another world is possible, and Stinchcombe is its prophet

The recent and abrupt end of that whole “shareholder capitalism” fad that swept the US indicates that we are at an interesting turning point in the organization of the economy.  Surprisingly, this may be an opportunity for organization theory to have a place in creating a more humane society in the US.

My previous posts (and recent writings) have described developments that undermine the idea of a society of organizations in the US.  One is the disaggregation of production into an OEM model, where the parts needed to create a (temporary) organization are widely available (even to a guy in Irvine with an idea for cheap LCD televisions to compete with Sony and Samsung).  Another is the hegemony, and then the downfall, of the shareholder value model.

Meanwhile, back at organization theory, the dominance of neo-institutionalism has rendered the field largely irrelevant to any practical concerns.  We’ve got a lot of fun exposes of hypocrisy, documentation of diffusion processes dressed up in sociological mumbo-jumbo, and arid discussions of agency-structure dialectics.  But our understanding of organization design – formerly the practical application of organization theory — has languished, and other fields have stepped into the breach (particularly economics and information systems). 

But if the rightful domain of shareholder capitalism has retrenched, as I believe it has, then this might be an opening to rehabilitate organization theory, and even neoinstitutionalism, in the service of creating more participative enterprises.  Institutionalists describe the process by which entrepreneurs draw on the parts available (strewn around the landscape, in Meyer and Rowan’s imagery) to create organizations or projects.  One of the recurring themes of the literature is the role of bricolage (building “with the ruins” available), while another is the pervasive use of analogies and metaphors in creating new forms.  (“It’s like a McDonald’s drive-through for kidney transplants.”)  This kind of thing can be taught, say, to paying customers in b-schools.

If I’m right about the end of the “society of organizations,” or at least the end of the dominance of 20th-century-style encompassing corporations, then we may be on the verge of a Cambrian explosion of new organizational forms.  This time, however, we may be able to escape the utter dominance of shareholder value.  It’s happened before — consider the explosion of cooperative forms created in response to the first wave of corporatization, documented by the estimable Marc Schneiberg.  We still have a surprising number of such non-corporate forms around, even in the US: State Farm Insurance (a mutual), Land ‘o Lakes (a producer cooperative), REI (a consumer cooperative) and the 8000 non-profit credit unions that enroll an amazing 86 million Americans.  (It turns out the US is already socialist, but doesn’t know it.)  And how about Wikipedia, Linux, and the various social movements that generate spontaneous collective action in the absence of a profit motive (e.g., Iran’s “Twitter revolution”)?

Another world is possible, and Art Stinchcombe is its prophet. We’ve been dealt a hand of fantastic new technologies for organizing, and are temporarily free of some of the old constraints in which all enterprises have to end up with an IPO.  Organization theorists can midwife a new period of experimentation by compiling our “flea market” of alternative organization types, and mashing them up with new technologies that lower the costs of coordination.   Examples include Kiva (, which allows people to do individual micro-lending, or, where you can post or contribute to open-source projects.  (Incidentally, I’d love examples of this, if people have them.) 

So, to the barricades, or the organization design classroom!  I’m waiting to see that iPhone “democracy app” that turns GM into a kibbutz.

Written by Jerry Davis

September 28, 2009 at 1:10 am

24 Responses

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  1. Great post! I really like the spirit of it. I frankly think that there is such astonishing variety in organizing/organizations that it’s hard to stereotype — our work in org theory only captures a small variety of the actual, let alone the possible.



    September 28, 2009 at 4:09 am

  2. “The recent and abrupt end of that whole “shareholder capitalism” fad that swept the US”

    Really? Shareholder capitalism has been around since before the East India Company. Do you have any references in mind? Wikipedia and kiva do not a revolution make.



