Archive for the ‘corporate governance’ Category
lifting the crimson curtain: Manufacturing Morals: The Values of Silence in Business School Education
As a grad student, I always found crossing the bridge over the Charles River from Harvard University to the Harvard Business School (HBS) to be a bit like approaching Emerald (or more appropriately, Crimson) City. On the Allston side, the buildings seemed shinier (or, as shiny as New England vernacular architecture allows), and the grounds were undergoing constant replantings, thanks to a well-heeled donor. In addition, HBS has loomed large as an institution central to the dissemination of organizational theory and management practices, including Elton Mayo’s human relations.
HBS has certain peculiarities about teaching and learning, like the use of case studies which follow formulaic structures as the basis for directed class discussion.* Moreover, instructors follow a strict grading break-down: mandatory “III”s assigned to the lowest-performing students of classes – a source of concern, as students with too many IIIs must justify their performance before a board and possibly go on leave.** To help instructors with grading, hired scribes document student discussion comments.***
Such conditions raise questions about the links, as well as disconnects, between classroom and managerial leadership, so I was delighted to see a new ethnography about business school teaching at the UChicago Press book display at ASAs.
With his latest book, Michel Anteby lifts the crimson curtain from HBS with his new book Manufacturing Morals: The Values of Silence in Business School Education (University of Chicago Press, 2013).
Here’s the official blurb:
“Corporate accountability is never far from the front page, and as one of the world’s most elite business schools, Harvard Business School trains many of the future leaders of Fortune 500 companies. But how does HBS formally and informally ensure faculty and students embrace proper business standards? Relying on his first-hand experience as a Harvard Business School faculty member, Michel Anteby takes readers inside HBS in order to draw vivid parallels between the socialization of faculty and of students.
In an era when many organizations are focused on principles of responsibility, Harvard Business School has long tried to promote better business standards. Anteby’s rich account reveals the surprising role of silence and ambiguity in HBS’s process of codifying morals and business values. As Anteby describes, at HBS specifics are often left unspoken; for example, teaching notes given to faculty provide much guidance on how to teach but are largely silent on what to teach. Manufacturing Morals demonstrates how faculty and students are exposed to a system that operates on open-ended directives that require significant decision-making on the part of those involved, with little overt guidance from the hierarchy. Anteby suggests that this model-which tolerates moral complexity-is perhaps one of the few that can adapt and endure over time.”
Check it out! And while you’re at it, have a look at Anteby’s previous book, Moral Gray Zones (2008, Princeton University Press).
Is there any relationship between accusations of corporate deviance and the diffusion of new practices? My coauthor, Ed Carberry, and I think so. In a new paper that just came out in the Journal of Management Studies we show that firms began using stock option expensing, a practice that used to be seen as quite problematic and undesirable by executives and boards, after a series of scandals rocked the corporate world in the early 2000s, causing firms to look for new ways to restore their credibility. Stock option expensing became a tool that companies could use to distance themselves from the stigma associated with corporate scandal. Our analyses show that firms facing media scrutiny around claims of corporate fraud and firms that were targets of shareholder activism around corporate governance were much more likely adopt stock option expensing. Firms that faced both intense media scrutiny and shareholder activism were especially likely to adopt the practice. We argue that in the period directly following the Enron scandal stock option expensing became seen as an impression management tactic that firms could use to restore confidence in their accountability to the public.
The title of the paper is “Defensive Practice Adoption in the Face of Organizational Stigma: Impression Management and the Diffusion of Stock Option Expensing.” You can download the paper on my website. Here is the abstract.
Although most diffusion research focuses on firms adopting new practices to maintain their legitimacy, this paper examines a setting in which firms adopted a controversial practice to defend themselves against relating to corporate deviance. We argue that understanding defensive adoption requires attending to both the dynamics of organizational stigma and impression management, and test our theoretical claims by analysing the diffusion of an accounting practice, stock option expensing (SOPEX), following the Enron scandal. We first provide evidence that the media and shareholder activists transformed the practice into a defensive device by theorizing it as a solution to problems relating to corporate fraud and corporate governance. Using event history analysis, we then show that corporations that became targets of stigma- inducing threats were more likely to adopt SOPEX and that the media were a key force channeling these threats.
The theme for this year’s ASA meeting is “Real utopias,” and Erik Wright commissioned a bunch of us to write up utopian blueprints for our particular domains. Erik wanted the essays to be posted months in advance in order to encourage people to read, think about, and comment on them. The annual meeting could then be spent in productive discussions rather than one-way transfers.
My session, “Re-imagining the corporation,” may be of interest to orgtheory types. It’s a morose chronicle of the collapse of the corporation as a social institution in the US, followed by a more cheerful account of how we might deal with apocalyptic climate change and societal collapse using the shrewd insights of organization theory.
The essay is posted at the Real Utopia website, and the session will take place Saturday 12:30-2:10 in the ever-popular “Room TBA.” Hope to see some people there.
Here is an executive summary:
The big news in academic circles recently is the resignation of Teresa Sullivan as the president of the University of Virginia. I’ve been slow to catch on to the importance of this topic and have to admit that I don’t understand the complex politics motivating this move. What compelled the Board of Visitors to ask for her resignation?
The story I’ve heard from a number of news sources is that certain members of the board, and clearly not all since the move was initiated without a vote from the full board, were unhappy with Sullivan’s “incremental” pace in creating change to the institution. But what changes did they want? Based on the emails of board members involved in the ouster, one of the topics that keeps coming up is online education. But that can’t be the real or entire reason for worrying about Sullivan’s strategy. Every university in the country is aware of the potential that online education offers, but none of the elite institutions have yet figured out how it’s going to play out in the long run. Some universities are experimenting with online offerings, but it’s still at a developmental stage.
