August 09, 2014
Disruptive Legal Technologies: Benefit Corporations and the Crowdfunding of Firms
Posted by Eric Orts

Two recent developments in the law and practice of business include:  (1) the advent of benefit corporations (and kindred organizational forms) and (2) the application of crowdfunding practices to capital-raising for start-ups.  My thesis here is that these two innovations will become disruptive legal technologies.  In other words, benefit corporations and capital crowdfunding will change the landscape of business organization substantially.

A disruptive technology is one that changes the foundational context of business.  Think of the internet and the rise of Amazon, Google, etc.   Or consider the invention of laptops and the rise of Microsoft and the fall of the old IBM.  Automobiles displace horses, and telephones make the telegraph obsolete.  The Harvard economist Joseph Schumpeter coined a phrase for the phenomenon:  “creative destruction.”

Technologies can be further divided into two types:  physical technologies (e.g., new scientific inventions or mechanical innovations) and social technologies (such as law and accounting).   See Business Persons, p. 1 (citing Richard R. Nelson, Technology, Institutions, and Economic Growth (2005), pp. 153–65, 195–209).  The legal innovations of benefit corporations and capital crowdfunding count as major changes in social technologies.  (Perhaps the biggest legal technological invention remains the corporation itself.)

1.  Benefit corporations began as a nonprofit idea, hatched in my hometown of Philadelphia (actually Berwyn, Pennsylvania, but I’ll claim it as close enough).  A nonprofit organization called B Lab began to offer an independent brand to business firms (somewhat confusingly not limited to corporations) that agree to adopt a “social purpose” as well as the usual self-seeking goal of profit-making.  In addition, a “Certified B Corporation” must meet a transparency requirement of regular reporting on its “social” as well as financial progress.  Other similar efforts include the advent of “low-profit” limited liability companies or L3Cs, which attempt to combine nonprofit/social and profit objectives.  In my theory of business, I label these kind of firms “hybrid social enterprises.”  Business Persons, pp. 206-15.

A significant change occurred in the last few years with the passage of legislation that gave teeth to the benefit corporation idea.  Previously, the nonprofit label for a B Corp required a firm to declare adherence to a corporate constituency statute or to adopt a similar constituency by-law or other governing provision which signaled that a firm’s sense of its business objective extended beyond shareholders or other equity-owners alone.  (One of my first academic articles addressed the topic at an earlier stage.  See “Beyond Shareholders:  Interpreting Corporate Constituency Statutes.”  I also gave a recent video interview on the topic here.)  Beginning in 2010, a number of U.S. states passed formal statutes authorizing benefit corporations.  One recent count finds that twenty-seven states have now passed similar statutes.  California has allowed for an option of all corporations to “opt in” to a “flexible purpose corporation” statute which combines features of benefit corporations and constituency statutes.  Most notably, Delaware – the center of gravity of U.S. incorporations – adopted a benefit corporation statute in the summer of 2013. According to Alicia Plerhoples, fifty-five corporations opted in to the Delaware benefit corporation form within six months.  Better known companies that have chosen to operate as benefit corporations include Method Products in Delaware and Patagonia in California.

2. Crowdfunding firms.  Crowdfunding along the lines of Kickstarter and Indiegogo campaigns for the creation of new products have become commonplace.  And the amounts of capital raised have sometimes been eye-popping.  An article in Forbes relates the recent case of a robotics company raising $1.4 million in three weeks for a new project.  Nonprofit funding for the microfinance of small business ventures in developing countries seems also to be successful.  Kiva is probably the best known example.  (Disclosure:  my family has been an investor in various Kiva projects, and I’ve been surprised and encouraged by the fact that no loans have so far defaulted!)

However, a truly disruptive change in the capital funding of enterprises – perhaps including hybrid social enterprises – may be signaled by the Jumpstart Our Business Start-ups (JOBS) Act passed in 2012. Although it is limited at the moment in terms of the range of investors that may be tapped for crowdfunding (including a $1 million capital limit and sophisticated/wealthy investors requirement), a successful initial run may result in amendments that may begin to change the face of capital fundraising for firms.  Judging from some recent books at least, crowdfunding for new ventures seems to have arrived.  See Kevin Lawton and Dan Marom’s The Crowdfunding Revolution (2012) and Gary Spirer’s Crowdfunding:  The Next Big Thing (2013).

What if easier capital crowdfunding combined with benefit corporation structures?  Is it possible to imagine the construction of new securities markets that would raise capital for benefit corporations -- outside of traditional Wall Street markets where the norm of “shareholder value maximization” rules?  There are some reasons for doubt:  securities regulations change slowly (with the financial status quo more than willing to lobby against disruptive changes) and hopes for “do-good” business models may run into trouble if consumer markets don’t support them strongly.  But it’s at least possible to imagine a different world of business emerging with the energy and commitment of a generation of entrepreneurs who might care about more in their lives than making themselves rich.  Benefit corporations fueled by capital crowdfunding might lead a revolution:  or, less provocatively, may at least challenge traditional business models that for too long have assumed a narrow economic model of profit-maximizing self-interest.  James Surowiecki, in his recent column in The New Yorker, captures a more modest possibility:  “The rise of B corps is a reminder that the idea that corporations should be only lean, mean, profit-maximizing machines isn’t dictated by the inherent nature of capitalism, let alone by human nature.  As individuals, we try to make our work not just profitable but also meaningful. It may be time for more companies to do the same.”

So a combination of hybrid social enterprises and capital crowdfunding doesn’t need to displace all of the traditional modes of doing business to change the world.  If a significant number of entrepreneurs, employees, investors, and customers lock-in to these new social technologies, then they will indeed become “disruptive.”

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August 07, 2014
New Directions in Corporate Disclosure: Politics, Environment, and Religion
Posted by Eric Orts

Corporate disclosure, especially in securities regulation, has been a standard regulatory strategy since the New Deal. Brandeisian “sunlight” has been endorsed widely as a cure for nefarious inside dealings. An impressive apparatus of regulatory disclosure has emerged, including annual and quarterly reports enshrined in Forms 10K and 10Q. Other less comprehensive disclosures are also required: for initial public offerings and various debt issuances, as well as for unexpected events that require an update of available information in the market (Form 8K).

