Eclipse of the Public Corporation

TLDR

Public corporations are increasingly obsolete, with new entities emerging through takeovers and buyouts driven by owner‑manager conflicts over free cash flow. The authors investigate how owner‑manager conflict influences the rise of debt‑financed private firms. Resolving owner‑manager conflict enables private firms to better motivate employees and manage resources than public corporations. HBR McKinsey Award Winner.

Abstract

The publicly held corporation has outlived its usefulness in many sectors of the economy. New organizations are emerging. Takeovers, leveraged buyouts, and other going-private transactions are manifestations of this change. A central source of waste in the public corporation is the conflict between owners and managers over free cash flow. This conflict helps explain the prominent role of debt in the new organizations. The new organizations' resolution of the conflict explains how they can motivate people and manage resources more effectively than public corporations. (HBR McKinsey Award Winner)