CORPORATE ORGANIZATIONS

note:Although the following article has not been revised for this edition of the Encyclopedia, the substantive coverage is currently appropriate. The editors have provided a list of recent works at the end of the article to facilitate research and exploration of the topic.

Societies carry out many of their activities through formal organizations. Organizations are units in which offices, or positions, have distinct but interdependent duties. Organizations—hospitals, schools, governments, business firms—share certain features. Usually, at least one of the offices serves as the linchpin: It coordinates the separate duties within the organization. The key office has ultimate authority in that the orders it issues constrain the actions of lower-level offices.

But organizations also differ from one another. In some, the assets belong to particular individuals. In others, ownership resides in a collectivity. The latter represents a corporate organization or corporation. Three features describe the modern corporation. First, it has certain legal rights and privileges. By law, a corporation can sue and be sued in the courts, make contracts, and purchase and receive property. Second, it usually exists in perpetuity: It outlasts the individuals who set it up. Ownership rests with stockholders, whose numbers and makeup can change from one time to another. Third, the owners have only a limited responsibility for the obligations the corporation makes.

These features distinguish the corporate organization from two other forms of ownership: the proprietorship and the partnership. In a proprietorship a particular person owns the property of the organization; in a partnership, two or more persons share it. The right to handle the property and affairs of the organization rests with a designated proprietor or set of partners. Significantly, proprietors and partners bear personal responsibility for the debts of the organization.

The corporation constitutes a social invention. The form evolved to handle problems that arose within religious, political, and other kinds of communities. It holds a place of importance in contemporary Western societies. Because it is the product of social conditions and an influence on them, the corporation represents a topic of substantial interest in sociology.

At present, the corporation appears commonly within the world of business. But when the corporation began to take shape during the Middle Ages, the questions to be resolved lay outside that realm. One of these questions had to do with church ownership. In medieval Germany, landowners often set up churches on their estates and placed a priest in charge of them. As priests gained authority over their charges, they argued that the church and the land surrounding it no longer belonged to the donor. Deciding the true owner proved to be difficult. A given priest could die or be replaced; hence, any particular priest seemed to have no claim to ownership. One practice regarded the owner to be the saint whose name the church bore. Eventually, the idea developed that ownership inhered in the church, and that the church constituted a body independent of its current leaders or members (Coleman 1974; Stone 1975).

Thorny problems also arose as medieval settlements formed into towns. A town required someone to manage its affairs such as collecting tolls and transacting other business. But the laws that prevailed at the time applied only to individuals. Any actions individuals took obligated them personally. By this principle, managers would have to meet any commitments they made on behalf of the town. To eliminate the dilemmas that the principle situation posed, new laws made the town a corporate person. The corporate person would have all the rights and privileges of any human being. This action reduced the risks that public service might otherwise entail. For many of the same reasons that the church and town became corporate persons, the university of the Middle Ages moved towards the corporate form.

The early corporations played rather passive roles. Essentially, they held property for a collective, whose members might change from time to time. Contrastingly, the corporations of the twentieth century constitute spirited forces. They hire multitudes of employees. They produce goods and services and mold ideals and tastes. The decisions their leaders make about where to locate often determine which locales will prosper and which will languish.

The influence that corporations have produces concerns about the control of them. Much of the work on corporations that sociologists have undertaken highlights these concerns. The work on control and corporations covers three topics: the means through which corporations control their employees; the allocation of control between owners and managers; and the extent to which societies control corporations. For all three topics, control implies command over the affairs of and operations within the corporate organization.

CONTROL OVER EMPLOYEES

The corporate form has a long history, yet it did not typify the early factories that manufacturers established in the United States. Before the early 1900s, most factories operated as small operations under the control of a single entrepreneur. The entrepreneur hired an overseer who might in turn choose a foreman to hire, discipline, and fire workers. Through consolidation and merger, the economic landscape of the 1920s revealed far more large organizations than had the tableau of a half-century earlier.

More changed over the years of the late nineteenth and early twentieth centuries than just the size of organizations. The corporate form spread; the faceless corporation replaced the corporeal entrepreneur. Corporations moved towards professional management. Factories that businessmen once controlled personally now operated through abstract rules and procedures. The people whom the workers now contacted on a regular basis consisted of staff for the corporation and not the corporate owners themselves. Bureaucratic tenets took root.