For the most part, corporate disclosure has focused on financial information: for the good and sufficient reason that it is designed to protect investors – especially investors who are relatively small players in large public trading markets. Some doubts have been raised about the effectiveness of this kind of disclosure and, indeed, the effectiveness of mandatory disclosure in general. A recent book by Omri Ben-Shahar and Carl Scheider, More Than You Wanted to Know: The Failure of Mandated Disclosure, advances a wide-ranging attack on all mandatory disclosure. (I think that their attack goes too far: I’ll be coming out with a short review of the book for Penn Law’s RegBlog called “Defending Disclosure”).   Assuming, though, that much financial disclosure makes sense, what about expanding it to include other activities of business firms?

Consider three types of nonfinancial information that might usefully be disclosed: information about a business firm’s activities with respect to politics, the natural environment, and religion.

1. Politics. One good candidate for enhanced corporate disclosure concerns business activities in politics. Lobbying laws require various disclosures, and various campaign finance laws do too. It is possible to obscure actual political spending through the complexity of corporate organization. (For a nice graphic of the Koch brothers’ labyrinth assembled by the Center for Responsive Politics, see here.) Good reporters can ferret out this information – but they need to get access to it in the first place. My colleague Bill Laufer has been an academic leader in an effort to encourage public corporations to disclose political spending voluntarily, with Wharton’s Zicklin Center for Business Ethics Research teaming up with the nonpartisan Center for Political Accountability to rank companies with respect to their transparency about corporate political spending. The rankings have been done for three years now, and there are indications of increased business participation.  Recently, even this voluntary effort has been attacked by business groups such as the U.S. Chamber of Commerce for being “anti-business.” See letter from U.S. Chamber of Commerce quoted here.  Jonathan Macey of Yale Law School has also objected to the rankings in an article in the Wall Street Journal, arguing that the purpose of political disclosure is somehow part of “a continuing war against corporate America.” These objections, however, seem overblown and misplaced. What is so wrong about asking for disclosure about the political spending of business firms? One can Google individuals to see their record of supporting Presidential and Congressional candidates via the Federal Election Commission’s website, yet large businesses should be exempt? Political spending by corporations and other business should be disclosed in virtue of democratic ideals of transparency in the political process. Media, non-profit groups, political parties, and other citizens may then use the resulting information in political debates and election campaigns. Also, it seems reasonable for shareholders to expect to have access to this kind of information.

In Business Persons, I’ve gone further to argue (in chapter 7) that both majority and dissenting opinions in Citizens United appear to support mandatory disclosure as a good compromise strategy for regulation. One can still debate the merits of closer control of corporate spending in politics (and I believe that though business corporations indeed have “rights” to political speech these rights do not necessarily extend to unlimited spending directed toward political campaigns). It seems to me hard to dispute that principles of political democracy – and the transparency of the process – support a law of mandatory disclosure of corporate spending in politics.

2. Natural environment. Increasingly, many large companies are also issuing voluntary reports regarding their environmental performance (and often adding in other “social impact” elements). Annual reports issued under the International Standards Organization (the ISO 14000 series), the Global Reporting Initiative, and the Carbon Disclosure Project are examples. The Environmental Protection Agency (EPA) has also established a mandatory program for greenhouse gas emissions reporting, which is tailored to different industrial sectors. One can argue about whether these kinds of disclosures are sufficiently useful to justify their expense, but my own view is that they help to encourage business firms to take environmental concerns seriously. Many firms use this reporting to enhance their internal efficiency (often leading to financial bottom-line gains). As important, however, is the engagement of firms to consider environmental issues – and encouraging them to act as “part of the solution” rather than simply as a generating part of the problem.

One caveat that is relevant to all nonfinancial disclosure regimes:   The scope of firms required to disclose should be considered.  I do not believe that the case is convincing that only public reporting companies under the securities laws should be included.  (For one influential argument to the contrary, see Cynthia A. Williams, “The Securities and Exchange Commission and Corporate Social Transparency,”  112 Harvard Law Review 1197 (1999)).  Instead, it makes to sense for different agencies appropriate to the particular issue at hand to regulate:  the Federal Election Commission for political disclosures and the EPA for environmental disclosures.

3. Religion? In the wake of the Hobby Lobby case, some have called for greater disclosure about a firm’s values on this score both with respect to employment and investors. See, e.g., Joan Heminway’s piece here. Stephen Bainbridge has also called attention to this question here.  Probably it makes sense to consider disclosure as a partial solution, though the idea of mandatory government disclosure of religious characteristics makes me nervous on “separation of church and state” grounds. It might be better to “wait” (as Frank Partnoy advises us often to do in his recent book) and see how the Hobby Lobby line of cases develops. My guess is that some tensions will become apparent that may result in keeping Hobby Lobby limited to the context of close and usually small corporations (though Hobby Lobby itself is an exception, having more than 10,000 employees).
 
But a rule of disclosure might not be the best approach with respect to religion and firms. Better in this context perhaps to bite the bullet and ascertain when for various legal purposes a business firm “crosses the line” from a private organization (with rights of self-organization and self-determination with respect to many internal business practices) to a public-facing organization (with duties to treat public customers, employees, and business partners in a non-discriminatory manner). These issues are not easy. As I suggest in Business Persons (chapter 3), a central problem in business theory concerns “the public/private distinction” which I conceive as involving “two faces of the business enterprise.” Here, the religious preferences of private owners require balancing with the public role undertaken when holding out one’s shingle in public markets. Drawing legal lines isn’t always easy, but often it’s necessary.  And disclosures alone will not always be sufficient.

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August 05, 2014
The Legal and Social Ontology of the Firm
Posted by Eric Orts

Thanks to Gordon Smith and my Wharton colleague David Zaring for inviting me as a guest blogger on The Conglomerate.  I am a new entrant in the blogosphere here, and I appreciate this invitation very much.

What follows is a written version of remarks that I presented at the Society for Business Ethics in Philadelphia on August 3 at a panel on “Corporate Personhood – For or Against or Whether It Even Matters?” organized by Kendy Hess of Holy Cross.  (Thanks, Kendy!)  The panel also included excellent presentations on the topic by two of my Wharton colleagues, Gwen Gordon and Amy Sepinwall, as well as Kendy.  A longer version will be presented in a conference in London in September, and a written version will also be included in a book that I'm co-editing with Craig Smith called The Moral Responsibility of Firms (forthcoming in Oxford University Press).  It will also inform chapter 1 of a book that is underway (and still forthcoming) currently called Rethinking the Firm: An Interdisciplinary Interpretation (also under contract with OUP). 

In these posts, I've been kindly invited to revisit some themes of my new book on Business Persons:  A Legal Theory of the Firm.  So I hope that I'll generate some interest in the book:  or perhaps make some of the ideas there more accessible in "blog-sized" pieces.  The following contribution is a first entry.