Others have speculated that the reason was that the Board wanted to see the university run like a business, a vision that Sullivan did not share. But if you read a strategic memo issued by Sullivan in May, you can see that she was actively engaged with the university’s budget situation. She was making efforts to control costs and optimize revenue streams. As you’d expect from any competent president, as it appears she was, Sullivan was keenly aware of the operational needs of the university.
Sullivan’s own public statement about the resignation suggests that the board was unhappy with her style of leadership. They wanted her to run the university in a more autocratic style, a style she did not believe was conducive to good university governance : “Corporate-style, top-down leadership does not work in a great university. Sustained change with buy-in does work.” Taking this statement as a signal of the disagreement between the two parties, the board probably wanted Sullivan to make some moves that would have been unpopular with some of the faculty and Sullivan was unwilling to make those decisions without some faculty support. I’d like to know more about what those unpopular actions were.
What am I missing here? I’d appreciate it if anyone else who is much better informed about the context could shed some light.
Remember a few years ago when we had that massive child abuse scandal in the Catholic church? What was the consequence of that? If you read the wiki, the answer seems to be that the Church lost a lot of money ($1.5bn by one estimate) and some priests had to retire or resign. Almost no one went to jail, and the Catholic church seems to have suffered few consequences aside from bankruptcy and losing properties. The Catholic church seems to have retained its legitimacy as an organization.
This raises a question for me: What does the child abuse scandal teach us about the resilience of organizations? For example, would other religious organizations be so resilient in the face of such serious charges? Is the Catholic Church unique? Or do religious groups have an above average ability to survive this sort of scandal?
Writing from the home office in Switzerland, Tim draws my attention to a conference for management PhD scholars interested in development. From the call for papers for the UNDP Development Academy:
The oikos UNDP Young Scholars Development Academy 2012 provides PhD students and young scholars working on poverty, sustainable development, and the informal economy from an Organisation and Management Theory perspective a platform to present and discuss their on-going research projects with fellow students and senior faculty.
Research on inclusive business models, market development and sustainability between the informal and formal economy is a promising and challenging field for young researchers and PhD students. It calls for a multitude of methods, combination of disciplines in strategy, organisation studies, sociology, anthropology and economics, and new research designs, e.g. market ethnography in organisation studies.
Great opportunity for orgtheory PhD students and tenure track/post docs. Check it out.
I was reading through some of his work and much of it links with important issues in organization theory. For example, one of Ribstein’s areas of focus was “uncorporations” — see his book The Rise of the Uncorporation (Oxford University Press). Uncorporations are forms of association and governance like limited liability corporations (LLCs), partnerships etc. These uncorporations represent 1/3 of all tax-reporting entities (the stat is from the above book) and the form is growing rapidly. These forms deserve attention given their unique structure, approach to contracts and incentives, etc.
So if you want a very good primer on corporations and uncorporations (frankly, this should really be part of the “yleissivistys” of any good org theorist), then get this book (here’s Chapter 1 on SSRN). While we have some good work on partnerships and related forms (e.g., I like this piece by Royston Greenwood and Laura Empson), nonetheless I think there is much opportunity to do further research in this area.
Another piece that might interest org theorists is Ribstein’s 2010 piece on the Death of Big Law, Wisconsin Law Review. The article discusses the many pressures faced by big law firms: deprofessionalization, competition from small law firms, the rise of in-house council, diseconomies, changing incentive structures, etc.
For more, here’s Larry Ribstein’s bepress page.
Bob Sutton teaches us that @$$holes are a bad thing. They take up our time, they decrease our productivity. But what do we make of the Steve Jobs biography? According to one headline, it shows that Jobs was a “jerk and a genius.” What gives? Was Sutton wrong?
Here’s my take. Yes, in general, jerks are a bad thing. Research and personal experience show that they are. For every mean boss who succeeds, there’s a legion that just make their co-workers miserable and unproductive. Early in his career, Jobs was the paragon of the jerk who pulled everyone down with him. One of the reasons he was run out from Apple was that he constantly fought with other factions within Apple.
So how did Jobs break out of this trap? A few ways. First, he became better at his job over time. Even though there were some problem products later in his career, nothing compared to the bomb that was the Lisa computer. It’s easier to command respect and compliance when your batting average goes up, way up. The benefits of working with Jobs now outweighed his negatives.
Second, Jobs restructured the organization and eliminated people who didn’t buy into his personal style. Early in his career, he had to work with people who were older than him and knew him before he became famous. They might not always buy into the “reality distortion field.” Later, Apple leaders were mainly people groomed by him. All the old leadership had retired or were fired upon Jobs’ return.
Third, Jobs was fairly interactive. Yes, he was a bit of an @$$hole, but the biography shows many cases of where he built strong bonds with people. A lot of @$$holes never balance the aggression with positive reinforcement.
Bottom line: I still believe in Sutton’s rule, but Jobs was exceptional. Almost no one had his deep knowledge of the high tech business or such an acute sense of style and design. Few can build an organization tailored to their personality. Most @$$holes will never be in Jobs’ league and will merely make our lives miserable. Long live the no @$$hole rule!
The coverage of Steve Jobs taught me a lot about Apple’s organization. For example, Steve Jobs did not believe in middle management. He believed in having divisions run by specialists. Advertising is run by people with a deep knowledge of advertising or graphics, not a generically trained manager:
Specialization is the norm at Apple, and as a result, Apple employees aren’t exposed to functions outside their area of expertise. Jennifer Bailey, the executive who runs Apple’s online store, for example, has no authority over the photographs on the site. Photographic images are handled companywide by Apple’s graphic arts department. Apple’s powerful retail chief, Ron Johnson, doesn’t control the inventory in his stores. Tim Cook, whose background is in supply-chain management, handles inventory across the company. (Johnson has plenty left to do, including site selection, in-store service, and store layout.)
