A corporation is a business that is legally independent from its members. Corporations may incur or pay debt, negotiate contracts, sue and be sued. Corporations range in size from local retail stores to Ford Motor Company or General Electric, the nation's largest corporation. These larger corporations sell stocks to shareholders, and the shareholders legally own the company. Management of the company remains separate from, but accountable to, the ownership. The shareholders are organized with a board of directors who hold regular meetings and make decisions on broad policies governing the corporation. Although many Americans own stock, they normally do not participate in regular board meetings or exert significant control over corporate decisions.
Modern Corporations and Multinationals
Sometimes corporations with closely related business may share board members, which is called an interlocking directorate. In this arrangement a manufacturer, a financial services company, and an insurance company with shared business also share the same board members. These few individuals, then, exert power over multiple companies whose business is interdependent.
A conglomerate is a corporation made up of many smaller companies, or subsidiaries, that may or may not have related business interests. The buying and selling of corporations for profit—rather than for the service or products they provide—form conglomerates. The process of corporate merger often leads to large layoffs because, as companies combine forces, many jobs are duplicated in the other company. For example, a conglomerate may take over a smaller company, including that company's marketing department. The conglomerate will already have a marketing department capable of handling most of the new acquisition's needs. Therefore, as many as half or all of the acquired marketing department employees would lose their jobs. The same situation often occurs when two corporations of a similar size merge.
Other types of corporations include monopolies, oligopolies, and multinationals. Monopolies occur when a single company accounts for all or nearly all sales of a product or service in a market. Monopolies are illegal in the United States because they eliminate competition and can fix prices, which hurts consumers. In other words, monopolies interfere with capitalism. The U.S. government does consider some monopolies legal, however, such as utilities where competition would be difficult to implement without distressing other social systems. But even utility monopolies have seen increased competition in recent years. Telephone companies were the first utility to witness a rise in competition with the breakup of AT&T in the 1980's. Recently electric power companies have seen deregulation and increased competition in some regions as well.
Oligopolies exist when several corporations have a monopoly in a market. The classic example of an oligopoly would be American auto makers until the 1980s. Ford, Chrysler, and General Motors manufactured nearly all vehicles built in America. As globalization has increased, so has competition, and few oligopolies exist today.
Multinationals are corporations that conduct business in many different countries. These corporations produce more goods and wealth than many smaller countries. Their existence, though, remains controversial. They garner success by entering less‐developed nations, bringing industry into these markets with cheaper labor, and then exporting those goods to more‐developed countries. Business advocates point to the higher standard of living in most countries where multinationals have entered the economy. Critics charge that multinationals exploit poor workers and natural resources, creating environmental havoc.