***

Let me be provocative first and say affirmatively: Corporations are legal persons and it matters. The thesis is qualified, however, by the fact that to say that corporations are persons is a conclusion that only then begins arguments about what it actually means in practice with respect to particular issues.  The fact that corporations are “persons” means only that we provide them – through law – with certain capacities and powers, and certain rights and obligations.  It remains to be decided what the nature and limits of these capacities and powers, and rights and obligations, may and will be.

Three main arguments support my claim.

1. Firms exist.  Some economists (and lawyers following them) have argued that firms do not really exist.  They are mere fictions, they say, and any serious epistemological analysis must look past the “legal fiction” of the firm – or the “corporation” in the form we are discussing here – to the actual human beings who are involved.  Although this methodological reduction may be useful for some kinds of analysis (economic modeling, etc.), it is wrong from a realistic legal and social perspective.  Firms exist because the law has evolved to say that they exist.  They are constructions of human relationships that are socially sanctioned and legally recognized.  They are “fictions” in the sense that they are created through the artificial mechanisms of law and government.  They are also “real” because people acting under law and in society believe in them and make them real.  Firms are therefore what I’ve called “real fictions”:  both nominalism and realism are right, but only when they are combined together into a nominalist realism.  See Business Persons, ch. 1.  Philosophers such as Margaret Gilbert, John Searle, and Philip Pettit support this view.  People acting in social groups form collective realities, which are reinforced and articulated by organizational law.  Business firms – including for-profit corporations – are in this sense social constructions.  Corporations are like money and nation-states.  Exxon-Mobil and Patagonia are as real as China and the United States.  They exist because we believe in them.  We act as if they exist – and so as social constructions they exist.  They have power and authority.

2. Firms are persons.  The method of legal recognition is to bestow “personality”:  The law recognizes an individual human being as a “person” who has “standing” to bring or defend a claim in court.  A person has rights: personal rights against mistreatment and rights against violations of one’s dignity and physical integrity.  The law matters here.  Consider the situation of a slave (historically not so very long ago in the United States) or an illegal immigrant (such as children from other countries crossing the southern border of the United States today).  The law does not recognize them fully as “persons” – or at least not to the same level of available rights and obligations as “citizens.”  Even children of citizens do not have a complete set of rights:  they cannot drive cars or enter contracts legally until reaching an age allowing legal capacity.  The law makes other distinctions:  “person” is a legally denominated concept.  It is extended (or not) for various reasons of philosophy and social policy.  Is a fetus a “person”?  What rights does a “terrorist” have?  Even: is a dog, such as my dog Butterbean, a legal person for certain purposes?  I cannot, for example, torture him for fun (assuming that I’m that kind of person, which I’m not).  In this sense, then, a dog too is a person:  he has some minimal rights recognized under law (though he'll need someone else to speak for him).

An analogous argument applies to firms.  They are “persons” because the law recognizes them as such and as having certain rights and obligations:  standing in court, holding of property, a party to contracts, an organizational principal, a target for tort liability, and a potential plaintiff to insist on its “rights,” whatever they may be.  The exact nature of these various rights of firms remains to be decided:  The controversial recent cases of Citizens United and Hobby Lobby extend claims of political and religious freedom to include corporations as persons.  Are these cases correctly decided?  The answer does not, I believe, turn on whether they are considered “persons” or not.  Firms are uncontroversially legal persons for many purposes.  The question is whether or not we should extend certain kind of rights to firms as “persons” derivatively – representing the people who act collectively through them.  Note that the answer can be qualified.  We may say: “Yes, corporations hold property and should have standing to object on constitutional grounds if a government attempts to expropriate the property without compensation.”  But we may also say: “No, corporations usually represent diverse groups of people regarding religion, so in these cases it is not correct to say that corporations should have religious rights" (contrary, of course, to the holding of Hobby Lobby).  I make this latter argument in a previous blog for The Conglomerate on Hobby Lobby here.

3. Legal personality matters, but it is not dispositive. Firms exist, firms have legal personality, and it matters.  The fact that a corporation is a person does not settle the argument for or against an assertion of rights or obligations.  This is a mistake in argumentation, in my view, that opinions on both sides of the divided Justices of the Citizens United and Hobby Lobby cases make.  In these kinds of cases, the Court should ask – as legislatures and citizens should as well – what is the purpose of a firm and of a corporation given the question that we're asking?  Arguably, as Justice Alito argues in Hobby Lobby, business firms are not just profit maximizers (as some students are taught in some business school classes).  They are moral creatures because the people who compose them are moral creatures (or, at least they have the potential to be moral -- nobody's perfect!)  But we then have to dig deeper and ask “who” is involved in the firm.  Why are we asking the question: “persons” for what purposes?  Perhaps firms should have political rights, but perhaps also they should be constrained in this respect for good reasons of political theory and modern democracy.  Perhaps some kinds of firms should have religious rights, but the scope of these potential rights should be constrained.  Rights of employees may be equal to those of owners and managers in this context.  There are other limits in principle that need to be drawn here too:  but my main point here is that doing so assumes that “legal personality” matters.  It is then a question of filling in the institutional portrait:  who is this person?  What kind of person?  And how does the nature of this person relate to the considerations in play on a specific issue?

4. Conclusion.  My argument is designed mostly to set up rather than to answer the hard questions, so I hope that my position will not be too controversial.  Here again are my main propositions.

a.  Firms exist. For our purposes here, corporations are a kind of firm.  (The difference between for-profit and profit corporations raises another set of issues.)

b.  Firms, including corporations, have legal personality.  The question is not whether firms are persons, but what the fact that they are persons means with respect to particular further questions regarding the rights or obligations that we should extend to them as persons.

c.  Legal personality matters, but is not dispositive.  To argue about whether firms are persons or not persons does not advance the ball very much.  The popular debate conflates the meanings of "persons" and "people."  Firms are persons; begin there.  And then engage the substantive policy issues as hand.  Move the discussion forward, while recognizing the truth of the “real fictions” of firms as legal persons.

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March 20, 2014
Complexity of Mission and the Power of Form
Posted by Joseph Yockey

Consider two different social enterprises: Blue River Technology and Greyston Bakery.

Blue River applies expertise in robotics to develop new agricultural technologies. Recognizing that $25 billion is spent annually on herbicides that pose environmental risks, the company offers farmers the option to reduce their chemical usage by switching to robots pulled behind tractors that can quickly identify and kill weeds with a rotating blade.

