The demise of Corporate Man

Will fat cats die out as the big company gets taken over by the entrepreneur?

A couple of months ago I was preparing to give a lecture to business students in Barcelona when the dean turned to me and said: "What we have to teach these people is they are not going to be executives in large corporations - that is what they think - but instead that they will have to make their way in small companies, or maybe even start their own ones."

Now compare that comment with the news last week that the president and chief operating officer of AT&T, the giant US telephone company, was leaving to join a newish, tiny wireless communications firm called Associated Communications. Alex Mandl can apparently both make more money and have more fun by being in on the ground floor of a small company than by getting the top job in a giant one.

The link is obvious. A generation ago the majority of young people who wanted a career in business joined established firms, most probably large ones. The opportunities and the rewards were much greater than those in small and medium-sized companies. Nowadays the balance has shifted for new graduates and established executives alike.

Of course for some there is still the option of joining a big company. The anecdotal evidence is that this has been the best year for graduate recruitment since the late 1980s. Equally, for some people the lure of heading one of the half dozen largest companies in the world would be sufficient attraction to stick around. But for many new graduates, working for a big company is neither attractive nor practicable - a lot do not want that sort of job and there are not enough jobs around even for those who do. And as many middle-aged executives have discovered recently, no company can offer the prospect of a career carrying on until normal retirement age.

This shift in career structures has been so unsettling that most of the debate has focused on the effects on people: some of these are negative, such as the rise in graduate unemployment or the underemployment of fiftysomething men; others have been positive, such as the surge in business start-ups or the liberation that people feel when they escape from corporate drudgery and make it on their own.

There has been much less discussion of why this process is happening, perhaps because it is still only half-understood. But clearly during the 1980s something happened to the comparative advantage of large companies: size became less important to success. People who dislike the business community regard corporate downsizing as some kind of sadistic exercise which top executives relished. While some might have enjoyed the buzz of "taking tough decisions" as they would have put it, for most people in the corporate world it was deeply disturbing to find that a household name company had to shut whole divisions because some little upstart could do the same thing better or cheaper.

Why size should become less important is unclear. It almost certainly has something to do with the development of information technology, which gives small firms most of the advantages hitherto available only to large ones. It will have something to do with the development of the financial system which can finance management buyouts and start-ups. (This newspaper was, when it was founded 10 years ago, the largest start-up ever financed by the City.)

But I think there is a social force at work here too: the rise of individualism and self-confidence among the young has made climbing a corporate hierarchy less attractive than working in smaller, less structured groups. If, in addition, people are likely to earn more from working in smaller units, then the case for Corporate Man, the title of Anthony Sampson's recent book on the subject, becomes weak indeed.

There is a further twist to this social shift. Large companies are finding it more and more of a struggle to attract and retain their top staff. Some "fat cat" salary and share-option packages may be very hard to justify. But fat-cattery is a symptom of the bind in which big companies find themselves: the principal way they can reward top staff is to pay them more, but the act of paying arouses opprobrium and so makes the package less attractive. And corporate life is even less attractive to the best graduates if the reward for climbing the ladder is to have your salary attacked by national newspaper groups whose top people probably earn more than you do.

We are probably still in the early stages of an enormous shift in society. Over the next generation the business community will almost certainly become more important relative to government, just as it was a century ago. But within that community power will become more diffuse. Big business will still matter, and it will adapt by breaking up big firms, encouraging entrepreneurship and creating rather more convincing ways of rewarding people than they have to date. But the growth in authority will be much more marked in the smaller firms, in the organisations that finance them, and in the specialist advisers that help them. Talented individuals will matter more too, be they the best of those business students in Barcelona or Alex Mandl in the States.

Think back 100 years and see the parallel. Governments left the economy pretty much alone. International commerce and finance were enormously important. There were a few giant companies but most were tiny compared with today. Entrepreneurship and innovation were growing explosively. And business people were rewarded as and when their partnerships made money; not because the executive remuneration committee decided to implement a new share-option scheme.