Jobs sees such specialization as a process of having best-in-class employees in every role, and he has no patience for building managers for the sake of managing. “Steve would say the general manager structure is bullshit,” says Mike Janes, the former Apple executive. “It creates fiefdoms.” Instead, rising stars are invited to attend executive team meetings as guests to expose them to the decision-making process. It is the polar opposite of the General Electric-like (GE) notion of creating well-rounded executives.
Also, apparently, Jobs didn’t believe in human resources, until very recently.
Two comments: First, Jobs, as Kieran noted, was a charismatic leader. He also had an amazingly deep set of skills, derived from having worked in high tech in some capacity since age 13. He also managed a company that produced highly related products. These issues obviate the need for generic managers.
Second, there’s little evidence that having a flat structure is necessary. In high tech, we see a wide range of business models that are highly successful – even revolutionary. Google is wildly successful and seems to have a very different culture and structure. I wouldn’t draw general lessons from Jobs’ disdain for management. Apple’s structure flows from Jobs’ personality and his specific career (e.g., after returning to Apple, Jobs ejected all the old school management).
A little while ago, we asked: what’s the deal with Joel Podolny and Apple University? A few press releases and then … nothing. Well, Steve Jobs’ passing has yielded some revealing press coverage. An LA Times article discusses Apple and Podolny:
Reporting from San Francisco— Apple Inc. now has to get down to the business of surviving its founder… It’s something that Apple — and Steve Jobs himself — had been painstakingly planning for years.
Deep inside its sprawling Cupertino, Calif., campus, one of the world’s most successful and secretive companies has had a team of experts hard at work on a closely guarded project.
But it isn’t a cool new gadget. It’s an executive training program called Apple University that Jobs considered vital to the company’s future: Teaching Apple executives to think like him.
Apple University, as suspected, is in house management training. The article is personality profile – Podolny has had a stellar academic career – and I wish there were more about education. How would this differ from previous forms of management education? Unclear. How do they plan to transplant Jobs’ highly unique style and vision to the next generation? Also, unclear. But it does shed light on how Apple plans to continue the record of excellence created by its founder.
I take a special interest in the Moneyball movie because I used to teach the book in a class. Before I get to the academic comments, I’ll give the movie a thumbs up. It’s a fun movie and, as usual, Brad Pitt puts in a believable performance as a conflicted manager. It’s slow for a modern film, but I liked it. If you are a sports fan and you have a tolerance for chatty films, then you’ll probably like this.
Anyway, the reason I went to see the movie is that tor a while, I taught IU’s course on organizations and work. I used Moneyball to explain two concepts – market imperfections and organizational culture.
Markets are imperfect when buyers and sellers do not incorporate all the available knowledge. Moneyball is really about taking advantage of the fact that most sports team managers don’t use some very basic data to choose players. Organizational culture simply means the shared ideas in an organization that are used to interpret things and motivate behavior. Moneyball is about the conflict between people who think baseball can be successfully quantified and those who think that good coaching should be based on experience and gut feelings.
theyrule.net is an online tool where you can map and visualize board interlocks. You can look up specific people or simply play around and click to see various interlocks. Or just use the “auto”-mode and watch. I don’t know how up-to-date the site is, but it is definitely fun/interesting to play around with.
Of course, there is a long history of research on board interlocks.
OK, while we’re in luminary mode around here, here’s a keynote address that Dick Scott recently gave at a health care conference. I think orgs scholars will also enjoy the talk. It definitely has some theoretical punch.
The first ten minutes offer a nice primer — one that will be very familiar to most orgheads — of macro organizational sociology, key concepts and levels of analysis (fields, logics, actors, etc).
Thereafter it gets meta-theoretical. At 18:52 (through 24:55) Dick outlines a half dozen+ “advantages of a field level conception for multi-level approaches.” An interesting discussion and a nice defense of field-level approaches.
(I’m admittedly not a “fields” guy — at all — but can certainly still appreciate this. Dick’s orgs bible/book was what first got me hopelessly fascinated with org theory. Plus, this is Dick Scott in HD, what more can you want!)
The subsequent discussion focuses on applying the key concepts and fields notion to health care, which obviously has been the context for much of Scott’s work during the last decades.
A well known fact about CEO pay is that it has increased in absolute and relative terms. Provided by the Stanford Center for the Study of Poverty and Inequality, the chart shows that CEO pay has exploded relative to the earnings of average workers in manufacturing or production.
There’s been a lot of debate about why, but less discussion of what that says about our theories of income. My view is that this is evidence against a straight up Becker/human capital view and evidence for the segmented labor market/political view on income. According to the human capital view, personal income, roughly speaking, is a return on the investment in your skills. So if your skills are in high demand, your income goes up. If that’s true, in a relative view, demand for CEO has gone up astronomically in comparison to the typical worker. It’s easy to see why worker income has not gone up – globalization of the labor market, for example – it’s hard to see why CEO pay went through the roof. Is it really true that CEO skills became extremely scarce? Or that their marginal product shot up, and remained high, over the last few decades? Maybe…
The alternate view is that income is set by politics. The aggregate income generated by an industry may be set by consumer emand, but the way it’s distributed within firms and industries is political. As multiple folks have noted, like Jerry Davis, Neil Fligstien, and Greta Krippner, firms began to rely more and more on finance for income, which is the result not only of financial technology, but also policy. There was a lot more money in firms, but very little way to distribute it down the chain.