    September 28, 2009 at 4:20 am

  3. Jerry: Are you going to write “Bringing the Diversity Back in” article?

    Hmmmm… maybe I should write that one…



    September 28, 2009 at 4:39 am

  4. I agree wholeheartedly with Jerry that the decline in research in organization design has been a problem of and for organization theory.

    Most of the major theories of organizations- ecology, institutional theory-resource dependence, transaction costs– were first developed in the 1970s, towards the end of hegemony of the vertically integrated firm dominated by internal labor markets. We live in a new organizational reality but most of our theories treat the organization as a black box. Ironically, organizational economics has opened the black box of organizations at the same time sociological perspectives moved to open systems approaches that care little about organizational structure and design. There are of course, exceptions– for example, Gulati and Tushman had a conference last year on this topic and have a special issue call for papers in SMJ.

    But Jerry also calls for a study of variety in organizational forms. This must include the Wal-Mart and Google’s of this world as well as the Kivas. The move from physical to human capital, knowledge, and technology is a key factor in the transformation of organizational forms, but economies of scale and scope still remain important.

    Whether we are talking about the death of a society of organizations, as Jerry subscribes, or the death of the GM model of organizations, an increasing emphasis in the study of organizational forms, structures, and design is called for.



    September 28, 2009 at 1:47 pm

  5. Willie is right again, and for anyone that missed it, I’d point to Brayden’s nice post on the need for comparative organizational analysis:
    which should absolutely include Wal-Mart (America’s largest employer by far, even with its 40% annual turnover rate) and Google (which is evidently very kind to its 20,000 employees, but a flyspeck as far as employment).
    I’d also emphasize that we might do well not to study just what is, but would could be. B-schools have a habit of describing to their students companies that have recently been successful, and then trying to unpack their “key success factors” so that these students might emulate the winning practices of certified good-to-great companies like Circuit City and Fannie Mae. We might do better to equip students with tools and turn them loose to experiment, rather than to emulate. And we might imagine exposing students to non-obvious sources of inspiration that don’t trade on stock markets. How about CREF (a non-profit) or Vanguard (a mutual)? Or, stranger still, structures that are not actually organizations but manage to accomplish coordinated action, like industrial districts, or Nordic states, or social movements?
    As for shareholder capitalism: yup, it’s over, the East India Company notwithstanding. (To be more specific, what’s over is the concept that economies should be centrally organized around the concept of public corporations operated according to the theory that they exist to create shareholder value. There will always be shareholder-owned corporations, but there will not always be shareholder capitalism.)



    September 28, 2009 at 2:16 pm

  6. The study of org structure and design should be normative as well as descriptive. Unfortunately, normative theory in organization these days is almost all about financial performance or as it is theoretically motivated “sustainable competitive advantage.”

    The death of organization design research was accompanied by the death of organizational effectiveness research. Hirsch and Levin (1999) have a great paper in Org Science about the death of organizational effectiveness- Umbrella Advocates and the Validity Police, which I strongly recommend.

    To study organizational design, one should study the possible, as Jerry indicates. One also needs normative criteria. Organizational effectiveness, however imperfect, was better than the current exclusive focus on financial performance.



    September 28, 2009 at 3:14 pm

  7. Again, really? The overwhelming majority of economic output is produced by firms which claim to maximize some sort of shareholder value. Google certainly falls into this category–it may treat workers well and have an ethical slogan, but it also finds these tactics boost profits. It has been very successful at delivering returns to shareholders.

    I’m completely willing to be convinced otherwise. But I’d like to see some numbers or references beyond kiva and credit co-ops. The developing world certainly seems to love shareholder capitalism, so it will be around there if nowhere else.



    September 28, 2009 at 3:48 pm

  8. Jerry may be right about the death of shareholder value model (or at least its hegemony in the United States), but it is too early to tell for sure.

    The resistance to Obama’s reforms of Wall Street is one example where the shareholder value model is still alive, if under assault.

    The 401K model for financing retirement creates a lot of shareholders who want strong market returns. The Dow Jones is back to almost 10,000 which makes many think, what’s the problem?



