(1) new sase submission deadline and (2) new grant available for researchers studying alternatives to hierarchical organization

Happy 2018, everyone!  Two announcements:

1. The SASE conference submission deadline has been extended to Jan. 29, 2018.  Please consider submitting to the “alternatives to capitalism” network that I’m co-organizing.
2. A new fellowship of interest to those studying worker cooperatives and similar organizational forms is now available via Rutgers University:

The Bill & Connie Nobles Fellowship
For the study of alternatives to hierarchy in organizing the activities of corporations

This Fellowship supports research on alternatives to hierarchical organization in the corporation. Scholars will address whether management has any fundamental reason to control employees. Is there a practical alternative to far-reaching hierarchical control by management that can eliminate the root cause of some problems that hierarchical organizations face? The negative impacts of such control on human development and behavior became more apparent as managers sought to maximize the contributions of knowledge workers and encourage employees to think economically. The study may involve innovations in theory or practice, or case studies. Approaches for including employees in sharing equity and profits should be addressed in the proposal.

Doctoral candidates and pre/post tenure scholars in the social sciences and humanities may apply for the $25,000 stipend that can be used for research/travel expenses.

Submit an email application with a 1500 word proposal and a vita by February 28, 2018 with decisions by March 15. Please have three letters of reference sent separately to: fellowship_program@smlr.rutgers.edu

Info at: https://smlr.rutgers.edu/content/bill-nobles-fellowship and https://smlr.rutgers.edu/content/fellowships-professorships for a listing of all current and past Fellows or email the Director of the program at bschrief    [at]  smlr   [dot]  rutgers   [dot]  edu

Advertisement

what problems do people think antitrust is going to solve?

Last week, I asked why antitrust is having a moment (it’s continued, on Planet Money and elsewhere), and why Democrats are using radical language to make fairly modest proposals. In this post, I’m going to ask what problems people think antitrust is going to solve, anyway.

Certainly a lot of the current concern about antitrust comes from a broad sense that corporations are too economically and politically powerful, that our economy has been restructured in ways that make ordinary people worse off, and that massive tech companies are able to use our data in ways that we have little control over. That’s political antitrust. And those are totally real issues.

But I want to explore some new questions being raised that are not exactly within the current scope of economic antitrust, but that are still kind of speaking its language—that are pushing to change the antitrust technocracy, not up-end it. To recap, as it has been construed for the last thirty-plus years, the purpose of antitrust is to promote consumer welfare, generally by trying to keep firms from being able to raise and keep prices above a competitive level. The focus is consumers, and prices.

Increasingly, though, people at least adjacent to the space of antitrust expertise are making claims about economic problems they think are being caused by lax antitrust enforcement, or that antitrust should be addressing. And those proposals are worth keeping an eye on, because as hard as it might be to change the expert consensus, it’s still more likely than a new anti-monopoly movement. (Though the two could certainly reinforce each other.) I see these new arguments as falling into basically three categories.

Market power has effects we didn’t realize

Market power is the ability to keep prices above a competitive level (i.e. above marginal cost). Once upon a time, people thought there was a fairly close relationship between how concentrated a market is—that is, how many companies control what share of the market—and how much market power firms have. Since the 1970s, there has been much less of a presumption that concentration, on its own, indicates market power. That means that there’s been less concern about whether we’ve got four airlines controlling 70% of the U.S. market, or that four carriers control 99% of the U.S. wireless market.

Increasingly, though, people are raising flags about other problems that might result from market power. One of these is labor monopsony—the idea that firms have market power, but as purchasers of labor, not sellers of products, and that this is driving wages down. The Council of Economic Advisers put out a report last fall suggesting this might be happening, and Democrats’ mention of “bargaining power for workers” implies this is part of what they’re trying to address. There are related arguments about market power in supply chains and the emergence of “winner take most” industries that also suggest links between concentration or market power and wages.