Greyston sells brownies (including some found in Ben & Jerry’s ice cream), but it also adheres to a strict workforce development program. The company staffs its operations with hard-to-employ individuals and teaches them skills that they can use when looking for jobs across the wider foodservices industry. As Greyston’s slogan says, “We don’t hire people to bake brownies, we bake brownies to hire people.”

Greyston is organized as a benefit corporation; Blue River is not. That probably makes sense.

Blue River approaches what some call “the hybrid ideal” – a situation where everything a company does generates social value and revenue. The company’s social objectives are market driven. There is little tension between profits and impact. Mission drift is relatively easy to monitor. I wouldn’t think Blue River has much to gain by becoming a benefit corporation. Indeed, it seems to be doing just fine.

Greyston is different. It can’t align profits with public good quite as neatly. Its social mission is broader and open to greater interpretation. What does it mean for someone to be “hard-to-employ?” How should we measure something as fuzzy as workforce development? Even if we say that Greyston is near the hybrid ideal, can we be sure it won’t move toward greater pursuit of profits at the expense of public benefit? This might follow from something as simple as a change in ownership or leadership, and it could be hard to detect. Blue River’s products strike me as easily observable, but if Greyston makes discrete changes to its hiring policies, those decisions seem easier to keep under wraps.

The provisions found in benefit corporation statutes do not fully resolve these issues. However, I’m not ready to say that benefit corporation statutes are a mistake, or that becoming a benefit corporation is only about greenwashing. Instead, I argue that the benefit corporation’s best opportunity for influence is to be seen as a new institutional structure—one that can motivate the development of self-regulatory standards and provide a normative framework for social entrepreneurs and pro-social investors. This framework, in turn, can be particularly helpful to companies like Greyston that pursue more complex social missions.

First, the benefit corporation form offers a rallying or focal point that ought to make it easier for like-minded private actors to come together and collaborate on issues ranging from corporate governance practices to the development of social impact metrics. Seeing benefit corporation laws as focal in this way does not mean they will dictate particular standards. Rather, they simply incentivize firms and stakeholders to participate in a self-regulatory process by providing an archetype and hub that can facilitate communication and standards development. The form’s mandate to consider multiple interests should make such cooperation more palatable. Firms that prioritize profits above other objectives often lack the incentive to share information with their competitors. In that case, first-movers will see their profits slip if information sharing allows others to easily replicate their strategies. However, by definition, the benefit corporation form means that profits are not the overriding focus. It thus creates more room for cooperation and coordination—and as Haskell Murray reports, this already appears to be happening.

Additionally, a key step in addressing issues like mission drift is to recognize that, just as they send broader signals about values to the market, legal forms also influence corporate behavior. The people within an organization are the most significant determinants of its commitment to mission. With respect to the benefit corporation, forms that reflect a specific ideological commitment can influence internal culture by signaling the values that should inform employee decision-making. Patagonia cited this belief as a motivating factor in its decision to become a benefit corporation. 

Finally, establishing a culture that leads to the internalization of values is easier when organizational goals match employees’ personal beliefs. The benefit corporation’s emphasis on dual objectives should attract socially minded employees by signaling that they will find a supportive structure in place. When employees then enter organizations that reflect their own values, they often exhibit greater motivation to act consistently with those values.

There is obviously much more to say about these points, and for anyone looking to wade deeper into them, I offer a fuller explanation here.

Unless the rapid spread of benefit corporation laws is evidence of an enthusiastic or cynical mistake (which I think is possible but unlikely), then there must be some underlying logic to unpack. My aim is to keep working to explain the social enterprise phenomenon, to put it into a clear theoretical framework, and to distill the best justifications for offering special organizational options for social entrepreneurs.

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December 14, 2011
Does a Corporation Have a Conscience and Can It Tempt Ethical People to Do Bad Things?
Posted by Marcia Narine

Time Magazine’s “person of the year” is the “protestor.” Occupy Wall Street’s participants have generated discussion unprecedented in recent years about the role of corporations and their executives in society. The movement has influenced workers and unemployed alike around the world and has clearly shaped the political debate.

But how does a corporation really act? Doesn’t it act through its people? And do those people behave like the members of the homo economicus species acting rationally, selfishly for their greatest material advantage and without consideration about morality, ethics or other people? If so, can a corporation really have a conscience?

In her book Cultivating Conscience: How Good Laws Make Good People, Lynn Stout, a corporate and securities professor at UCLA School of Law argues that the homo economicus model does a poor job of predicting behavior within corporations. Stout takes aim at Oliver Wendell Holmes’ theory of the “bad man” (which forms the basis of homo economicus), Hobbes’ approach in Leviathan, John Stuart Mill’s theory of political economy, and those judges, law professors, regulators and policymakers who focus solely on the law and economics theory that material incentives are the only things that matter.

Citing hundreds of sociological studies that have been replicated around the world over the past fifty years, evolutionary biology, and experimental gaming theory, she concludes that  people do not generally behave like the “rational maximizers” that ecomonic theory would predict. In fact other than the 1-3% of the population who are psychopaths, people are “prosocial, ” meaning that they sacrifice to follow ethical rules, or to help or avoid harming others (although interestingly in student studies, economics majors tended to be less prosocial than others). 

She recommends a three-factor model for judges, regulators and legislators who want to shape human behavior:

 “Unselfish prosocial behavior toward strangers, including unselfish compliance with legal and ethical rules, is triggered by social context, including especially:

(1)         instructions from authority

(2)         beliefs about others’ prosocial behavior; and

(3)         the magnitude of the benefits to others.

Prosocial behavior declines, however, as the personal cost of acting prosocially increases.”

While she focuses on tort, contract and criminal law, her model and criticisms of the homo economicus model may be particularly helpful in the context of understanding corporate behavior. Corporations clearly influence how their people act. Professor Pamela Bucy, for example, argues that government should only be able to convict a corporation if it proves that the corporate ethos encouraged agents of the corporation to commit the criminal act. That corporate ethos results from individuals working together toward corporate goals.

Stout observes that an entire generation of business and political leaders has been taught that people only respond to material incentives, which leads to poor planning that can have devastating results by steering naturally prosocial people to toward unethical or illegal behavior. She warns against “rais[ing] the cost of conscience,” stating that “if we want people to be good, we must not tempt them to be bad.”