    September 28, 2009 at 4:20 pm

  9. I’m heartened by Jerry and Willie’s call for more research into how to re-imagine the design of organizations. This a line of research that I’ve been advocating in my book and blog (in particular, see the post

    While I can’t comment on whether the shareholder model is on the decline, I can point out to readers like Thorfinn that previously, organizational research studied “alternative” or participatory forms in great detail. Think of Whyte and Whyte’s research on the Mondragon worker cooperative along with other studies of cooperatives, the several studies on the leaderless Orpheus orchestra, grassroots-driven social movement organizations, etc. Taken together, these studies offer the opportunity to think through conditions that would allow such forms to thrive and reflect their members’ interests, as well as address hurdles that might lead to an organization’s folding.

    Personally, I keep waiting for the increasing numbers of out-of-work professionals to realize that banding together as a worker cooperative might be an alternative to serving as disposable, contingent labor for a large firm.



    September 28, 2009 at 4:58 pm

  10. Katherine, thanks for your comments.

    I visited Mondragon back in 1989. A fascinating place. But note that now Mondragon is a multinational corporation, albeit owned by the coop but not all employees are members of the cooperative and they also have a lot of investments in subsidiaries that are public corporations or joint ventures. Faced with globalization pressures they expanded outside of the Basque region and Spain and initially their workers in Brazil and other areas were not members of the cooperative. While in the Basque area all workers were coop members now less than half its employees are, although they are trying to increase that.



    September 28, 2009 at 5:22 pm

  11. OK, a more serious answer for Thorfinn. It is conceivable that I was being rhetorical by refering to shareholder capitalism as a fad. But if we stipulate my definition of shareholder capitalism (economies centrally organized around corporations claiming to exist to maximize shareholder value), then I’ll still stick with my claim.

    First, shareholder capitalism was unique (or nearly so) to the US in the first place. The world’s five largest economies by GDP are the US, China, Japan, India, and Germany. Skip the US for a moment. I think we can agree that it would be odd to refer to China’s economy as “shareholder capitalism.” Japan has a number of corporations that have listed shares in the US since the 1970s, but other than Sony, they have almost universally clung to a Japanese format of corporate governance. Notably, the new Prime Minister of Japan published an essay in the New York Times last month decrying “unrestrained market fundamentalism,” and any Japanese CEO (other than Howard Stringer) that claimed that their firm existed to create shareholder value would face some scrutiny, to say the least. India, I’ll leave to you. And Germany has far fewer public corporations (656) than Hong Kong (1165) or Malaysia (1027), with a far more central role in corporate governance played by banks even now. Again, “shareholder value” was a short-lived blip in Germany, as a nice paper by Peer Fiss and Ed Zajac describes.

    So, I’d have a hard time calling any of these four economies shareholder capitalism. (I’d also note that most developing economies that create stock exchanges find them to be miserable failures: check out this paper by Klaus Weber, Mike Lounsbury, and me:

    On to the US. Consider the Fortune 100 largest corporations in 2008. As of now, the Federal government owns large and often controlling stakes in six of them (GM, #4; Citigroup, #8; AIG, #13; Fannie Mae, #53; Freddie Mac, #54; GMAC, #78). Four are military contractors receiving 50-90% of their revenues from the US government through programs under substantial revision (Boeing, Lockheed Martin, Nothrop Grumman, General Dynamics). Six are in health care, three are pharmaceuticals, and three are health care wholesalers — all on the verge of an interesting potential reorganization. And of course several have gone through bankruptcy or forced sale. (Yes, I’m writing a paper on the topic currently, which is why I have this stuff handy.)