The Supreme Court has sided with Wal-Mart in the class action case. As regular readers of this blog will be well aware, sociologists have been more than usually involved in the case and the debate surrounding it. The slip opinion, written by Scalia, discusses Bill Bielby’s testimony and dismisses it:
The only evidence of a “general policy of discrimination” respondents produced was the testimony of Dr. William Bielby, their sociological expert. Relying on “social framework” analysis, Bielby testified that Wal-Mart has a “strong corporate culture,” that makes it “‘vulnerable’” to “gender bias.” He could not, however, “determine with any specificity how regularly stereotypes play a meaningful role in employment decisions at Wal-Mart. At his deposition . . . Dr. Bielby conceded that he could not calculate whether 0.5 percent or 95 percent of the employment decisions at Wal-Mart might be determined by stereotyped thinking.” The parties dispute whether Bielby’s testimony even met the standards for the admission of expert testimony under Federal Rule of Civil Procedure 702 and our Daubert case … The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings. We doubt that is so, but even if properly considered, Bielby’s testimony does nothing to advance respondents’ case. “[W]hether 0.5 percent or 95 percent of the employment decisions at Wal-Mart might be determined by stereotyped thinking” is the essential question on which respondents’ theory of commonality depends. If Bielby admittedly has no answer to that question, we can safely disregard what he has to say. It is worlds away from “significant proof” that Wal-Mart “operated under a general policy of discrimination.” … Respondents have not identified a common mode of exercising discretion that pervades the entire company—aside from their reliance on Dr. Bielby’s social frameworks analysis that we have rejected. In a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction. Respondents attempt to make that showing by means of statistical and anecdotal evidence, but their evidence falls well short.
While dismissing the particular body of evidence presented as insufficient to establish the Plaintiff’s central claim, the decision does not make any more general remarks about the relevance of social-scientific evidence. (At least not to my untrained eye. Those with a legal education are welcome to comment.)
The ruling was unanimous with respect to rejecting certification, but Ginsburg wrote a partial dissent (joined by Breyer, Sotomayor, and Kagan) on the question of the scope of the ruling, and did not sign on to the middle section of the decision (where the social science evidence is discussed). She writes, in part,
The plaintiffs’ evidence, including class members’ tales of their own experiences, suggests that gender bias suffused Wal-Mart’s company culture. … the plaintiffs presented an expert’s appraisal to show that the pay and promotions disparities at Wal-Mart “can be explained only by gender discrimination and not by . . . neutral variables.” Using regression analyses, their expert, Richard Drogin, controlled for factors including, inter alia, job performance, length of time with the company, and the store where an employee worked. The results, the District Court found, were sufficient to raise an “inference of discrimination.” … The District Court’s identification of a common question, whether Wal-Mart’s pay and promotions policies gave rise to unlawful discrimination, was hardly infirm. The practice of delegating to supervisors large discretion to make personnel decisions, uncontrolled by formal standards, has long been known to have the potential to produce disparate effects. Managers, like all humankind, may be prey to biases of which they are unaware. The risk of discrimination is heightened when those managers are predominantly of one sex, and are steeped in a corporate culture that perpetuates gender stereotypes.
In a footnote to that “long been known” sentence, Ginsburg cites Goldin and Rouse’s paper on discrimination in Symphony orchestras (revealed by the comparison of blind with non-blind auditions). The partial dissent does not mention Bielby’s testimony.
I’ll leave it to those more qualified than myself to assess the technical aspects of the ruling (e.g., with respect to Daubert), along with its meaning and likely consequences. It’s worth noting, finally, that even as they dismissed certification for the class, the three women on the court joined the dissent.
I think the nexus of law and organization is a fascinating area. While doing some searches in this space, I ran into former guest blogger Jerry Davis’s recent, provocative article on the matter – arguing that the public corporation has reached its twilight:
During the five decades after Berle and Means published The Modern Corporation and Private Property in 1932, their analysis became the dominant understanding of the American corporation. Social scientists, policymakers, and the broader interested public knew about the separation of ownership and control, the potentially fraught relations between shareholders and managers, and the image of the corporation as a social institution. Berle and Means’s view of an economy dominated by a handful of ever-larger corporations run by an unaccountable managerial class inspired scholarship from sociologists (who were convinced they were right) to financial economists (who wanted to prove them wrong) to lawyers (who contemplated the rights and obligations implied by this system).
A decade into the twenty-first century, however, the public corporation may have reached its twilight in the United States. The “shareholder value” movement of the past generation has succeeded in turning managers into faithful servants of share price maximization, even when this comes at the expense of other considerations. But the shareholder value movement also brought with it a series of changes that have undone many core features of the Berle and Means corporation. Corporate ownership is no longer dispersed; the concentration of assets and employment have been in decline for three decades; and today’s largest corporations bear little resemblance to the companies analyzed by Berle and Means. Moreover, there are far fewer of them than there used to be: the United States had half as many publicly traded domestic corporations in 2009 as it did in 1997. In another generation, the Berle and Means corporation may be just a memory, overtaken by new forms of organization and financing.
Here’s the link and full citation:
The hallmark of “Indiana institutionalism” is an emphasis on struggle and conflict. Rather than assume the influence of macro-social processes, the scholars around here tend to focus on social movements, legal challenge, and contention. I’d like to draw your attention to a nice paper by my friend and colleague Tim Hallett. The Myth Incarnate is all about coupling processes in organizations, and brings an brings an important psychological dimension to institutional theory.
His question is simple: What happens to an organization when somebody tries to make you actually do the mission statement? In institutional lingo, this is “recoupling.” His example is accountability standards in schools. He has a nice ethnographic study of school where a new principle tried to enforce new accountability procedures. The result? People freaked out:
Turmoil is foremost a state of epistemic distress, but it has another social-psychological component. Epistemic distress involves a collapse of meaning, but eventually teachers responded by reconstructing meanings in ways that defined emergent battle lines. When teachers talked to each other and to me about the past, they were not just describing their experience; they were infusing it withmeaning. ‘‘Turmoil’’was their term, and it is not a neutral one. Talk is a basic element in the politics of signification (Benford and Snow 2000; Hall 1972), and teachers’ ‘‘turmoil talk’’ had political aspects (Emerson and Messinger 1977). Teachers had no formal authority to fight recoupling, but they did have the informal symbolic power (Hallett 2003) to shape meanings. Turmoil has a negative connotation, and teachers used their version of events to construct the recoupling negatively.
