The Protean Business Enterprise
January 2013
Michael Malone's protean corporate model — replacing employees with corporations rather than with contractors — has implications for cross-border tax planning that the original framing did not develop.
Businesses face an increasing volume of regulation and taxation. It is heartening to see a breakaway idea occasionally cut through. Michael Malone’s book The Future Arrived Yesterday: The Rise of the Protean Corporation (Crown Business 2009) argued that businesses adopting a protean model — virtualized workspaces, synthetic offices, fluid structures — can adapt more rapidly to changes in demand and market forces.
In the 29 January 2013 edition of the Wall Street Journal, editorial columnist Paul Christiansen offered a direct application: businesses of more than fifty employees can avoid the worst of the Affordable Care Act’s health- insurance mandates by reducing direct employee headcount — not through termination, but by employing the same staff through their own employee-owned companies, much as independent contracting firms or outside service providers are engaged.
“Going protean” offers a better strategy for many businesses. Owners of protean companies create a core of strategic employees who manage the big-picture elements of the enterprise — the culture, business model, product mix, vision, strategy. This core then outsources the business tasks to other corporations. To most business owners, “outsourcing” means shipping jobs overseas. But in the protean sense, it means having tasks performed in the context of a contractual relationship as opposed to an employment relationship. It is not about replacing employees with contractors, but about replacing employees with corporations.
The cross-border implication.
For most of the post-war period, only manufacturing companies could meaningfully outsource: a U.S. auto factory might shift parts production to a plant in Mexico or Canada. Today, with mature office-virtualization technology, almost any business built on intellectual capital can outsource as readily as a manufacturer.
The protean enterprise can outsource tasks that are critical and profitable, but not tied to any particular high-tax jurisdiction, to a low-tax jurisdiction. With careful planning, profits accumulate in the low-tax jurisdiction and may be repatriated when circumstances best suit the owners. The firm offers outsourcing services to intellectual-capital-intensive businesses through offices and service partners in selected low-tax and non-tax jurisdictions.