    I believe there is a broad perception in the US that the “shareholder value uber alles” model has come up short. Lots more of us own shares than in the past, as Willie notes, but not enough to retire on: the median household portfolio among the roughly half of families that own stock is worth $23,000, according to the latest Fed Survey of Consumer Finances report. And as I described in a previous post, the turnover in the Dow is much higher than it used to be, making it an especially inaccurate indicator of the health of the economy. (In 1987, 16 of the 30 firms in the Dow had been there since the start of the Depression. After a generation of “shareholder value,” only 3 are left — Chevron, Exxon, and GE.)

    Speaking of Google, keep in mind that when the firm went public, it explicitly rejected the idea of shareholder value maximization, and followed a practice (dual class capitalization, in which Sergei, Larry, and friends each got 10 votes per share) noxious to all corporate governance mavens, specifically so they could disregard shareholder pressure if it meant violating the “don’t be evil” dictum. (This is a common practice among newspaper firms like the New York Times, Washington Post, and formerly Dow Jones, with the same rationale of being able to ignore share price when necessary.) Google creates lots of shareholder value, but that is not (they claim) their purpose.


    Jerry Davis

    September 28, 2009 at 5:55 pm

  12. Jerry, thanks for the post.

    Actually, the corporate structure in India is pretty interesting. The legacy of the industrial licensing system has left a number of highly-connected conglomerates run by families (ie, Reliance, Tata); though you have a number of entrepreneurs (Jindals, Adani) now as well.

    Most big companies are public, and rely relatively more on equity financing than in other countries (India’s electrification is to a large extent privately built and equity-financed, which is fairly historically unique). Standards of financial reporting are relatively high and regulators are tough; so in that sense you have some shareholder capitalism.

    The difference is largely that the dominant shareholder remains within the family (Google style). This can be a bad thing (Satyam) but in many cases seems to align the interests of the managers towards some idea of the long-term.

    I’m sure others have written on this, but issues of trust and caste are really big here. Indian business grows directly out of the experience of trading groups, which used family/marriages ties within caste to substitute for formal legal structures, and built financial instruments (hundi) cross-country.

    Maybe this reflects the death of shareholder capitalism; or at least a shift from a world in which the manager ostensibly is kept in line by holders, to a world in which you have a dominant shareholder who needs to be checked to preserve minority interests.

    Yes, the government owns plenty of companies now. But as it seems likely to divest soonish, that’s perhaps not the best guide to the future structure of the economy. Turnover in the Dow is great–Schumpeter at work! Just because a company makes money from contracts doesn’t mean it can’t have shareholder governance. And pharma may influence the government more than the other way around! See how those lofty newspaper chains are selling out and becoming a part of profitable media chains. Even the US, the situation is complicated.

    I’m surprised you haven’t mentioned private equity. That’s a hugely important alternative (and certainly more viable than government control).



    September 28, 2009 at 6:36 pm

  13. Fascinating! I’d love to see a time trend of the share of the economy that is accounted for by publicly owned corporations, in the U.S. and other countries. Not to mention any other measures that Jerry thinks are important aspects of “shareholder capitalism.” I’d also like his predictions about the future. This is not my area, but I’m eager to learn more about the causes and consequences of these trends and cross-national differences.


    Michael Bishop

    September 28, 2009 at 7:08 pm

  14. I am embarrassed to have failed to mention Katherine’s awesome discussion of the Burning Man “organization,” which everyone should read! It really is an intriguing alternative form. (If anybody’s looking for a dissertation topic, how about a similar organizational analysis of the first simultaneous 7-continent protest ever: “The World Says No to War,” on 2/15/03, when millions of marchers converged in 350 cities around the world [and in the Antarctic], all marching behind the same banner?)

