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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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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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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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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My colleague Anne Miner in the UW Business School studies, among other things, how organizations learn vicariously from the failure of others. "Learning from failure" is novel in business schools and in some other quarters. For example, at Bob Lawless' recommendation, I picked up and started reading Scott Sandage's book, Born Losers: A History of Failure in America. So far, so good. But I had to chuckle at the Prologue, where Sandage argues for the novelty of his approach:

Deadbeats tell no tales, it seems. Distinguished libraries saved the papers of history makers, but where might one look for scraps from the fallen -- the dead letter office?

Actually, as Sandage recognizes, law reporters are a good place to start. They are full of failures, cover to cover. So much so that in law schools we struggle to stave off cynicism in ourselves and our students.

Usually without success.

(Joke intended)

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Brayden King is mulling over some thoughts about identity and organizational decision making.

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The much anticipated day is here. Contracts as Organizations -- my paper with Brayden King -- is now available on SSRN. We have submitted the paper to law reviews, but we welcome further comments. Here is the abstract:

Empirical studies of contracts have become more common over the past decade, but the range of questions addressed by these studies is narrow, inspired primarily by economic theories that focus on the role of contracts in mitigating ex post opportunism. We contend that these economic theories do not adequately explain many commonly observed features of contracts, and we offer four organizational theories to supplement – and in some instances, perhaps, challenge – the dominant economic accounts. The purpose of this Article is threefold: first, to describe how theoretical perspectives on contracting have motivated empirical work on contracts; second, to highlight the dominant role of economic theories in framing empirical work on contracts; and third, to enrich the empirical study of contracts through application of four organizational theories: resource theory, learning theory, identity theory, and institutional theory.

Outside the economics literature, empirical studies of contracts are rare. Even management scholars and sociologists, who generated the four organizational theories just mentioned, largely ignore contracts, both in theoretical and empirical analysis. Nevertheless, we assert that these organizational theories provide new lenses through which to view contracts. While economic theories of contracting focus primarily on one purpose of contracts – mitigating ex post opportunism – the four organizational theories help us understand the multiple purposes of contracts.

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In addition to AALS this past weekend, the American Economics Association held its own annual meeting in Chicago.   Over at the Organizations and Markets blog, Peter Klein has posted links to noteworthy AEA papers on organizations.  These include a paper on Firm Boundaries in the New Economy:  Theory and Evidence, by Krishnamurthy Subramanian.  "Subbu," a co-author of mine on a couple of projects, is a new, up-and-coming finance professor at the B-school here at Emory (Goizueta).  Here's what his paper is about:

The theory in this paper highlights the trade-offs that knowledge intensive firms confront when deciding among mergers/acquisitions, joint ventures, alliances, and arm’s length contracts.  I define a knowledge intensive firm as a collection of the knowledge assets that it owns and the agents who have full access to such assets. Therefore, boundary decisions between two firms are modeled using access to knowledge and ownership of knowledge. Modeling boundary choices using ownership cannot provide optimal incentives since ownership affects incentives asymmetrically, and ownership can encourage over-investment. In contrast, modeling the boundary choices using access and ownership can provide first best incentives since access and ownership complement each other in providing incentives: access affects incentives symmetrically while ownership affects them asymmetrically. The theory explains why some mergers/ acquisitions in knowledge intensive industries are successful while others fail and in what situations an alliance or a joint venture dominates a merger/ acquisition and vice-versa. Using a sample of alliances and joint ventures in the high technology industries, I provide empirical evidence to support the theory.

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Resonding to an email that I sent earlier this semester, Teppo has created a short list of "must reads" in organizational theory, with a link to a much longer list of readings from a Ph.D. Seminar in Macro-Organization Behavior at the Carlson School of Management, University of Minnesota. The comments on Teppo's post are helpful, too.

Over the past couple of years, I have been wading into the organizations literature, and more recently I have decided to make the dive, so these lists are very helpful in getting oriented to the field, which is vast. Law professors have been so slow to embrace the organizations literature, other than transaction cost economics, but I am finding much useful learning there.

Thanks, Teppo!

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