In theory, monopsony can be handled within the current legal framework, though it is rarely addressed in practice. So developing arguments about the effects of market power on workers, and a legal framework for addressing that within antitrust, is one conceivable new direction for antitrust.

Others are arguing that market power can lead firms to attach undesirable conditions to products that make them lower quality, even as price remains the same. In particular, some scholars, including Nobel Laureate Joe Stiglitz, have framed privacy as an antitrust issue: the product may be free, but consumers have no choice about how their data is used (and in the case of platforms like Facebook, no equivalent competitors). Privacy is hard to address within a framework focused purely on price. But in Europe, competition policy is increasingly tackling privacy issues, and Germany is currently investigating whether Facebook’s dominant position is forcing consumers to give up their privacy without having an alternative choice.

Market power has causes we didn’t realize

The Atlantic just featured a story with the dramatic title, “Are Index Funds Evil?” The article discusses the rise of large institutional investors—index funds, though not only index funds—and what it means that, increasingly, big chunks of competitors in a specific market are actually owned by the same few corporations. It goes on to discuss work by José Azar, Martin Schmalz, and Isabel Tecu that finds that this common ownership enhances market power, and that airline ticket prices are 3-7% higher than they would be under separate ownership.

In this story, index funds were the hook, but it just as easily could have been framed around antitrust. In a way, common ownership was the original antitrust question: the big trusts of the late 19^th century were not single-firm monopolies, but competitors that had turned over ownership to a group of trustees that made unified governance decisions. And while research in this area is still new and findings tentative, legal scholars are already making the case that antitrust law can cover the anticompetitive effects of these horizontal shareholdings. If this work continues to hold up, this seems potentially transformative.

Technological change is creating new threats to competition

Finally, a fair bit of the recent chatter is basically arguing, “it’s the technology, stupid.” The dynamics of competition change as more of the economy shifts to online platforms. Because of network effects, companies like Facebook, Google, Apple, and Amazon are hard to compete with—much of their value comes from their existing user base. And because they aren’t just selling products to consumers, but connecting consumers with producers, they aren’t acquiring market power in the traditional sense. Facebook and Google are free products, after all.

But the power of network effects means that they have a tendency towards monopoly. And the fact that the four largest companies by market capitalization are platforms suggests how central platforms have become to our economy.

So we have these new companies that have become very large, and that appear monopolistic, though they also create great value for consumers. From an antitrust perspective, they don’t really appear to be a problem, because they aren’t raising prices. And the history of rapid technological change over the past 25 years, including the rise and fall of a number of once-dominant platforms, raises the question of whether even platforms behaving in anticompetitive ways pose much of a long-term threat.

Recent scholarship, though, argues that monopolistic platforms are in fact anticompetitive, that it is a problem, and that current law is poorly equipped to handle. Lina Khan’s much-circulated note in the Yale Law Journal, for example, argues that 1) platforms encourage predatory pricing—generally seen as irrational (and thus not an issue) within antitrust law—because network effects encourage pursuit of growth over profit, and 2) platforms collect data on rivals that give them an unfair competitive advantage. These sorts of issues clearly fit within the broad scope of “protecting competition,” but don’t fit easily with a consumer welfare, market power conception of antitrust.

Changing that would be a significant project, but if we have an economy that is dominated by firms whose potentially anticompetitive activity is essentially beyond the scope of antitrust, there’s not much left to antitrust. And again, the massive fine the E.U. just levied on Google—for favoring its own shopping service, consisting of companies that pay Google to be on it, over competitors in search results—suggests what this could look like. So far, the U.S. has not demonstrated much enthusiasm about expanding antitrust in this direction. But it’s not inconceivable that it could happen, and it could be done within a framework that was focused solely on competition, if not only on consumer welfare.