    I’m a little wary of responding to Michael’s requests for prognostication, but some facts and figures suggest that we’re in for a slog. One-third of the jobs in manufacturing in the US have disappeared since January 2001, and they ain’t coming back. (I’ve noted this before, but it is still striking that more Americans are unemployed now than employed in manufacturing.) A surprisingly large portion of job growth during the intervening years — perhaps one-third — was in housing-related sectors (real estate, home improvement, granite countertop finishing, etc.), while much else was in retail, due largely to the wealth effect from unsustainable house price increases. Also not coming back, as the liquidation of several national chains and the grim recent sales figures everywhere but Wal-Mart attest. One-third of homes with mortgages are underwater, and some project this number to go as high as one-half by 2011, meaning that their owners will have difficulty moving for new employment opportunities (unless they have lots of cash on hand, or are indifferent to their credit rating). And those Americans that still have jobs (for now) are finally scared enough to save, which they avoided during the bubble years — just in time to depress demand. Government stimulus can help for a while, but cannot be a permanent fixture.

    In light of all this, I am genuinely perplexed by the market’s recent semi-euphoria. Perplexed and anxious. But as the cliche has it, crisis also means opportunity, in this case an opportunity for alternative forms of organizing that might be more human-scaled. Maybe we can move Burning Man to Detroit next year?



    September 29, 2009 at 1:43 am

  15. I think this is a fascinating discussion, and reminds me of your 1994 ASQ piece on social movements and corporate control. While I think I agree with you that the ideological commitment to shareholder capitalism uber alles might have passed, the frontlines of the battle are still being waged in the various forums of government regulation. Financial regulation reform has taken a backseat to healthcare reform, for the moment, but I think we have to wait to see how the federal government moves before we can really predict what’s going to happen. But, if the international movement to regulate bankers’ pay is any indication, there will be some pretty significant shifts.



    September 29, 2009 at 4:21 pm

  16. It’s not clear to me that stock price is measuring shareholder value, though it has to be shareholders who are selling in order for there to be a market price. Somebody, not necessarily a shareholder, has to want to buy it, for whatever purpose an outsider thinks worth the while. It’s worth less to the selling shareholder than the outsider is willing to pay. CEOs pack the Board with people who don’t know the industry, so he won’t have believable arguments against him or her. And it seems that when there are industrially competent shareholders on the Board, they often fight the CEO’s desperate chase of bonuses by his accounting frauds. So where is the evidence that price is a measure of shareholder value, when it’s got to be shareholders who are selling at that price?


    Art Stinchcombe

    September 29, 2009 at 8:39 pm

  17. Art, thanks for joining the fun. (You are the guest of honor here, after all!)

    “Shareholder value” is shorthand for corporations being measured by their stock market value, defined as (share price)*(# of shares outstanding). Making the share price go up is therefore “creating shareholder value” by definition. (One can debate the market’s efficiency, but the mass of actual shareholders have surprisingly little to do with the price that prevails at any given moment. Indeed, as legal scholar Ron Gilson notes, it’s the information contained in share price, and not shareholders themselves, that is so prized by afficianados of shareholder value.)

    Why should corporations be guided by the North Star of share price? According to the efficient market hypothesis, market value is the best estimate of (roughly speaking) the present value of all future payouts plus liquidation value, which in turn should reflect all the future profitability of the company. By hypothesis, then, management makes the share price go up by doing stuff that increases expectations of future profitability. And if one believes, as did Milton Friedman and others, that “profit” represents the social value that the enterprise creates (by creating stuff that people are willing to pay more for than it cost to make), then creating shareholder value signifies making the world a better place.

    At the moment, a lot of folks have stopped believing one or more elements of this account, which is why we have some new breathing room, organizationally speaking.

    Art, any thoughts on the prospect of a Cambrian explosion of new forms?


    Jerry Davis

    September 29, 2009 at 9:14 pm

  18. Jerry, you don’t need EMH or Friedman for any of this.

    The legal basis of a public corporation is that it is owned by by shareholders, those who own equity. Purchasing equity doesn’t give you any claim to returns like debt, and a low ranking among creditors in the event of a bankruptcy. But the managers (CEOs) are obligated to reimburse your investment by raising the price of the stock or issuing dividends. Companies do this because equity is a great way to raise money, one which requires no definite payback like a loan.

