Power is RelationalPower in organizations is inherently the property of a relationship between actors. Max Weber’s two famous definitions explicitly asserted that power (Macht) is not the resources held by an actor, but occurs during situated interactions involving actors with potentially opposed interests and goals.

‘Power’ is the probability that one actor within a social relationship will be in a position to carry out his own will despite resistance, regardless of the basis on which that probability rests. (1947:152)

We understand by ‘power’ the chance of a man or a number of men to realize their own will in a social action even against the resistance of others who are participating in the action. (1968:962)

Some power is based on force (coercion). But, if actors willingly assent or consent to obey another’s commands, power becomes legitimate authority (Herrschaft), which may be based on actors’ traditional, charismatic, or rational-legal beliefs in the rightness of their relationship.

Social Exchange: Power & DependencePeter Blau and Richard Emerson theorized that unequal social exchanges generate power dependencies within dyads

Power is a structural relationship, inverse to the cost that one actor willingly pays to another for an exchange. If actor B accepts a higher cost than actor A, then B has a greater dependence on A.

“A’s power over B is (1) directly proportional to the importance B places on the goals mediated by A and (2) inversely proportional to the availability of these goals to B outside the A-B relation.” (Emerson 1962)

If you need a service from a more powerful person (e.g., a professor), you face four alternatives:

1. Coerce her to give the service [use physical threats or blackmail]

2. Supply her with a service/good she needs in exchange, resulting in relative equality

3. Find the needed service from another source

4. Do without the service

If none of these alternatives is possible, then you’re dependent on the powerful person and must exchange deference in order to receive the needed service. (Blau 1964:118-119)

Power Bases & TacticsFrench & Raven’s classic typology (1960) of five bases of power:

Coercive – Forced against will: Boss demands you wash her car

Reward – Play for pay: Boss promises you a rai$e for good work

Legitimate – It’s right to do: Boss asserts she has authority to act

Referent – Personal charisma: Boss is a legend in her own mind

Expert – Know-it-all: Boss hangs her CSOM diplomas on wall

Behavioral tactics for the most profitable use of power resources (Kipnis et al. 1980):

Assertiveness Ingratiation

Rationality Exchange

Upward appeal Coalition formation

The Political Organization

Management PowerDuring 20th century, diluted stock ownership enabled top managers to take de facto control of many large corporations (Berle & Means 1932 The Modern Corporation and Private Property)

Owner-management separation gave control over company assets & operations to executives often more motivated by power, prestige, job security than by shareholders’ short-term profit-maximization goals.

Management control via board elections

Altho shareholders elect directors, top mgmt controls access to proxy machinery needed to win:

• Recommend a hand-picked candidate slate

• Solicit proxy cards authorizing the execs to vote

• SEC rules permit firm to pay mgmt expenses

• Insurgents lack adequate campaign resources

GOVERNING the CORPORATIONLegal theory treats the corporation as its stock owners’ private property. Elected board of directors manages & supervises the firm by setting strategy, appointing & monitoring top executives. Only goal of business leaders must be to maximize financial returns on shareholder investments.

Corporate executives’ sole responsibility to shareholders is “to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”

Milton Friedman. 1970. “The Social Responsibility of Business Is to Increase Its Profits” New York Times Magazine Sept. 13:33

Stakeholder theory asserts that companies also have a social responsibility to serve the interests of nonowners.

“Business is permitted and encouraged by the law because it is of service to the community rather than because it is a source of profits to its owners.”

E. Merrick Dodd. 1932. “For Whom Are Corporate Managers Trustees?” Harvard Law Review 45:1145-1148.

The Stakeholder ModelStakeholder theory: corporations should be socially responsible institutions managed in the public interest. Many organziational constituencies have interests other than maximzing firm profits.

FIRM

Political Groups

InvestorsGovernments

Suppliers Customers

Trade Associations

CommunitiesEmployees

(SOURCE: Donaldson, T. and L.E. Preston. 1995. “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications.” Academy of Management Review 20:65-91.)

Corporate Constituency Laws

During 1980s hostile takeover wave, 28 states enacted “corporate constituency” laws that seemed to broaden business judgment rule to act in good faith to serve “the best interests of the corporation.”

Statutes permit companies to consider how their response to an attempted takeover would likely affect the firm’s stakeholders, not just its shareholders

EXAMPLE Acme Inc. is targeted for takeover by two raiders. Bustups wants to sell off Acme’s unprofitable plants and relocate others overseas. ReWorks is known for restructuring efforts that often turn troubled firms around. Bustups’ bid is $5/share higher than ReWorks’ offer.

What factors should Acme’s Board of Directors take into account in deciding which bid to take? Why?

GOVERNING the CORPORATION

19th century U.S. statutory and case law assigned legal private property rights to a business’ owners: proprietors, partners, or corporation shareholders

Natural entity theory of corporate governance treats firm as a “corporate personality” originating in the contractual relations between private individuals

Purchase of corporate equity (stock) entitles a risk-taking shareholder to:

• dividends from future company profits

• capital gains by re-selling their shares in stock market

• “residual assets” if firm dissolves, after debtors paid off

Legal theory and courts were slow to develop alternative theories for employee rights & consumer protection

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