Again, all these challenges to the current antitrust framework are at least in the ballpark of its conversation, even if they would require pushing the law in new directions or advancing the acceptance of new economic theories. And they are not the only arguments that are in play here. For example, the question of whether inequality is facilitated by concentration or market power, or whether it has become such a central economic problem that antitrust should try to address it, have prompted enough discussion that two leading antitrust scholars have felt the need to argue that antitrust should leave inequality alone.

Unlike political antitrust, which would probably require a social movement to move it forward, these antitrust arguments have the potential to gain traction without necessarily requiring legislation or a revolution against the current antitrust regime. The 1970s shift toward Chicago-style antitrust happened, to a considerable extent, because the old economic framework seemed increasingly inadequate for explaining the world people found themselves in. As the current framework comes to seem similarly dated, this could be another moment when such change is possible.

do we need illegal firms?

Over at Harvard Business Review, Benjamin Edelman argues that Uber’s ultimate problem isn’t bad corporate culture. It’s being an organization that is premised on being illegal. To quote:

But I suggest that the problem at Uber goes beyond a culture created by toxic leadership. The company’s cultural dysfunction, it seems to me, stems from the very nature of the company’s competitive advantage: Uber’s business model is predicated on lawbreaking. And having grown through intentional illegality, Uber can’t easily pivot toward following the rules.

And:

Uber’s biggest advantage over incumbents was in using ordinary vehicles with no special licensing or other formalities. With regular noncommercial cars, Uber and its drivers avoided commercial insurance, commercial registration, commercial plates, special driver’s licenses, background checks, rigorous commercial vehicle inspections, and countless other expenses. With these savings, Uber seized a huge cost advantage over taxis and traditional car services. Uber’s lower costs brought lower prices to consumers, with resulting popularity and growth. But this use of noncommercial cars was unlawful from the start. In most jurisdictions, longstanding rules required all the protections described above, and no exception allowed what Uber envisioned. (To be fair, Uber didn’t start it — Lyft did. More on that later on.)

Edelman goes on to make a number of fair points: by operating illegally, employees are at risk and it encourages poor corporate culture.

But here’s another take. What if some industries need to be developed through illegality? For example, right now in the US, many marijuana firms are operating in a de facto state of illegality, with Federal law (which supersedes state law) outlawing recreational marijuana. Despite this problem, many dispensaries remain committed to marijuana distribution and they innovate. My conjecture is that their practices will set the standards for the future recreational marijuana industry. Even in Edelman’s article, he refers to Napster, which illegally made music easier to distribute. They broke the law, but created a new market in the process.

In these three cases (Uber, Napster, US marijuana distributors), the market was expanded and developed through illegality. This suggests to me that Edelman’s point is good – firms working illegally may be saddled with too many problems. But it elides an even bigger point. Various regulations and state granted monopolies create needless zones of illegality. For some markets to develop, somebody has “break the rules to make the rules.” In many cases, that can be a good thing.

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($4.44 – cheap!!!!)/Theory for the Working Sociologist (discount code: ROJAS – 30% off!!)/From Black Power/Party in the Street 

 

the antitrust equilibrium and three pathways to policy change

Antitrust is one of the classic topics in economic sociology. Fligstein’s The Transformation of Corporate Control and Dobbin’s Forging Industrial Policy both dealt with how the rules that govern economic life are created. But with some exceptions, it hasn’t received a lot of attention in the last decade in econ soc.

In fact, antitrust hasn’t been on the public radar that much at all. After the Microsoft case was settled in 2001, antitrust policy just hasn’t thrown up a lot of issues that have gotten wide public attention, beyond maybe griping about airline mergers.

But in the last year or so, it seems like popular interest in antitrust is starting to bubble up again.

Just in the last few months, there have been several widely circulated pieces on antitrust policy. Washington Monthly, the Atlantic, ProPublica (twice), the American Prospect—all these have criticized existing antitrust policy and argued for strengthening it.

This is timely for me, because I’ve also been studying antitrust. As a policy domain that is both heavily technocratic and heavily influenced by economists, it’s a great place to think about the role of economics in public policy.