    Stocks are assets, and a higher price of a stock raises the wealth of shareholders. Dividends and stock buybacks are other, more direct ways of returning value to shareholders. Companies which don’t do dividends (Google) justify that practice by saying that reinvested earnings will boost profits and yield investor returns through higher stock prices. Other (reits) return most profits to shareholders as dividends. Companies don’t always (even usually) do a good job of rewarding shareholders, but those that do find it easy to raise equity financing.

    You don’t need any mumbo-jumbo about everyone owning stocks, or profits and companies being amazing, or even the stock market being highly efficient. It’s just one way of structuring companies and raising capital, one that Silicon Valley and developing countries have shown isn’t going away (not that there aren’t other, interesting, ways of doing things).



    September 29, 2009 at 10:04 pm

  19. Agreed that EMH and Friedman are not essential to explaining the meaning of shareholder value. My point was that “shareholder capitalism” is not simply about how particular companies raise capital, but a theory of how to organize an economy. If EMH were right, then the market knows more than its individual participants, and price is “epistemologically privileged” (as the sociologists say). It’s like having a GPS instead of just a paper map (which is what backward-looking accounting profits gives you). So much the better for those that run companies, invest in them, or need to take their temperature.

    And if one combines EMH with the idea that profit is a measure of the creation of value for consumers, then an economy full of shareholder value-maximizing corporations is a recipe for a happy consumer society. (Perhaps I exaggerate.) So much the better for everybody in that society.

    And if “shareholder capitalism” can be documented and franchised to countries around the world, like McDonald’s, then the world will be filled with happy societies. (And, according to some 1990s-era studies, vibrant stock markets are associated with enhanced economic growth.) So much the better for the whole world.

    So, that’s the broader sociological import of my response to Art, and the reason for the ardor of the shareholder value evangelists. It would not be an understatement to say that this account does not reflect a consensus among those who have thought about it.


    Jerry Davis

    September 30, 2009 at 6:26 pm

  20. That broader theory can be worrysome, but I don’t know anyone who believes it. The corporate finance literature, from Means and Berle on down, has argued that managers often do a poor job of rewarding shareholders, and they should do better. The goal is to diminish the arbitrary and self-seeking powers of CEOs and favor the long term interests of legal owners, and ultimately savings and investment. If you don’t like high CEO pay or insufficient R&D spending, you like shareholder capitalism.



    September 30, 2009 at 7:36 pm

  21. Jerry, regarding your comment about whether Burning Man can reform Detroit, I was told that the Burning Man organization has been asked to consider relocating to San Francisco’s Tenderloin neighborhood, an area that has long resisted gentrification, for their new headquarters.

    In addition, Time reporter Craig Duff produced this clip “5 Things Cities Can Learn From Burning Man” – my comments and clip link via

    Willie, I’m guessing that you’re referring to the Stohl and Cheney book on Mondragon. Seems the kibbutzes have similar issues with the member vs. hired hand issue.

    As for organizational diversity, don’t forget Stewart Clegg’s Modern Organizations: Organization Studies in the Postmodern World (1990, Sage).



    September 30, 2009 at 11:31 pm

  22. […] the recent topics that have been discussed in these pages (e.g.,  Jerry’s prophesy of the coming post-capitalist utopia and Willie’s call for “normative theory” in response […]


  23. […] As Jerry Davis has pointed out (see, for example, the comments in this post), our theories of organizations are not well suited to studying these new sorts of organizations that dominate the current market. Wal-Mart would seem like a good place to start.  I expect orgheads to fill me in on what I’m missing here (e.g., dissertations being written, articles I haven’t yet noticed). […]


  24. […] an unrelated note, a former guest contributor to OrgTheory once noted that “Germany has far fewer public corporations (656) than Hong Kong (1165) or Malaysia […]


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