I liked this study as an example of where macro-political processes hit the ground and institutions create conflict, rather than resolve them. “Must read” for folks interested in institutional work and organizational conflict.
If you love organization theory and institutional analysis, you’ll find the most recent edition of the Academy of Management Journal very interesting. December 2010 is dedicated to exploring new directions in the study of organizational environments. Here’s the table of contents.
Changing Landscapes: The Construction of Meaning and Value in a New Market Category—Modern Indian Art
Stable category meanings act as institutions that facilitate market exchange by providing bases for comparison and valuation. Yet little is known about meaning construction in new categories or how meaning translates into valuation criteria. We address this gap in a descriptive study of these processes in an emerging category: modern Indian art. Discourse analysis revealed how market actors shaped the construction of meaning in the new category by reinterpreting historical constructs in ways that enhanced commensurability and enabled aesthetic comparisons and valuation. Analysis of auction transactions indicated greater intersubjective agreement about valuation over time as the new category institutionalized.
Precarious Values and Mundane Innovations: Enrollment Management in American Liberal Arts Colleges
Drawing primarily from Selznick’s institutionalism, we make a general case for renewed attention to the “mundane administrative arrangements” that underlie the organizational capacity for value realization and a particular case for the study of value-subverting management innovations. An empirical study of “enrollment management” in liberal arts colleges reveals this ostensibly innocuous innovation’s value-undermining effects and identifies the organizational and environmental factors that have made these venerable organizations more or less susceptible to its adoption.
Lots of other goodies: Lok on organizational identity; Battilana and Dorado address organizational identity with a study of micro-finance groups; Marquis and Huang discuss founding conditions and path dependence in the banking industry; McClean and Benham discuss corporate misconduct. And there’s tons more!
Finally, if you’d like to read my latest thinking on institutions, movements and organizational change, I have an article about how organizational leaders can expand their power through manipulating institutions (“Power Through Institutional Work”). I explain how one college president used the institutional disruption associated with the Black Student movement to redefine his powers and repress the movement (sort of!).
I was doing some aimless browsing this morning — here are a few law and economics-type papers on the matter of organizations as real persons versus fictitious entities (beyond some of the classics that we’ve referenced here before).
Iwai, K. 1999. Persons, things and corporations: the corporate personality controversy and comparative corporate governance. American Journal of Comparative Law.
Gindis, D. 2009. From fictions and aggregates to real entities in the theory of the firm. Journal of Institutional Economics.
Smith, B. 1928. Legal personality. Yale Law Review.
Ripken. S. 2009. Corporations are people too: A multi-dimensional approach to the corporate personhood puzzle. Fordham Journal of Financial & Corporate Law.
Pagano U. 2010. Legal persons: the evolution of a fictitious species. Journal of Institutional Economics.
Binder, J. 1907. Das Problem der juristischen Persönlichkeit.
UNRELATED BONUS. While browsing I also ran into this:
In his interesting and controversial review article, Fabio Rojas (2006) refers to the ‘imperialism’ of sociological theories of market behavior and argues for recognizing the essential importance of culture and social structure in explaining economic behavior and outcomes.
That’s Nobel laureate Elinor Ostrom’s first line in this article.
Any good consultant or best-selling management guru knows that organizational performance and success simply [wink] requires the articulation of a visionary go-to-the-moon-type mission statement or better yet, a “big, hairy, audacious goal” (you know, a BHAG, pronounced BEE-hag, I’m not kidding).
Goals matter. The bigger, the hairier, the better. You want people to have to stretch. There’s certainly a solid and long (Latham, Locke etc) tradition of research on goal-setting that offers some support for this argument. And, at a more macro level, organizational goals and aspirations are also central to the behavioral theory of the firm.
But both the goal-setting and aspirations literature have recently been challenged/revisited. In short, the argument is that stretch goals and aspirations may not be the panacea that they have been made out to be —- aggressive stretch goals may lead to unethical behavior, they may demotivate, they may lead to excessive risk-taking, etc.
Goals of course are not bad in and of themselves, I likes me a goal just like anyone else. But, the consultant folklore of aggressive stretch goals, exciting as it is, needs to be ratcheted down a notch or two to account for important theoretical contingencies (which, to be fair, much of the original goal-setting literature also addressed).
Here are two recent papers that discuss some of the above issues:
Sitkin, See, Miller, Lawless & Carton. 2011 (forthcoming). The paradox of stretch goals: Organizations in pursuit of the seemingly impossible. Academy of Management Review.
Ordonez, L. D., Schweitzer, M. E., Galinsky, A. D. & Bazerman, M. H. 2009. Goals gone wild: The systematic side effects of over prescribing goal setting. Academy of Management Perspectives, 23: 6–16.
Amartya Sen’s book The Idea of Justice (Harvard, 2009) is easily one of the best books I have read over the last couple years. Genius. The topics discussed in the book include social welfare, choice and comparative institutions, governance, philosophy, justice and equity, ethics. Here Sen gives the cliff notes at the Common Wealth Club of California (Feb 2010):
I found this interesting, the Strategic Management Society (respected body of academics and practitioners in the area of strategic management) is looking at creating a “strategy certification.” Here’s the logic:
You have your taxes completed with the help of a CPA and make your financial investments with counsel from a CFA. You might exercise with a certified personal trainer or a certified yoga instructor or send your invoices to be put into Quickbooks by a certified virtual assistant. So, of course, when you are developing strategy—a strategy that may require you and your organization to take considerable risks or make sizable investments and difficult decisions—you call on the insights of a certified strategist.
If only there was such a person. [More here.]
“Certifying” a strategy raises some interesting questions. So, what Certified Public Accountants do is one thing. Auditing and certifying the financials of an organization is based on the principles of comparative similarities (for example, based on rules such as the GAAP). Strategic activity, on the other hand, is about comparative differences between organizations — differentiation is the sine qua non of strategy. Organizational strategy, furthermore, is forward-looking and thus it is hard to somehow “certify” subjective assessments — where agreement is extremely unlikely — and the prospects of some radical innovation or course of action. What to one looks like an escalation of commitment, to another might look like a bold strategy. In short, I find it hard to see what exactly could be certified about an organization’s strategy.