Yesterday I put a draft paper up on SocArXiv on the changing role of economics in antitrust policy. The 1970s saw a big reversal in antitrust, when we went from a regime that was highly skeptical of mergers and all sorts of restraints on trade to one that saw them as generally efficiency-promoting and beneficial for consumers. At the same time, the influence of economics in antitrust policy increased dramatically.

But while these two development are definitely related—there was a close affinity between the Chicago School and the relaxed antitrust policy of the Reagan administration, for example—there’s no simple relationship here: economists’ influence began to increase at a time when they were more favorable to antitrust intervention, and after the 1980s most economists rejected the strongest Chicago arguments.

I might write about the sociology part of the paper later, but in this post I just want to touch on the question of what this history implies about the present moment and the possibility of change in antitrust policy.

honey, we have to talk about sears

A little while back, I asked how Sears was able to survive as a firm. Once a titan of the American economy, Sears was now a shell of its former self. From a write up in Salon (!) magazine:

Sears Holdings, which owns Sears and Kmart, reported on Thursday a loss of $748 million for the three months ending on Oct. 29. This is the company’s 20th consecutive quarterly loss, and worse than the $454 million loss the company posted in the same period last year. Revenue fell nine percent last quarter to $5.21 billion. Same-store sales, a key retail metric, dropped 10 percent at Sears and 4 percent at Kmart. The company lost $1.6 billion in the first ten months of the year, compared to $549 million in the same period last year, according to its regulatory filing.

These grim numbers were announced a week after the departure of two top-level executives: James Balagna, an executive vice president in charge of the company’s home-repair services and technology backbone, and Joelle Maher, the company’s president and chief member officer. Former Goldman Sachs banker Steve Mnuchinalso resigned from the Sears board last week after President-elect Donald Trump nominated him to head the Treasury Department.

When we discussed Sears, CKD suggested the issue wasn’t firm profitability. It was the relative benefits of bankruptcy court vs. a massive real estate sell off. If so, then the pattern of executive hires and behaviors makes sense. But that raises a deeper point. Why didn’t Sears keep up with the rest of the retail market?

Jeff Sward, founding partner of retail consultant Merchandising Metrics, doesn’t share Hollar’s optimism.

“What does Sears stand for?” Sward told Salon. “Sears unfortunately stands for so many different things that I don’t think there’s anything that’s a standout. I would go to Sears for appliances and tools, but I’ve certainly never thought of them as a headquarters for apparel.”

Sward says the issue isn’t that Sears doesn’t have good products and competitive prices. Instead, he said, the problem facing Sears is that it isn’t the first choice for buyers of any of its core product categories. If consumers need tools, they go to Home Depot or Lowe’s. If they want outdoor or work apparel, it’s Dick’s Sporting Goods, not Sears. Electronics and home appliances? That’s for Best Buy. And who’s buying apparel and shoes at Sears?

The bottom line is that the department store model of the early 1900s is incredibly hard to sustain in the modern environment. Where discovery of the “big box model” by Home Depot and the online model of Amazon, a lot of department store chains either folded or refocused. Sear, with way too much real estate and sluggish executive team, couldn’t make the pivot. Not surprisingly, you then attract investors who are more interested in hollowing out the firm, like the Sears/Kmart holding group that also took on Borders before it died.

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($2!!!!)/Theory for the Working Sociologist/From Black Power/Party in the Street  

summer reading: spotlight on conflict and decision-making by consensus at premium cola

As some of our dear orgtheory readers know, I am always on the look-out for interesting articles about how organizations use collectivist or participatory-democratic practices. One recent publication I would like to highlight involves a collectivist group fueled by a common love of cola, coffee, and beer.

