Formal organizations are ubiquitous in modern society. Most people work in organizations, join organizations, and interact with organizations in their daily lives. The study of organizations includes an examination of the relationship between individuals and organizations, organizations and their external environments, and how corporations and other constellations of organizations exercise power and influence public policy.
INDIVIDUALS IN ORGANIZATIONS: CONTROL OVER DECISION MAKING
Organizational theorists maintain that the emergence of modern large-scale bureaucracy is an outcome of the increased application of formally rational means (e.g., written laws, rules, and regulations) to achieve the sub-stantively rational goals (i.e., large-scale capitalism, democracy) associated with modernity. Although large-scale organizations can be used to increase the productive capability of capitalism and extend democracy to more spheres of social life, they also provide means for elites who control them to exercise power and advance their political and economic interests (Weber [1921] 1978). Scholars who examine organization control have shown that at the turn to the twentieth century capitalists hired scientific managers to experiment with techniques to increase control over the labor process. These scientific managers collected information from workers and centralized it in planning departments where engineers used it to establish formal rules to control the labor process (Braverman 1974).
In the middle decades of the twentieth century, decision-making theorists demonstrated that the capacity of elites to control managers in large and complex organizations is constrained by bounded rationality: limits on rationality that are affected by unclear preferences, limited information, and the cognitive abilities of individual decision makers (Simon 1957). These decision-making theorists showed that superordinates attempt to overcome bounded rationality and increase their control over subordinates by establishing premise controls, which limit the search for alternatives in the decision-making process (March and Simon 1958). Other organizational researchers point out that bounded rationality cannot be completely eliminated and that premise controls and other formal controls have unintended consequences (Perrow 1972; Burawoy 1979). Research in this tradition shows that formally rational controls caused widespread inefficiencies in the decision-making process in corporate American during the middle decades of the twentieth century. In response to the capital accumulation crisis in the 1970s and early 1980s, like the earlier period when elites increased their control over the labor process, capitalists and their top managers implemented scientific management principles to increase control over the managerial process. They hired engineers and other technical experts to collect information from production managers, centralize that information into computerized information processing systems, and use it to develop premise and other formal controls that limited the discretion of lower and middle-level managers (Prechel 1994).
ORGANIZATIONS AND THEIR ENVIRONMENTS
Another line of research in organizational sociology examines the relationship between the internal organizational structures and the environment. There are two distinct types of organization-environment theories. The "weak form" of the organization-environment hypothesis stresses how organizations respond to environmental forces. Organizational ecology, which borrows from the biological model of natural selection, conceptualizes organizational populations as aggregates of organizations that are alike in some respect (e.g., newspapers). Organizations are considered part of a larger system that must adapt in order to survive. This perspective stresses the importance of structural isomorphism, which denotes a fit between the organization and its environment (Carroll and Hannan 1995). However, organizational adaptation is limited by inertia, which includes internal politics and increased age, size, and complexity. In the absence of adaptation to the environment, organizations will cease to exist.
Neoinstitutional theory also represents the weak form of the organization-environment hypothesis. This perspective examines organizational fields: a recognized area of institutional life with key suppliers, resource and product consumers, regulatory agencies, and other similar organizations (DiMaggio and Powell 1983). Once an organizational field is established, three mechanisms cause organizations to become homogeneous. First, mimetic behavior occurs when organizational technologies are poorly understood, when goals are ambiguous, or when the environment creates symbolic uncertainty. When these conditions exist, organizations model themselves on the dominant organization in their field. Second, normative behavior entails professionalization, which includes efforts by practitioners of an occupation to define the conditions and methods of their work, control the supply of new producers, and establish a cognitive base and legitimation for their occupational autonomy. Third, coercive pressures emerge from political and cultural influences. This neoinstitutional perspective assumes that an autonomous state creates public policies and laws (e.g., antitrust, product safety) and is capable of making corporations and other organizations comply with those laws.
In contrast, the "strong form" of the organization-environment hypothesis suggests that corporations and other organizations are capable of influencing public policies that are designed to control and regulate them. Resource dependence theory maintains that the environment constrains organizations, and organizations depend on other organizations for resources (Aldrich and Pfeffer 1976; Pfeffer and Salancik 1978). This perspective also maintains that the key to survival is the ability to acquire and maintain resources from other organizations in the environment. To reduce dependencies that limit their prospects for autonomous action and survival, organizations set up strategies to manage their environments.
ORGANIZATIONS AND PUBLIC POLICY
The strong form of the organization-environment hypothesis is consistent with research by political sociologists who show that business elites use networks of organizations to influence public opinion and public policy (Domhoff 2006), and economic sociologists who maintain that the behavior of individuals and organizations can only be understood by examining the social relations in which they are embedded (Granovetter 1985). Other researchers maintain that the universalizing assumptions in many social theories can be misleading and that the strong form of the organization-environment hypothesis is historically contingent (Prechel 1990). Historical contingency theory of corporate political behavior maintains that although elites are always politically active, the level of elite political activity varies over time. When the condition of economic uncertainty is high (e.g., periods of low or unstable profits), corporations become more politically active, and they pressure state managers to implement policies to attain economic stability and predictability and to preserve the social relations in capitalist society (Prechel 2000). Although capitalists and their top managers do not always have a coherent conception of the relationship between their economic goals and the means to achieve those goals, they engage in political behavior to transform public policies in order to create the conditions that better advance their profit-making agendas.