I suppose one might think about certification and stakeholder-related considerations (indeed, these are raised in the above link), but then we get into all kinds of value-related issues. For example, I’m guessing we would get a wide range of opinions from organizational scholars on whether Wal-Mart’s strategy should be certified. This certification issue seems fraught with some of the same problems as “evidence-based management” — passing muster depends on whose evidence we are using and who is certifying. And, don’t extra-institutional actors, essentially, provide a type of legitimation that proxies certification —- protests and activism send signals that serve as a de facto, albeit ex post and noisy, certification.
A couple of years ago Gordon Smith and I had a paper published in the Arizona Law Review that imported insights from organizational theory to legal scholarship on contracts. Although the article has yet to make a big splash, I still think the potential is there for organizational theory to have a big impact on corporate legal scholars. The reason is that law professors are borrowers. Legal scholars don’t come up with their own theories of the social/economic worlds. For the most part, they have looked to economics to guide their thinking in corporate law, but as we saw following the recent financial crisis, even the most ardent participants in the law and economics movement have had doubts about the viability of this orthodox tradition. The time is ripe for the borrowing of new theories.
Imagine that a group of corporate law profs got together to read organizational theory. What would you recommend they read? Here are a few suggestions:
- The classics of course.
- There is a lot of great work in the economic sociology of law that has yet to seep into the corporate law literature. I’m thinking of Edelman’s work on the ambiguity of law and organizational compliance; Suchman and Edelman on the normative and cultural aspects of firms’ legal environments (in particular, see Edelman’s 1990 AJS piece on the indirect effects of law); and Dobbin and Sutton on the normative role of the state in shaping corporate policy.
- Agency theory has largely guided legal scholarship on corporate governance. OT’s contribution is to examine the limitations of agency theory in explaining executives relationship with shareholders. In particular, I recommend Westphal and Zajac on the symbolic management of shareholders and their related work on board independence and CEO power. Their work demonstrates why some of the solutions to agency problems touted by economists don’t work like you’d expect.
- Organizational scholars have recently been interested in alternative forms of corporate regulation, including private certification systems as a means to control firm behavior. I recommend Bartley’s work on the political construction of private certification systems; Vogel’s essay on why private regulation has emerged to make up for the deficiencies of global and national regulatory regimes; and Dobbin and Dowd and Fligstein on the effect of anti-trust and other kinds of regulation on the competitive strategies of firms.
As I wrote this, it occurred to me that much organizational theory is useful to legal scholarship because it shows the unintended consequences that legal changes have on corporate and executive behavior. What other recommendations would you make? Feel free to post them in the comments.
The most recent issue of the Journal of Institutional Economics has an excellent exchange of ideas on organizational economics. The issue begins with an essay by Richard Posner: “From the new institutional economics to organization economics: with applications to corporate governance, goverment agencies, and legal institutions.”
The essay indirectly and directly touches on all kind of questions: What are comparative similarities in governance between private versus public organizations? What role do incentives and compensation play? What is organizational economics? Are executives overpaid? Many of these issues are discussed in the context of looking at two government organizations — the intelligence community broadly, and the FBI. Interesting stuff.
Even cooler than the essay itself: more than a dozen scholars were asked to write essays in response to the above, and they also raise a host of new issues: Who are actors and entities, what are markets? What is the role of intrinsic versus extrinsic motivation? Do theories readily apply across various contexts — e.g., across different types of organizations? Where is mainstream economics versus more heterodox approaches? Etc. The responders include Elinor Ostrom, Bruno Frey, John Roberts, etc. And, Posner then in turn responds to these comments.
What ever happened to the rating agencies? Back in the heyday of the financial meltdown, there was lots of talk about how Moody’s, Standard & Poors, and Fitch caused (or at least exacerbated) trouble by recklessly under-estimating the risks of securities. And of course, there was lots of discussion about why these supposed arbiters of trust failed so spectacularly and what to do about it. There were rumors of rating agencies tossing out AAAs without even opening the books. (“Grade inflation” of a different sort!)
But then recently, things seem to have gone quiet on the rating front.
Even before the crisis, there was a bit of debate about whether the rating agencies were trustworthy or not. In a brilliant stroke of titling (“The Siskel and Ebert of Financial Markets“), Frank Partnoy argued that the problem was that these supposedly private agencies actually have a state-supported oligopoly and their decisions make certain courses of action obligatory. This removes the discipline of the market and reputational incentives to generate accurate information. Partnoy favored dropping rating altogether, while others used this diagnosis to argue for more fully marketizing these opaque oligopolies. In recent New Yorker article, James Surowecki echoes this argument, but also makes the interesting claim that big investors prefer to have even flawed rating agencies there in order to simplify their decision-making and have someone to blame when it all goes wrong.
It turns out that organizational and economic sociologists have some important things to add here. A few papers from the upcoming “Markets on Trial” volume tackle the rating agencies head on. Neil Fligstein and Adam Goldstein argue that you can actually see an inflection point (around 2003) when the ratings for the subprime market start to bear no relationship to reality. Papers by Bruce Carruthers and by Akos Rona-Tas both apply arguments about performativity and reactivity to this context. Carruthers argues that new rating methods for the subprime market were shared publicly, leading bond issuers and raters into a “co-performativity of the models embodied within the rating methods.” And he goes further to argue that it is commensuration (achieved through rating) and expert communities, not “animal spirits,” that brought on the herd mentality. Rona-Tas uses a fascinating comparison of corporate credit rating and consumer credit rating (think, “free credit report.com” dudes) to explore the conditions for reactivity (gaming the system, or “counter-performativity”) and endogeneity (obscuring causal chains).