In her forthcoming article “Killing Conscience: The Unintended Behavioral Consequences of ‘Pay for Performance,’” she applies behavioral science to incentive based-pay. She points to the savings and loans crisis of the 80's, the recent teacher cheating scandals on standardized tests, Enron, Worldcom, the 2008 credit crisis, which stemmed in part from performance-based bonuses that tempted brokers to approve risky loans, and Bear Sterns and AIG executives who bet on risky derivatives. She disagrees with those who say that that those incentive plans were poorly designed, arguing instead that excessive reliance on even well designed ex-ante incentive plans can “snuff out” or suppress conscience and create “psycopathogenic” environments, and has done so as evidenced by “a disturbing outbreak of executive-driven corporate frauds, scandals and failures.” She further notes that the pay for performance movement has produced less than stellar improvement in the performance and profitability of most US companies.  

She advocates instead for trust-based” compensation arrangements, which take into account the parties’ capacity for prosocial behavior rather than leading employees to believe that the employer rewards selfish behavior. This is especially true if that reward tempts employees to engage in fraudulent or opportunistic behavior if that is the only way to realistically achieve the performance metric.

Applying her three factor model looks like this: Does the company’s messaging tell employees that it doesn’t care about ethics? Is it rewarding other people to act in the same way? And is it signaling that there is nothing wrong with unethical behavior or that there are no victims? This theory fits in nicely with the Bucy corporate ethos paradigm described above.

Stout proposes modest, nonmaterial rewards such as greater job responsibilities, public recognition, and more reasonable cash awards based upon subjective, ex post evaluations on the employee’s performance, and cites studies indicating that most employees thrive and are more creative in environments that don’t focus on ex ante monetary incentives. She yearns for the pre 162(m) days when the tax code didn’t require corporations to tie executive pay over one million dollars to performance metrics.

Stout’s application of these behavioral science theories provide guidance that lawmakers and others may want to consider as they look at legislation to prevent or at least mitigate the next corporate scandal. She also provides food for thought for those in corporate America who want to change the dynamics and trust factors within their organizations, and by extension their employee base, shareholders and the general population.

 

 

 

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December 12, 2011
Corporate Criminal Liability- Prosecutors in the Boardroom and the Call for an Affirmative Defense
Posted by Marcia Narine

Massey Energy and Walmart made headlines last week for different reasons. Massey had the worst mining disaster in 40 years, killing 29 employees and entered into a nonprescution agreement with the Department of Justice. The DOJ has stated in the past that these agreements balance the interests of penalizing offending companies, compensating victims and stopping criminal conduct “without the loss of jobs, the loss of pensions, and other significant negative consequences to innocent parties who played no role in the criminal conduct, were unaware of it, or were unable to prevent it.”

Massey’s new owner Alpha Natural Resources, has agreed to pay $210 million dollars in fines to the government, compensation to the families of the deceased miners and for safety improvements (the latter may be tax-deductible). The government’s 972-page report concluded that the root cause was Massey’s “systematic, intentional and aggressive efforts” to conceal life threatening safety violations. The company maintained a doctored set of safety records for investigators, intimidated workers who complained of safety issues, warned miners when inspectors were coming (a crime), and had 370 violations. The mine had been shut down 48 times in the previous year and reopened once violations were fixed.  112 miners had had no basic safety training at all.  Only one executive has been convicted of destroying documents and obstruction, and investigations on other executives are pending. However, the company itself has escaped prosecution for violations of the Mine Safety and Health Act, conspiracy or obstruction of justice. Perhaps new ownership swayed prosecutors and if Massey had its same owners, things would be different. But is this really justice? The miner’s families receiving the settlement certainly don’t think so.

Walmart announced in its 10-Q that based upon a compliance review and other sources (Dodd-Frank whistleblowers maybe?), it had informed both the SEC and DOJ that it was conducting a worldwide review of its practices to ensure that there were no violations of the Foreign Corrupt Practices Act (“FCPA”).  Although no facts have come out in the Walmart case and I have no personal knowledge of the circumstances, let’s assume for the sake of this post that Walmart has a robust compliance program, which takes a risk based approach to training its two million employees in what they need to know (the greeter in Tulsa may not need in-depth training on bribery and corruption but the warehouse manager and office workers in Brazil and China do). Let’s also assume that Walmart can hire the best attorneys, investigators and consultants around, and based on their advice, chose to disclose to the government that they were conducting an internal investigation.  Let’s further assume that the incidents are not widespread and may involve a few rogue managers around the world, who have chosen to ignore the training and the policies and a strong tone at the top.

As is common today, let’s also assume that depending on what they find, the company will do what every good “corporate citizen” does to avoid indictment --disclose all factual findings and underlying information of its internal investigation, waive the attorney client privilege and work product protection, fire employees, replace management, possibly cut off payment of legal fees for those under investigation, and actively participate in any government investigations of employees, competitors, agents and vendors.

Should this idealized version of Walmart be treated the same as Massey Energy? (For a great compilation of essays on the potential conflicts between the company and its employees, read Prosecutors in the Boardroom: Using Criminal Law to Regulate Corporate Conduct, edited by Anthony and Rachel Barkow).  Should they both be charged and face trial or should they get deferred or nonprosecution agreements for cooperation? Do these NPAs and DPAs erode our sense of justice or should there be an additional alternative for companies that have done the right thing -- an affirmative defense?

A discussion of the history of corporate criminal liability would be too detailed for this post, but in its most simplistic form, ever since the 1909 case of New York Central & Hudson River Railroad Co v. United States, companies have endured strict liability for the criminal acts of employees who were acting within the scope of their employment and who were motivated in part by an intent to benefit the corporation.  As case law has evolved, companies face this liability even if the employee flouted clear rules and mandates and the company has a state of the art compliance program and corporate culture.  In reality, no matter how much money, time or effort a company spends to train and inculcate values into its employees, agents and vendors, there is no guarantee that their employees will neither intentionally nor unintentionally violate the law.

The DOJ has reiterated this 1909 standard in its policy documents. And because so few corporations go to trial and instead enter into DPAs or NPAs, we don’t know whether the compliance programs in place would have led to either the potential 400% increase or 95% decrease in fines and penalties under the Federal Sentencing Guidelines because judges aren’t making those determinations. The DPAs are now providing more information about corporate compliance reporting provisions, but again, even if a company already had all of those practices in place, and a rogue group of employees ignored them, the company faces the criminal liability. The Ethical Resource Center is preparing a report in celebration of the 20th Anniversary of the Sentencing Guidelines with recommendations for the U.S. Sentencing Commission, members of Congress, the DOJ and other enforcement agencies. They are excellent and timely, but they do not go far enough.