A bureaucracy constitutes a particular mode that organizations can take. Consistent with all organizations, bureaucratic ones divide up duties. Two features separate a bureaucracy from other modes, however. First, a system of ranks or levels operates. Second, fixed rules and procedures govern actions. The rules define the tasks, responsibilities, and authority for each office and each level.

Few of the factories in nineteenth-century America operated as bureaucracies. Instead, the individuals who made the products decided how the work would be done. A minimum number of levels existed. Supervisors or foremen hired and fired workers, but workers made the rules on the work itself. The workers were craftsmen or artisans, and they contended that only those who possessed the skills that the work demands should decide how or if it should be divided. Gradually, machinery took over the skilled work. Machines and not workers controlled the pace. By the end of the 1920s, neither the laborers nor the machinery shaped the work. Professional managers did. These managers enforced rules and oversaw an organization where specialized tasks and graded authority prevailed (Nelson 1975; Clawson 1980; and Jacoby 1985).

The corporation of the late twentieth century continues to operate as a bureaucracy. Some sources argue that efficiency explains the adoption of the bureaucratic model (see especially Chandler 1980, 1984). Others challenge the emphasis on efficiency, charging it with being overly rational or too apolitical. The first challenge appears most notably in the work on organizations as institutions. This literature regards survival as the premier goal for any organization. The closer an organization approximates an institution—an element taken for granted in the society—the greater its chances for survival.

According to the institutional perspective, organizations adopt practices that appear to be reasonable. Myths develop about which patterns prove most useful and efficient, and any organization that does not adopt a pattern that the myth favors courts failure (Meyer and Rowan 1977; DiMaggio 1988; DiMaggio and Powell 1983; Tolbert and Zucker 1983; also see Scott 1987 for a review of the different branches of institutional theory).

A different argument maintains that the emphasis on efficiency fails to capture the politics of corporations. This perspective treats corporations as systems in which the interests of owners clash with those of workers. Owners, it asserts, seek to reduce uncertainties and to eliminate the vagaries that can plague organizations. From this angle, bureaucracy serves the interests of owners primarily because it reduces the influence that workers exercise and thereby removes a source of uncertainty (Braverman 1974; Edwards 1979).

Workers need not have formal authority in order to affect outcomes within organizations. Studies document the creative ways in which employees enliven monotonous jobs and pursue their own ends (Roy 1952; Mechanic 1962; Burawoy 1979, 1985). Yet, officially, the higher levels have greater power than have the lower levels. This is the consequence of the bureaucratic nature of corporations, not of their pattern of ownership. The bureaucratic mode is not unique to corporations. Proprietorships and partnerships can display the traits of bureaucracy. The diffuseness of ownership that one finds in the corporation possibly makes formal control less obvious than obtains when ownership resides in identifiable persons.

OWNER VERSUS MANAGERIAL CONTROL

Managers occupy important places in the contemporary organization. One argument regards managers as more powerful than stockholders. Adolph Berle and Gardiner Means offered this argument in the 1930s. As Berle and Means saw the situation, stockholding had become too widely dispersed for any individual holder or even group of holders to command corporations. Managers, they contended, filled the void (Berle and Means 1932). Later discussions echoed the thesis that the expansion of the corporate form had raised the power of corporate managers (Berg and Zald 1978; also see Chandler 1962, 1977).

Critics contend that the thesis overstates the role and power of managers. They base their criticism on studies of the influence that corporate leaders wield. Maurice Zeitlin (1974) helped launch this line of research when he argued that few scholars had tested the Berle and Means thesis and that the handful of extant studies showed owners to be less fractious and fractionated than the thesis supposed. Michael Useem (1984), among others, heeded the call from Zeitlin for research on the networks that link shareholders. Useem concluded from his study on contacts and networks among large shareholders that a corporate community operated, held together by an inner circle whose interests transcended company, region, and industry lines. Beth Mintz and Michael Schwartz (1985) examined the connections between financial institutions and other corporations and decided that control over corporate directions rested disproportionately in the world of finance. The work from the critics cautions us against the assumption that a multiplicity of owners implies control by managers.