Obviously, both of these last papers build on theories of performativity in markets and on Espeland and Sauder’s work on reactivity, which focuses on ratings of law schools (and occasionally also business schools).
All combined, I think this makes the topic of rating and ranking (plus related issues of categorization and certification) one of the most vibrant areas of for theory today. If I’m not mistaken, there will be a fascinating panel on this at the SASE conference in Philadelphia this summer. In any case, maybe this announcement (“the SASEs are coming!” ala the title) induces performativity (but not reactivity).
The question is, what other cases of rating/ranking deserve to be on the list of cases to explore? And are they really comparable? A short and rough initial list includes the following:
- academic rankings
- credit rating
- ratings of corporate social responsibility
- movie ratings
P.S. I’m headed to Berkeley next week to present in the Oliver Williamson seminar on institutions. I promise a field report toward the end of next week.
On Wed January 27, the Universityof Michigan will host the American Orchestras Summit. It’s free and open to the public. The conference is about the changing nature of the orchestra as an institution and organizational form. Academics, musicians, managers, composers. Everyone will be there. Here’s the schedule. I’ll be moderating a panel on the orchestras as an organizational form: “Thinking Outside the Box: Organizational Structures and Strategies.” PIERRE BOULEZ will be at the conference on Thursday. This is essential if you care at all about cultural organizations or you want to meet Pierre Boulez.
Two weeks ago, I was invited to give a seminar at the Illinois Department of African American Studies. I was hosted by the students in the PhD core course and their instructor, Abdul Alkalimat. The discussion was a very long interrogation of my book, but I’ll share with you one very interesting exchange. At one point, I said something like: “Skip Gates won. His version of Black Studies is the dominant one in the field.” Immediately, people disputed this point and we got into a discussion of what is to be learned from the “Skip Gates experience.”
In case you don’t know the history, it goes something like this. In 1969, the Harvard administration approved a Black Studies program (now called African and African American Studies). By the late 1970s, it was clear that the program was a failure: minimal enrollments, faculty avoided the program, and no research impact. Then, Henry Louis (“Skip”) Gates, Jr. assumed the chair of the department in 1991. By the late 1990s, Harvard assembled a “Dream Team” of super prestigious scholars that completely reoriented Black Studies at Harvard.
- Academia is a set of overlapping games. There is no single game that defines all of higher education. Thus, Skip Gates intentionally avoided certain social domains – such as nationalist intellectuals. But he has carefully cultivated mainstream media and disciplinary connections.
- Gates clearly won the high status media game. I’d bet that Harvard Black Studies was mentioned more times in the New York Times than probably many Harvard departments.
- Gates clearly moved Harvard’s program into a new zone of respectability. Sure, there are still the haters, but they’ve boosted enrollments, attracted scholars of unimpeccable credentials, and the department has a new PhD program.
- Gates won the money game. By all accounts, he spearheaded an incredibly successful fundraising program that has given the program unusual stability and independence.
- The research prestige game. The Harvard program’s rejuvenation caused a ripple effect where other administrators at research schools started asking how they could renew their programs.
- The interdisicplinary program format that Gates used is the one found in most programs.
Now let’s talk about the games Gates didn’t win or didn’t care to play:
- The organic intellectual: As our friend Mario Small pointed out in 1999, other Africana scholars orient themselves towards movement audiences. Gates actively criticized nationalism and hasn’t affected this audience.
- Intellectual influence: The scholars associated with Gates’ program are hugely influential – in their home non-Black Studies discipline. Gates, for example, is a highly regarded literary critic, but if you look at Black Studies syllabi, you don’t see his work assigned very often. Similarly, the scholarship that informs the typical NCBS presentation doesn’t rely too much on the work of the scholars at Harvard. Harvard isn’t informing the core of the discipline, it’s more like an interdisciplinary area studies program that’s collected the best scholars in fields that happen to study African Americans.
- The undergraduate game: Even though Harvard’s program is enjoying more success among undegraduates, there’s little evidence that the average program in the country has seen a boost in enrollment.
The jury is out on the following:
- PhD placement: Their PhD program has only been running for a few years, but one might ask: are the graduates getting well placed? Is there a particularly distinctive style to the research done in their doctoral training? How is placement of African American doctoral degree recipients? For example, would an African American doctoral student be better off in history or the AAS department?
When you get down to it, Skip Gates has accomplished an enormous amount. He’s playing and has won a very specific game: the game of legitimation in elite academia and mainstream intellectual circles. It’s important and it’s a battle that needs to be fought. But from the perspective of the Black Power movement, it’s really only one small battle in a large struggle for recognition in higher education.
Mary Tripsas has a nice piece related to organizational identity in today’s New York Times: “When Names Change to Protect the Future.“
Last night I attended a Northwestern domain dinner for faculty on campus interested in sustainability issues. The talks, including one by my colleague Klaus Weber about the role of social movements in encouraging sustainable practices in the market, were interesting and sought to cross disciplinary boundaries. One of the issues that always comes up when talking about sustainability is the link between corporate environmental/social performance and profitability. I’ve been thinking about this lately since my PhD class is reading David Vogel’s excellent The Market for Virtue. One of Vogel’s main points is that profitability may be an elusive goal of socially/environmentally responsible behavior.
[E]ven if it were possible to convincingly demonstrate a positive causal link between CSR and financial performance, it is unclear what this would prove. If some firms are actually more profitable because they are more responsible, it does not necessarily follow that their less responsible competitors would be more profitable if they were more responsible. It is equally possible that the market niche for relatively responsible firms is limited and that they would be better off continuing to pursue a less responsible strategy. And a link between responsibility and profitability does not necessarily mean that firms would be even more profitable if they were more responsible, since there may be declining returns for behaving more responsibly. In fact, if all firms behaved responsibly – which presumably is the goal of the CSR movement – then at least some of the advantages a firm receives from being more responsible than its competitors would disappear, and thus, ironically, future studies of the links between CSR and profits would find no statistically significant relationship (pg. 34).
