Mngt 5990 - the Future of Public Companies: A Background and Potential Survival

MNGT 5990

Week 9 Final

The Future of Public Companies:

A Background and Potential Survival

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Introduction

Public companies were the foundation of American business. At one time, they were highly respected and admired. Through the years they have seen hard times and scandals. As a result, they have had a severe decline in numbers. Other business types have begun to emerge dominate throughout the world. The public company has faced unique challenges during all its existence. Many questions have surfaced in recent years about the role of the public company in society. Some have asked if the public companies can really be managed correctly or if even more law is needed to guide them.  Is the scarcity of the public company a sign that business has evolved in another direction; or is it just a window into the world of economic crisis and business scandal we have faced in the last three decades?

Purpose

The following is a brief look into the questions revolving around the public companies of the US. Certain scandals caused the world to view public companies with uncertainty and even distain. If that confidence cannot be won back, then the public company is doomed to become a subject of business historical study. Despite the problems, public companies do make a large contribution to business. They also can be great corporate citizens. Perhaps some knowledge of their history, challenges, and a realization of how the rest of the world does business, will help to provide a glimpse of the future of the public company.

The History of the Public Company

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When the colonists of the US declared independence from England, they were also freeing themselves from the burden of English corporate control. This was a primary objective of dumping tea into the ocean as a display of defiance. Originally, incorporation in the US was selective; only those that could prove a benefit to the public were allowed to do so. They were held to high standards of public service, accountability, and public trust. In return, they were granted special privileges such as eminent domain, monopolization, and even toll taking authority; but they were denied any recognition in law aside from that of an artificial entity. Then came the American industrial revolution; and with it more limited liability for not just public but all corporations. Many partnerships became corporate, and privately held corporations were allowed to spring up everywhere. The most unscrupulous, or the most visionary businessmen rose to the top of what Mark Twain called “America’s Gilded Age”.

The early Twentieth century was an action packed time for public corporations and business in general, introducing new accounting requirements and many new government regulations. Prior to the 1930s there was no law governing corporate auditing; following the crash of the stock market in 1929, congress reacted to make some changes in the corporate world. President Roosevelt signed the Securities Act of 1933 into law as the first financial regulation on corporations.

After the depression, two world wars caused major booms in the industrial US. Public corporations thrived, continuing to build wealth for stockholders. In 1963 a critical piece of legislation had a major effect on corporate America; the Equal Pay for Equal Work Act was signed into law. More women began to enter the workforce than ever before. Public companies became larger, began to expand, and mergers occurred frequently.