company.

The problem of this fact is that companies lost their effectiveness and efficiency in their own markets when they are managed without considering the interests of all of their stakeholders.

When we are thinking in innovation, the more effective innovative companies are the aristocratical ones, or even monarchical ones (in the aristotelian senses of aristocracy or monarchy, that are not hereditary). An organization established to improve the own business on the long term with the best managers should be much better than a company established to fulfil the short term external needs of funds of the main shareholders or the salary level of the workers, because innovation is a long term process that needs a strong determination and the better understanding of the business that other forms provide.


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