That firms may be competing in a market for “virtuous” behavior seems to escape a lot of the research on CSR. Hundreds of studies have tried to identify a link between CSR and financial performance, some more successful in their efforts than others. In a meta-analysis of this literature, Josh Margolis and his coauthors found that, at best, there is a weak link between the two. In fact, there is a stronger relationship between past financial performance and future social performance than the other way around. They wonder if firms that try to compete with companies that have an established history of good social performance may be wasting their free cash flow.
Does this mean that activists and academics should stop trying to get companies to behave themselves? Absolutely not. But I think it does suggest that activists may be better off focusing on the normative and coercive avenues for influencing corporate behavior and stop trying so hard to sell every company on the idea that sustainable practices will be profitable. Save the profitability talk for those companies that have the most to gain (and lose) from sustainability.
Let me begin by offering my thanks to the OrgTheory team for inviting me to guest blog!
I’ve been thinking a lot about the growth of practices, found among a variety of types of organizations, in facilitating stakeholder participation and also in encouraging the adoption of participatory (or what some call “new”) governance structures. It seems clear that this is linked to the rise of neoliberalism (and, indeed, institutional analysis itself). While there’s much that’s appealing about facilitating participation – more accountability in organizational processes, the potential for consensual deliberative processes, devolving decision-making to the bottom in order to overcome (some of) the rigidity of bureaucracies, and the potential for more meaningful engagement – there are also serious trade-offs to consider.
Much of this discussion is well established. Most are familiar with Fung and Wright’s (2001) argument for the benefits of thick participatory governance, which provides examples of a number of reforms: local governance councils in Chicago, participatory budgets in Brazil (see also Baiocchi 2003), and the devolution of development decisions in India. They describe these as instances of Empowered Deliberative Democracy (EDD).
Consider also that nonprofits have been picking up what’s been left behind by a number of state agencies. Non-membership organizations like think tanks, institutes, policy centers, etc. often collaborate with member-based civic groups in order to make up for what they inherently lack in grassroots participation. Disclosure and transparent governance continue to be hot buzzwords. Increased stakeholder participation is encouraged on both the right and the left, although for quite different reasons. And it’s not just a question of voluntary compliance for organizations, but often one of mandated public participation (especially in the public sector through environmental review boards, zoning hearings, planning commissions, etc.).
What I find most interesting about the “new governance” and the augmented stakeholder focus of organizations is not just how it spans sectors (and encourages diffusion of practices between for- and non-profit organizations and public sector agencies), or even the somewhat surprising political coalitions that tend to advocate for these practices. Instead, what stands out for me is something often overlooked: how participation is employed strategically from the top-down, and often channels participation in directions that suit elite agendas (even if done with progressivist aims in mind). Although others have already raised concerns about the role of power in empowerment and the democratic limitations of governance beyond the state, there’s another side to it.
There are, for example, now whole industries devoted to facilitating public participation, and their clients span sectors (although individual firms and industry associations make up the majority). I’ve written about how the massive growth of civic organizations in the late 1970s and early 80s, in combination with increasing mobilization of industry associations, influenced the founding patterns of professional grassroots lobbying firms; these are groups that, for a fee, help to mobilize public participation on behalf of a corporation, industry group, government agency, or public interest group. The growth of this organizational population, as I see it, serves as a case in which outside organizing helped to facilitate the emergence of a new organizational form. These groups have been quite active in the recent health reform debate (a topic I’ll post about later), and have had their own legitimacy called into question quite prominently lately. Although they focus most heavily, but not exclusively, on promoting forms of “thin” participation like form e-mailing, patch-through calls, advocacy advertising, and the like, there are also other formal organizations out there that attempt to facilitate “thicker” forms of participation and deliberation for clients (Caroline Lee has been doing great work on groups like the latter).
I find this important for org theory in getting us to think not only about how participation shapes organizational legitimacy, but also how elite organizations shape social movements and civil society. Thinking about the latter, the opposite has received a lot of much-deserved attention (movements shaping organizations), but we also need to think about how organizations are reshaping their civic and political environments through facilitating participation. Organizations often take strategic action in response to institutional pressures and, although influenced by stakeholders, also engage in efforts to mobilize them from the top down. Whether they can do so effectively, of course, depends on whether key stakeholders are already aligned (or can be brought into line) with an organization’s agenda. Consumers of a particular pharmaceutical who depend on it for their survival may not be too difficult to mobilize in response to legislation that, the producer says, could threaten their product or its distribution (especially when participating “costs” so little). Employees involved in a labor dispute, when asked to write letters on behalf of the firm’s broader political interests, on the other hand… notsomuch. And there’s still the concern that organizational political activity often comes with costs, whether in contradicting a firm’s corporate social responsibility program or in threatening a nonprofit’s tax exemption.
I’m curious to hear what others make of the trend toward facilitating participation in organizations.
The summer issue of the Hedgehog Review is dedicated to the “moral life” of corporations. Definitely worth checking out:
- Interview with economic sociologist Viviana Zelizer.
- Case study of corporations and the debate over the environment. by Ted Steinberg.
- A nice article by David Franz on different views of the corporation’s role in society.
Structure is a broad concept. Definitions of organizational structure, depending on the purpose and context, can seemingly anchor on a broad gamut of things: social interaction, decision-making, authority and control, patterns, action and choice sets, agency and autonomy, constraints, specialization and expertise, influence, institutions, behaviors, incentives, environment, etc etc.
Given all that, does anyone happen know of an article that gathers classic and extant definitions of structure? I could not find anything with my google/database searches — other than a 1982 AMR article — but, surely there’s some kind of recent overview/review article that captures extant definitions. If you happen to know of a source, please let me know.