Fans of a caffeinated soft drink, frustrated by Afri-Cola new owner’s refusal to change the recipe back to the original*, became the new owners and producers of the drink. Not only did they band together to revive the original product using what they considered to be more ethical market standards, they organized using the practice of decision-making by consensus.**

Participatory-democracy invariably elicits conflicts that might be avoided or suppressed under more hierarchical organizations. Members have to learn how to manage contention if they wish to stay cohesive. Premium Cola‘s members had to learn how to do this via a discussion email list.

Husemann, Ladstaetter, and Luedicke’s (2015) “Conflict Culture and Conflict Management in Consumption Communities” examines the types of conflicts and actions taken to address these conflicts within Premium Cola. The authors note the generative qualities of routinized conflict, including the reaffirmation of commitment to a collective mission:

When analyzing the Premium community’s conflicts, we found that the community’s conflict culture involved a limited set of routinized and recurring conflict behaviors. Members use behaviors such as inviting conflict, showing respect for otherness, or releasing aggressions to argue different topics, but use them in similar ways. Many of these behaviors are known from normative conflict sociology as conflict cultivation practices, i.e. routinized behaviors that conflict parties use to perform conflicts in civilized and productive, rather than destructive, ways. Through inventing, selecting, abandoning, enacting, or improving such routinized conflict behaviors, Premium community members are able to produce value rather than destroy value through uncontrolled or abusive conduct.

In contrast, transgressive conflict, in which participants break multiple norms, can lead to abusive interactions. These lead to more active interventions, including the eventual expulsion of a member over his repeated sexist comments about the hiring of a female intern and insults of other members. While the exchanges threatened corrosion, the subsequent actions taken reaffirm Premium Cola’s identity and commitment to community.

* The original recipe had less sugar and more caffeine than the newer recipe.

**More about the fascinating history and ethos of Premium Cola is available here, where the Ladstaetter and Luedicke describe Premium Cola as follows:

…the Premium Cola community can be seen as a group of “productive activists,” e.g.,
prodactivists, that combines the roles of producers, consumers, and social activists to promote change in the capitalist market system by demonstrating how market exchange can be both successful and ethical.

the poetry of the corporation

With Fabio on much-deserved blogcation, I’m going to try to throw up some more frequent short posts over the next couple of weeks to keep the ball rolling. Although I’m 100% sure I’m not going to pull off daily posting. It turns out, though, that blogging is a lot like other kinds of writing deadlines, in that the longer you wait, the better the job you feel you have to do to make up for having taken so long.

So with that in mind, a little poetry of the corporation to start your weekend — particularly apt in light of the recent Hobby Lobby decision and debates about corporate personhood, h/t Professor Mondo.

CORPORATE ENTITY

by Archibald MacLeish

The Oklahoma Ligno and Lithograph Co.
Of Maine doing business in Delaware, Tennessee,
Missouri, Montana, Ohio and Idaho,
With a corporate existance distinct from that of the
Secretary, Treasurer, President, Directors or
Majority stockholders, being empowered to acquire
As principal, agent, trustee, licensee, licensor,
Any or all, in part or in parts or entire –

Etchings, impressions, engravings, engravures, prints,
Paintings, oil-paintings, canvases, portraits, vignettes,
Tableaux, ceramics, relievos, insculptures, tints,
Art-treasures or master-pieces, complete or in sets –
The Oklahoma Ligno and Lithograph Co.
Weeps at a nude by Michelangelo.

 

According to wiki, poet Archibald MacLeish was also instrumental in starting the Research and Analysis Branch of the Office of Strategic Services during WWII. The Research and Analysis Branch, as it happens, was one of the places to be if you were an academic during World War II. In economics, it housed Ed Mason, Walt Rostow, Moses Abramowitz, Carl Kaysen, Wassily Leontif, among others. So it all comes around.

