Citing twelve past and present AOL employees, The Wall Street Journal characterized AOL in 2011 as a “culture of clashing fiefs and personalities created by a rapid series of acquisitions that haven’t jelled.”[1] Just in managing the likes of Michael Arrington and Arianna Huffington, Tim Armstrong had his hands full as CEO. Both Arrington and Huffington were strong defenders of editorial independence in their respective units. Arrington started a venture capital firm partly financed by AOL to invest in tech firms even as Arrington’s division at AOL, TechCrunch, wrote on technology firms. The problems for AOL went well beyond acquiescing in a structural conflict of interest of TechCrunch writing on particular tech companies while investing in some of them but not others. A person familiar with AOL said that Armstrong “had a macro vision that was right but didn’t have the right plan to implement it.”[2] That is to say, his visionary leadership was good but his strategic management was bad. Strategic leadership demands better. AOL may have been a good candidate for a federal system of governance because the publishing units needed some autonomy even at the cost of foregone corporate cooperation.
In a federal system adapted to a corporation, each division or acquisition is like a semi-sovereign state with some autonomy from the general government, which includes the board of directors and the CEO. Were the board by analogy the constitutional court rather than part of the federal government, then it would be too easy for conflicts of interest to be exploited at the expense of division autonomy. This arrangement does not compromise the control that comes with property rights, for the shareholders would still be able to vote on major conflicts wherein a division claims that its autonomy is being compromised by a CEO or board.
The federation form—similar to the Japanese conglomerate “family” of businesses centered around a banking division though with each division having some autonomy from headquarter—is perhaps ideally suited to a publishing company in which pressure exists to tailor articles to particular companies favored financially by a division or the publishing company as a whole. In other words, reconciling editorial freedom (and credibility) with the synergy possible from corporate coordination (otherwise why make the acquisitions in the first place?) may be well-suited to the federal form wherein the parts and whole each of some areas of autonomy from the other. The limited autonomy itself must be in the stockholders’ long-term financial interest; this is not difficult, as sacrificing editorial freedom for immediate financial gain is typically detrimental in the long run.
1. Jessica E. Vascellaro and Emily Steel, “Culture Clashes Tear at AOL,” Wall Street Journal, September 10-11, 2011.
2. Ibid.