[Excerpt] A central problem for those interested in studying and explaining the actions of organizations is how to conceptualize these social phenomena. In particular, because organizations are constituted by individuals, each of whom may seek to achieve his or her interests through the organization, questions of how decisions are made in organizations and whose preferences drive those decisions are critical to explaining organizational actions. Although early organizational scholars spent much time wrestling with these questions (e.g. Barnard 1938; Simon 1947; Parsons 1956; March and Simon 1958), more recent work in organizational studies has tended to elide them, adopting an implicit view of organizations as unitary actors, much like individuals, and in particular, like individuals who operate with a coherent utility function that they seek to maximize (e.g. Porter 1985; Baum et al. 2005; Casciaro and Piskorski 2005; Mezias and Boyle 2005; Jensen 2006). Thus, organizational behavior is seen as reflecting efforts to achieve a specific goal, which is, presumably, that of enhancing the organizations interests.
While this may be the dominant conceptualization underlying much contemporary research, other work sharply questions the validity and usefulness of this approach to organizational analysis (March and Simon 1958; Cohen, March, and Olsen 1972; Jackall 1988). Studies in this tradition suggest that it is more appropriate in most instances to conceive of organizations as battlefields, constituted by shifting factions with differing interests that vie for control of the organization; hence, organizational actions should be viewed as reflecting the preferences of a victorious coalition at a given point in time. We suspect that, although most people’s experience in organizations may make them sympathetic to the coalitional view and skeptical of the unitary actor view, the continuing predilection for the latter stems at least in part from problems of deriving systematic predictions of organizational behavior from a more chaotic, coalitional kaleidoscope perspective.
A different model of organizations is represented in the work of Robert Michels (1876-1936), who, nearly a century ago, offered his now-famous, pithy summary of the fundamental nature of organizations ( 1962: 365): ‘Who says organization, says oligarchy.’ Drawing on his own experiences with early twentieth-century German political party organizations, Michels presented the drift to oligarchy as an ‘iron law’, inevitably resulting in the division of even the most expressly democratic organizations into two parts: a small stable set of elites and all the other members. His analysis offered a catalog of the processes and forces that produced such a division, and he postulated that the directives of the elite, while nominally reflecting the set of interests shared by all members, in actuality are driven by their own personal interests in the organization. His provocative (and very pessimistic) arguments have served as the basis for many studies over the years, particularly of organizations specifically formed to represent the interests of groups seeking to promote change in political arenas. Much of this work has been focused on assessing the purported inevitability of the emergence of oligarchies and defining the conditions of the iron law—i.e. those that affect the realization (or suppression) of oligarchic tendencies.
In this chapter, we argue that Michels’s core arguments about the nature of oligarchies in organizations, and research generated in response to his work, are not only relevant to understanding the dynamics of political organizations but can be extended as a useful framework for thinking about important aspects of contemporary economic corporations as well. In making this argument, we highlight the parallels between Berle and Means’s analysis (1932) of modern, publicly held corporations and that of Michels. Both analyses address the general organizational problem of ensuring representation of members’ interests. In political organizations, it is the rank-and-file members’ interests that leaders are charged with representing; in publicly held organizations, leaders are primarily responsible for representing the interests of stockholders, as the nominal owners’ of the firm. In this context, we consider evidence and research on problematic corporate behavior to show how Michels’s work provides a useful framework for understanding these problems and for formulating ways of addressing them.