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).

local activists don’t matter, firms still shop for low regulation nations

Phil Rocco draws my attention to the following article in Business and Politics, by Patrick Bernhagen*, Neil J. Mitchell and Marianne Thissen-Smits which argues that global agreements about labor don’t really do much:

Business and public partnerships in socially responsible behavior have become a central pillar of global governance, but one that is unevenly developed in different countries. Despite the transnational character of business operations, national context is of theoretical as well as policy significance. To explain crosscountry variation in corporate commitment to social responsibility we investigate the political conditions that encourage firms to participate in the United Nations Global Compact. Drawing on a theory of corporate social responsibility as motivated by self-interest and external pressure, we examine the influence of external actors and the locally specific mobilization of bias. Analyzing participation levels in 145 countries, we find that a democratic regime and Global Compact participation by countervailing groups are associated with higher levels of business participation in the program. Contrary to earlier studies relying on smaller numbers of countries, we find no evidence that a country’s relationship with the UN or the domestic political strength of environmental interests account for cross-national variation in corporate engagement with the Global Compact.

Check it out.

Adverts: From Black Power/Grad Skool Rulz

defensive practice adoption and organizational stigma

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.

ASA session with recidivist guest blogger Jerry Davis: From corporate collapse to anarchist utopia?

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:

why was teresa sullivan asked to resign?

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.

child abuse and the catholic church

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?

Adverts: From Black Power/Grad Skool Rulz

conference for orgtheory in developing regions

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.

Adverts: From Black Power/Grad Skool Rulz

steve jobs at work

For Apple fan boyz and girlz, a short television feature from 1988 focusing on Jobs as new CEO of NEXT. HT: Ben Casnocha.

Adverts: From Black Power/Grad Skool Rulz

 

larry ribstein, the uncorporation and organization theory

The legal scholar Larry Ribstein passed away a few weeks ago (here’s a post by Bainbridge with many links, here’s a tribute by Roberta Romano).

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.

steve jobs and the no @$$hole rule

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!

Adverts: From Black Power/Grad Skool Rulz

steve jobs would’ve hated orgtheory

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).

Adverts: From Black Power/Grad Skool Rulz

how to clone steve jobs

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.

Adverts: From Black Power/Grad Skool Rulz

moneyball: an orgtheory review

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 – interlocking boards

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.

dick scott on the advantages of a field level conception for multilevel approaches

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.

ceo pay and theories of income

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.

SC rules on Wal-Mart vs Dukes

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.

has the public corporation reached its twilight?

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:

ABSTRACT

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:

Gerald F. Davis, 2011. The Twilight of the Berle and Means Corporation, Seattle University Law Review.

.

Be sure to check out the other articles in this “Berle and Means” special issue.

.

inhabited institutions

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.

stakeholder theory

Stakeholder theory is getting lots of attention these days.  Here’s a mishmash of links on stakeholder theory:

• Michael Jensen on “value maximization, stakeholder theory, and the corporate objective function.”
• Ed Freeman gives a 50-minute youtube primer on stakeholder theory.
• The “Redefining the Corporation” project.
• Etzioni’s “A communitarian note on stakeholder theory.”
• Testy on “linking progressive corporate law with progressive social movements.”
• Lynn Stout’s “Bad and not-so-bad arguments for shareholder primacy.”
• A Business Ethics Quarterly discussion on stakeholder theory.

amj is orgtheorytastic!!!

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.

A few highlights: Mukti Khaire, one of the very first orgtheory guest bloggers, has  an article, co-written with R. Daniel Wadhwani,  on the development of the Indian art market:

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.

Matt Kraatz, also a guest, analyzes the adoption of new practices with a study of enrollment management practices, written with institional theory guru Marc Ventresca and Lina Deng.

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!).

firms and organizations: fictions or real persons?

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.

goals gone wild: the paradox of stretch goals

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 on the idea of justice

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):

–

can organizational strategies be certified? would wal-mart’s strategy be certified?

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.

what every legal scholar should know

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.

what is organizational economics?

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.

Highly recommended.

paul revere and the raters

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.