A Massey Energy should not receive the same treatment as my idealized model corporate citizen Walmart. Instead, I agree with Larry Thompson, formerly of the DOJ and now a general counsel and others who propose an affirmative defense for an effective compliance program- not simply as possible reduction in a fine or a DPA or NPA.

While the ideal standard would require prosecutors to prove that upper management was willfully blind or negligent regarding the conduct, this proposed standard may presume corporate involvement or condonation of wrongful conduct but allow the company to rebut this presumption with a defense.

In the past decade, companies drastically changed their antiharassment programs after the Supreme Court cases of Fargher and Ellerth allowed for an affirmative defense. The UK Bribery Act also allows for an affirmative defense for implementing “adequate procedures” with six principles of bribery prevention. Interestingly, they too are looking at instituting DPAs.

I would limit a proposed affirmative defense to when nonpolicymaking employees have committed misconduct contrary to law, policy or management instructions. If the company adopted or ratified the conduct and/or did not correct it, it could not avail itself of the defense. The company would have to prove by a preponderance of the evidence that: it has implemented a state of the art program approved and overseen by the board or a designated committee; clearly communicated the corporation’s intent to comply with the law and announced employee penalties for prohibited acts; met or exceeded industry standards and norms; is periodically audited and benchmarked by a third party and has made modifications if necessary; has financial incentives for lawful and penalties unlawful behavior; elevated the compliance officer to report directly to the board or a designated committee (a suggestion rejected in the 2010 amendments to the Sentencing Guidelines); has consistently applied anti-retaliation policies for whistleblowers; voluntarily reported wrongdoing to authorities when appropriate; and of course taken into account what the DOJ has required of offending companies and which is now becoming the standard. The court should have to rule on the defense pre-trial.

Instead of serving as vicarious or deputized prosecutors, under this proposed standard, a corporation’s cooperation with prosecutors will be based on factors more within the corporation's control,rather than the catch-22 they currently face where if employees are guilty, there is no defense. And if the employees are guilty, this would not preclude the government from prosecuting them, as they should.

Responsible corporations now spend significant sums on compliance programs and the reward is simply a reduction in a fine for conduct for which it is vicariously liable and which its policies strictly prohibited. A defense will promote earlier detection and remedying of the wrongdoing, reduce government expenditures, provide more assurance to investors and regulators, allow the government to focus on companies that don’t have effective compliance program, and most important provide incentives for companies to invest in more state of the art programs rather than a cosmetic, check the box initiative because the standard would be higher than what is currently Sentencing Guidelines.

Perhaps only a small number of companies may be able to prevail with this defense.  Frankly, corporations won’t want to bear the risk of a trial, but they will at least have a better negotiating position with prosecutors. Moreover, companies that try in good faith to do the right thing won’t be lumped into the same categories as those who invest in the least expensive programs that may pass muster or worse, engage in clearly intentional criminal behavior.  If companies have the certainty that there is a chance to use a defense, that will invariably lead to stronger programs that can truly detect and prevent criminal behavior.

 

 

 

 

 

 

 

Permalink | Business Ethics| Business Organizations| Businesses of Note| Corporate Governance| Corporate Law| Crime and Criminal Law| Current Affairs| Junior Scholars| Organizational Theory| Wal-Mart| White Collar Crime | TrackBack (0) | Bookmark

May 15, 2011
Anti-Social Networks: Disrupting Terror and Insider Trading
Posted by Erik Gerding

The last two weeks have witnessed dramatic victories against two very different lawbreaking networks. First the death of Bin Laden removed the leader of al Qaeda. Second, the conviction of Raj Rajaratnam represented a major victory for prosecutors against the so-called expert insider trading networks. Although the two lawbreaking networks have a multitude of differences – in terms of social harm, motivations, and structure – they also have important similarities.

For one thing, both terror networks and insider trading networks present an opportunity to study social networks in a rigorous manner. “Networks” are more than just loose metaphor, but instead the subject of the emerging field of network theory that borrows from and links computer science, sociology, economics and a host of other fields. “Emerging” does not mean new: some of the germinal research stretches back over four decades. For example Granovetter’s work on “weak ties” in sociology. Mark Lemley and David McGowan authored a wonderful piece on network effects and law over 10 years ago and the legal literature continues to blossom (from Aviram to Zaring). Network theory has arrived.

And it is being put to use. A number of years ago, media reports suggested that the U.S. intelligence agencies were seeking to use network theory to crack Al Qaeda (see here for a law review article by Christopher Borgen on network theory and terrorism). The extent to which financial regulators and prosecutors have done the same with respect to insider trading is not clear, although scholars have recently suggested new potential approaches.

We may not know for a long time the extent to which network theory is influencing law enforcement. You can understand that intelligence and law enforcement would be unwilling to disclose the methods they use to catch bad guys. But the secrecy means that their methods do not enjoy the benefits – one could even say network effects – of being subject to the scrutiny of a larger community. Observers could help answer vital questions, such as “how effective are these efforts against lawbreakers?” and “could they be improved?” According to Linus’s Law: “given enough eyeballs, all bugs are shallow.” Aside from questions about efficacy, there are lingering and legitimate concerns about the implications of national security surveillance over internet communications.

But even the information we have learned about the two recent victories against anti-social networks leads to some interesting, if tentative observations. First, the ultimate value of these government operations is not in traditional deterrence alone, but in disrupting networks. In other words, successful operations against networks rely not only on crude deterrence of criminal behavior by scaring off would-be criminals. After all, it isn’t clear that a jihadist will be sobered by Bin Laden’s fate. By contrast, one thing that does disrupt networks is interfering with their capacity to send signals. Driving bad guys off the net seriously interferes with their ability to conduct business. From news reports, it doesn’t look like Bin Laden was all that successful in managing operations without an internet connection or a phone line. (Some reports suggest that the one time he did use a phone contributed to his location by U.S. intelligence.) Of course, government surveillance is thwarted not only by encryption, but by the daunting task of finding a needle in a haystack of data. Old-fashioned informants will still prove a critical tool.

Indeed media reports suggest that the government is heavily relying on informants in cracking the expert insider trading networks. From the perspective of law enforcement, this is important not only because it may lead to prosecutions, but also because it might disrupt the thing that these networks most rely on: trust.

So network theory suggests that we pay more attention to the marginalia of the Rajaratnam story. It is not the conviction alone that matters. It also argues for looking at other policy tools – such as a use of bounties in corporate crime – in another dimension, namely engendering distrust and thwarting the development of illegal networks. Of course, bounties for corporate crime and promoting snitching can create their own perverse incentives and pernicious effects. (Eleanor Brown penned an interesting essay on snitching, immigration, and terrorism that uses network theory.)