Historical contingency theory explains the three major corporate form changes in the largest U.S. firms between the 1880s and 1990s. First, in the 1880s and 1890s, business elites lobbied states to pass formal laws to give industrial corporations the right to use the joint-stock holding company. This corporate form holds the majority of the stock (i.e., more than 50 percent) of legally independent subsidiary corporations. The embeddedness of the holding company in an environment with little regulatory control created opportunities for capitalists to consolidate many independent companies into giant companies such as AT&T, General Motors, and U.S. Steel Corporation. By the 1920s, stock overvaluation and other forms of malfeasance were widespread in many holding companies (Berle and Means 1932). To reinvigorate and sustain capitalism after the Great Depression, the Franklin D. Roosevelt (1882-1945) administration set up public policies to limit the use of this corporate form. These policies included a tax on the transfer of capital between subsidiary corporations and the holding company. By increasing the cost to operate the holding company, this capital transfer tax contributed to the deinstitutionalization of this corporate form. After this legislation was passed, corporations began to restructure into a multidivisional form where product lines are organized as divisions inside a single corporation. By 1960, the multidivisional form prevailed in corporate America (Chandler 1962).
In response to the capital accumulation crises of the late 1970s and early 1980s, corporate America mobilized politically to replace the institutional arrangements that were established during and after the New Deal. These market-driven neoliberal policies included: (1) redefining antitrust regulations that prohibited large corporations from merging with others operating in the same market; (2) eliminating the tax on capital transfers from subsidiary corporations to parent companies; and (3) dismantling regulatory control over the banking and financial industry. Now, corporations were allowed to engage in behaviors that were previously illegal or not viable, including using new forms of financing to merge or acquire other large corporations and organize their new and existing corporate entities as subsidiaries in the multilevel-subsidiary form. This multilevel-subsidiary form has a parent company at the top of the corporate hierarchy that operates as a financial management company, with two or more levels of legally separate subsidiary corporations embedded in it (Prechel 2000, p. 12). By 1993, 65 percent of the one hundred largest U.S. industrial corporations used this corporate form (Prechel 2000, p. 244). As occurred during the late nineteenth and early twentieth centuries, this multilevel-subsidiary form provided a means to create giant corporations such as Exxon-Mobil, Chevron-Texaco, and ConocoPhillips. The embeddedness of this corporate form in these new institutional arrangements also created opportunities to overvalue corporate stock and to conceal financial malfeasance (Prechel 2000, p. 265).
CORPORATE CRIME
Following the 2001 bankruptcy of Enron Corp., civil and legal investigations showed that Enron’s management used the multilevel-subsidiary form to transfer capital between legally independent corporate entities and manipulate its financial statements (Prechel 2003). Self-interest-seeking with guile was not limited to managers in the few corporations that the media focused on. Between January 1995 and May 2005, the Commodity Futures Trading Commission, the Department of Justice, and the Securities and Exchange Commission filed 457 allegations against 151 (i.e., 30%) of the 500 largest U.S. corporations. In 2005 alone, the Federal Bureau of Investigation pursued 405 corporate fraud cases that resulted in an additional 317 convictions (FBI 2005). However, many executives who engaged in corporate malfeasance were not accused of wrongdoing or held responsible for misleading the public because deregulation made many social acts legal that were previously illegal or not viable.
Unlike in the 1920s, when most stock was owned by the upper classes, the expansion of mutual funds created means for the working classes to invest their retirement and savings into corporate securities. As a result, the working classes lost billions of dollars due to corporate chicanery and malfeasance in the 1990s. Estimates suggest that $2.1 billion was wiped out from the employee pension plan at Enron alone and that $40 billion was lost from employee pension funds in general.
ORGANIZATIONS AND INEQUALITY
Political mobilization by corporations and wealthy individuals was not limited to deregulating corporations. During the same period that public policy was changed in ways that created opportunities for corporate malfeasance, elites financed political action committees, think tanks, and lobbying organizations to transform public policy in ways that lowered taxes on wealthy individuals and corporations. This policy shift also included a reduction in social programs for the poor.
By 1990, family income inequality increased to the highest level since 1947, when the U.S. government began compiling these data, and continued to increase into the twenty-first century. The very rich benefited most in this redistribution of income and wealth. Whereas the top 1 percent of American income earners received 9.3 percent of the total income in 1979, this group received 17.8 percent of the total income in 2000 (Mishel et al. 2005, p. 62). Although the rich have always held a large percentage of the wealth in American society, wealth inequality also increased during the 1980s and 1990s. Whereas the wealthiest 1 percent of the population held 33.8 percent of the nation’s total net worth in 1983, it had increased to 38.1 percent by 1998 (Mishel et al. 2005, p. 282).
SUMMARY
The strong form of the organization-environment hypothesis suggests that the power of elites is derived, in part, from their capacity to control organizations and to use organizations to change their environment. Beginning in the 1970s, corporations and wealthy individuals used their wealth and power to decrease government regulation, increase corporate property rights, and extend free markets. These new institutional arrangements resulted in a historic turning point characterized by reduced regulatory oversight, lower taxes on corporations and wealthy individuals, higher rates of corporate chicanery and malfeasance, and increased inequality.