SOCIAL CONTROL OVER CORPORATIONS

The corporate form constitutes a remarkable innovation. But as the corporation has become ever more active and entrenched, it has generated problems for society. Corporations have at times engaged in criminal behavior (Sutherland 1949; Clinard and Yeager 1980). At other times, their actions have violated no law but have put the well-being of the public at risk. Both situations often show the inadequacy of the mechanisms through which society attempts to control corporations.

Corporations are creatures of the state. Ostensibly, then, they operate only at the indulgence of the state. But myriad corporations now have greater resources than do the states that chartered them. Moreover, the laws that states have at their disposal often fit individuals better than they do corporations. Corporations can be sued for wrongdoing; but a fine that would bankrupt an individual might be a mere pittance for a large corporation. Both James Coleman (1974) and Christopher Stone (1975) have argued that the law can never be the sole means for controlling corporations; a sense of responsibility to the public must prevail within corporations.

Even if the law were shown to be effective in constraining corporations within a state, it might prove rather impotent in the case of multinational organizations. A multinational or transnational corporation holds a charter from one nation-state but transacts business in at least one other. The governmental entity that issues the charter cannot alter the policies the corporation pursues in its other locales. In addition, the very size of many multinationals restricts the pressure that either the home or the host country can impose.

Through various actions corporations demonstrate that they are attentive to the societies they inhabit. Corporate leaders serve on the boards of social service agencies; corporate foundations provide funds for community programs; employees donate their time to local causes. The agenda of corporations long have included these and similar activities. Increasingly, the agenda organize such actions around the idea of corporate social responsibility. Acting responsibly means taking steps to promote the commonweal (Steckmest 1982).

Some corporations strive more consistently to advance social ends than do others. Differences in norms and values apparently explain the contrast. Norms, or maxims for behavior, indicate the culture of the organization (Deal and Kennedy 1982). The culture of some settings gives the highest priority to actions that protect the health, safety, and welfare of citizens and their heirs. Elsewhere, those are not what the culture emphasizes (Clinard 1983; Victor and Cullen 1988).

The large corporation had become such a dominant force by the 1980s that no one envisioned a return to an era of small, diffuse organizations. Yet, during that decade some sectors had started to move from growth to contraction. At times, the shift resulted from legislative action. When the Bell Telephone System divided in 1984, by order of the courts, the change marked a sharp reversal. For more than a century the system had glided toward integration and standardization (Barnett and Carroll 1987; Barnett 1990).

Whether through fiat or choice, corporations contract (Whetten 1987; Hambrick and D'Aveni 1988). Two perspectives associate the rise and fall in the fortunes of corporations to changes in the social context. The first perspective, resource dependence, centers on the idea that organizations must secure their resources from their environs (McCarthy and Zald 1977; Jenkins 1983). When those environs contain a wealth of resources—personnel in the numbers and with the qualifications the organization requires, funds to finance operations—the corporation can thrive. When hard times plague the environs, the corporation escapes that fate only with great difficulty.

The perspective known as population ecology likewise connects the destiny of organizations to conditions in their surroundings. Population ecologists think of organizations as members of a population. Changing social conditions can enrich or impoverish a population. Individual units within it can do little to offset the tide of events that threatens to envelop the entire population. (Hannan and Freeman 1988; Wholey and Brittain 1989; for a critique of the approach see Young 1988).

Neither resource dependency theory nor population ecology theory focuses explicity on the corporate form. But just as analyses of corporations inform the discussions sociologists have undertaken on formal organizations, models drawn from studies of organizations have proved useful as scholars have tracked the progress of corporations.

The corporation clearly constitutes a power to be reckoned with. As with its precursors, the modern corporation serves needs that collectivities develop. In fact, the corporation rests on an assumption that is fundamental in sociology: A collectivity has an identity of its own. But the corporation of the twentieth century touches more than those persons who own its assets or produce its goods. This social instrument of the Middle Ages is now a social fixture.

(see also: Capitalism; Organizational Effectiveness; Organizational Structure; Transnational Corporations)

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Cora B. Marrett