Another problem with a broader use of these tools is that they don’t always yield headline grabbing successes. No one sees the insider trading or terror attacks or law breaking that didn’t happen. The political economy of deterrence rewards prosecutors for victories in the courtroom, not necessarily for crime prevented.

Still, the events of the last week should give new life to study of network theory. There is evidence that network theory has become white hot. Consider this graph (from Google’s nifty Ngram tool) that plots the rising use of “network effect” compared to “deterrence effect” in books from1970 to mid 2007. 

 Ngraph

One can now also see a lot of those neat network graphs (see below) in news reporting. 

SNA_segment 
Source: Wikipedia /Author: DarwinPeacock/Created with Guess software/See wikimedia commons for license terms 

 

Of course, the popularization of theory also threatens to reduce the intellectual rigor. Let’s hope the network effects of this line of inquiry are positive.

Permalink | Crime and Criminal Law| Current Affairs| Legal Scholarship| Organizational Theory| Science| Securities| Social Networks| Sociology| Terrorism| Web/Tech| White Collar Crime | Comments (0) | TrackBack (0) | Bookmark

June 29, 2010
BIARI on Technology Entrepreneurship and Management
Posted by Gordon Smith
Last week I spent three-plus days in the lovely city of Providence, Rhode Island as a visiting faculty member of the Brown International Advanced Research Institute (BIARI) on Technology Management and Entrepreneurship. With the possible exception of Mark Suchman -- a "law professor without portfolio" -- I was the only law professor in attendance, but it was well worth my time. In addition to finding a wonderful cheese shop in Providence, I was able to hear entrepreneurship and management scholars discuss their work. I was reminded that legal scholars, especially legal scholars who study organizations, have much to learn about organizations and entrepreneurship from our colleagues in business schools and sociology departments. (We also have a lot to learn from economists, but we are already tapped into that scholarship in meaningful ways.) The sociologically orientated organizational scholarship, like the work Mary Tripsas presented at the conference, goes largely unread in law schools. It's our loss.

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March 22, 2010
Health Care and Organizational Identity
Posted by Gordon Smith

The final tally on the Patient Protection and Affordable Care Act:

  • 219 Democrats voted in favor.
  • 178 Republicans and 34 Democrats voted against

Of the 34 Democrats who sided with Republicans, most (not all) were in Republican leaning districts. 

The Tea Party was out in force in Madison, yesterday, but to no avail. In the immediate wake of the vote, a number of my friends' Facebook status updates touched on health care. While some of them yearned for change in November, many others had the following flavor:

O beautiful for patriot dream--That sees beyond the years; Thine alabaster cities gleam--Undimmed by human tears! America! America! God shed his grace on thee; Till nobler men keep once again Thy whiter jubilee! I am extraordinarily proud to be an American on this Historic Day.

What is it about the health care debate that produces such division and such emotion? Before answering that question, I offer some thoughts on what the health care debate is not about:

  • This is not a populist story about the people triumphing over big corporations. After all, some of the scariest corporate bogeymen -- hospitals, health insurance companies, and drugs companies -- will be among the primary beneficiaries of the bill.
  • This is not just an extension of the abortion debate, though that accounts for a great deal of emotion on the margins of the debate.
  • This is not primarily about President Obama. Health care has been a divisive issue for as long as I can remember, which (thankfully) is much longer than Obama has been President.
  • This is not primarily about government spending. The Congressional Budget Office estimates that the new bill will reduce the federal budget deficit by $138 billion from 2010 to 2019. Count me among the skeptics. (Here, too.) In the end, however, the cost of this bill is not the main issue here.
  • Perhaps most surprising, this is not primarily about health care. Many of the tens of millions of uninsured Americans who will now get health insurance are people in good health, and even for those who are sick, the question of access remains. As noted by one perceptive commentator, "There will be no new access to health care if we do not have physicians to provide it." Some people are arguing that the bill will help control health care spending, but you can count me among the skeptics about that, too. I don't know whether this bill will improve health care in the United States. I hope that it does, but I do not believe the debate over health care was motivated primarily by the merits.
With all of the references to "partisan politics" in the press, you might be tempted to think that the Democrats and Republicans were just itching for a fight about anything, and health care was handy. But the wellspring of partisanship is a fundamental conflict of identities. Democrats view themselves as protectors of the weak and oppressed and describe passage of the bill as moral imperative. Meanwhile, Republicans believe that the quickest way to expanding the numbers of the weak and oppressed is to create a new government entitlement program, so they focus on the loss of freedom and responsibility that is said to accompany any expansion of the federal government. Both sides exaggerate, of course -- Ralph Nader is right in calling the bill a "major political symbol wrapped around a shredded substance" -- but organizations do that when their identities are at stake.

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October 14, 2009
Learning from Failure
Posted by Gordon Smith

James Dyson of vacuum fame describing an anecdote of failed engineering: "We saw in the moment of failure ... an idea that had huge advantages in another field."

Was he talking about the new Air Multiplier?

Whatever he was referring to, his core point about learning from failure jumped out at me because I was having a discussion with a colleague on this topic earlier this week. Some of us have a high tolerance for failure, and we learn from our own mistakes, but vicarious learning is also important. Two years ago, my friend Anne Miner who published "Vicarious learning from the failure and near-failure of others: Evidence from the U.S. commercial banking industry," in the Academy of Management Journal. This paper has a lot of interesting nuggets, but I like this one: "the individual failures that made up the industry experience represented negative situations from most observers’ viewpoints. Yet, aggregated into industry experience, the same bad outcomes had potentially positive learning value for others."

Of course, those of us who spend our time in law schools know all about learning vicariously from failure. If you approach law transactionally, that may be the main point of studying judicial opinions.

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December 31, 2008
One Bad Apple
Posted by Gordon Smith

Are you searching for a New Year's Resolution? Here is a suggestion: don't be a bad apple.

This American Life recently did a program entitled "Ruining it for the Rest of Us," and the first part of the program featured an interview with Will Felps, a professor at Rotterdam School of Management in the Netherlands. As a grad student at the University of Washington, Felps studied the effect of bad apples (slackers, depressive pessimists, and jerks) on teams and found that bad apples can indeed spoil the whole bunch. The results are based on experiments using college students -- and the teams were formed for only 45 minutes -- so all of the obvious disclaimers apply, but this is pretty fascinating stuff and it comports with some of my own experiences.

Here is the abstract of Felps' article, How, when, and why bad apples spoil the barrel: Negative group members and dysfunctional groups:

This paper presents a review and integrative model of how, when, and why the behaviors of one negative group member can have powerful, detrimental influence on teammates and groups. We define the negative group member as someone who persistently exhibits one or more of the following behaviors: withholding effort from the group ["slacker"], expressing negative affect ["depressive"], or violating important interpersonal norms ["jerk"]. We then detail how these behaviors elicit psychological states in teammates (e.g. perceptions of inequity, negative feelings, reduced trust), how those psychological states lead to defensive behavioral reactions (e.g. outbursts, mood maintenance, withdrawal), and finally, how these various manifestations of defensiveness influence important group processes and dynamics (e.g. cooperation, creativity). Key mechanisms and moderators are discussed as well as actions that might reduce the impact of the bad apple. Implications for both practice and research are discussed.

If you want to hear Felps describe his work, go listen to the podcast.

By the way, the TAL website lists the song "One Bad Apple" as being performed by the Jackson 5, but it was the Osmonds. If you just listened to the following clip, you would think it's Michael Jackson, but that's Donny ...

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February 26, 2008
Bonsai Organizations
Posted by Gordon Smith

Charles Handy is commenting again over on Marketplace. You may remember Handy's interesting views on markets, which we discussed here. Yesterday he offered an intriguing commentary on the optimal size of organizations:

Americans think big. This has helped make them the most powerful nation on Earth, but bigger is not always better, either for our bodies or, I suggest, for our organizations. If I were to visit a symphony orchestra and ask them about their growth plans for the future, how would they respond? They would talk about their plans to extend their repertoire and to bring their work to new audiences, not about increasing the number of violinists. The same holds true for a school or a hospital. Once they get to the appropriate size, they strive to be better not bigger.

Why should it be different for business? Why does almost every business that I know seek to grow in size, year after year, in fact, as if there were no limit? Why can't they be content with doing more with less? I ask because large organizations are not usually, or even often, nice places in which to spend the best part of our lives. Humans are most comfortable in clusters of 10 to 12, family-sized groups. Put them in armies of hundreds and thousands and they cease to be individuals, but only human resources, just numbers in jobs. Humanity too easily yields place to bureaucracy.

An executive in the project I am working on at the Drucker School in Claremont, California calls the business he created a "bonsai" organization, after those small Japanese trees. These trees need to be trimmed and reshaped, but they don't grow beyond their ordained size. So it is, he says with his organization, and if you really have to be bigger, then maybe the challenge is to create woods of bonsai trees. This way, the economies of scale and the personal ambitions of our leaders won't run up against the constraints of human nature, because if we aren't careful, organizations can become the prisons for our souls.

Notice the implicit assumption of Handy's first sentence: that organization size is culturally contingent. Is it? I suspect the folks at orgtheory.net might have some insights, but I am so accustomed to thinking about this issue through the lens of Ronald Coase's Theory of the Firm that Handy's first sentence struck me as a surprising starting point.

Handy's commentary also prompted thoughts of Louis Brandeis and his series of Harper's Weekly articles that were compiled under the title Other People's Money--and How the Bankers Use It. Brandeis was concerned about trusts, and he rails against large business organizations in expansive language. Brandeis was right to be concerned about monopolies, of course, but "woods of bonsai trees" do not occur spontaneously in nature. Indeed, Brandeis never figured out how to create a Japanese garden through regulation. The landscape of creative destruction is much messier.

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September 29, 2007
Comparative Organizations
Posted by Gordon Smith

Over the past two days, I have been nestled in at the Sundance Resort in Provo, Canyon, attending the BYU Comparative Organizations Conference. The conference was organized by Dave Whetten of BYU's business school, along with junior colleagues Brayden King and Teppo Felin of orgtheory.net. Kieran Healy, Omar Lizardo, and Fabio Rojas of orgtheory.net are also present, as is Peter Klein of Organizations and Markets. I am the only law professor in the group, which comprises mostly sociologists and management scholars.

The conference is premised on the notion that organizational scholars "are incapable of delineating a theoretically-sound justification for 'organizations are different.'" If you find this premise surprising, my guess is that you are a lawyer or an economist. Peter Klein and I were wondering why comparative studies in law and economics didn't seem to count. Joe Galaskiewicz provides a possible answer: lawyers and economists are interested in "incentives, choices, and outcomes," while sociologists and psychologists tend to be interested in "behavioral patterns and environmental selection." Only within the latter group would the statement "organizations are different" be controversial.

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July 25, 2007
Secrecy, Berliner Style
Posted by David Zaring

I've just returned from spectating at my first panel at the Law and Society conference in cloudy Berlin (cloudy and cool, which, along with tons of rain, is what I dream about when I dream about Europe, but boy, the southern part of the continent, I can attest from experience, is hot hot hot).  It was on secrecy in government - and it is a au courant topic, given all the claims of privilege being made by the government today.  I think it is fair to say that the panelists were critical of all this secrecy, and maybe that is appropriate, since the government does, in theory, serve as an agent to the principal that is its people.

But it seems to me that you have to make a principal-agent sort of argument to justify transparency in government (which, believe me, I am for).  Does anyone really think that there aren't benefits to secret, private deliberations?  Corporate boardroom debates, as the HP case underscored, are private on pain of the duty of loyalty, and companies in general - that is, private ordering - choose, in general, to be as secret as heck.

For more, consider Co-Op blogger Dan Solove's essay on having nothing to hide.  Maybe the Glom community can get him some additional much needed downloads.

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June 21, 2007
Run It Like a Business
Posted by David Zaring

Politicians like Mitt Romney tout their business experiences as a reason for election.  Al Gore sought to reinvent government to make it run more like a business.  And I think that regulators have increasingly adopted the language of business when they do their jobs - say, by promulgating "best practices" instead of rules.  My future colleague Cary Coglianese calls this management-based regulation.

I suspect that the increasing use of the language and methods of business in government regulation is one of the more notable changes in regulation in the current era (others might point to the ever increasing power of the presidency/OMB, or e-government, or perhaps the war on terror).  But am I right about this?  I wondered if the readers of this blog had any thoughts.  Do you have a favorite business buzzphrase that you're seeing generals, regulators, or heck, whoever, use?

I'm looking for interesting examples because I'm hoping to write a book called "From Good to Great [Bureaucracy]."  (I kid.)  But if it turns into a wiki, I promise to share the revenues equally with the readers of the Glom, as any good anarcho-syndicalist businessman might.

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