Questioning Institutional Power: From Outside and Within

Calculating Decisions of the Cold Hearted

In its Learning Center (published on 4/3/09), Provisdom explains in detail some reveling elements of corporate decision making.

The very first “objective” happens to be “a universally accepted concept,” which is to “maximize shareholder value.” This is done by “integrating all project aspects,” which will “eliminate the complex and contentious goal-choosing aspect of the decision process.”

The corresponding points in the Provisdom article are directly tied to this very simple goal: maximizing shareholder value. Everything is placed “in the context of maximizing shareholder value,” even risk and uncertainty.

In a functioning market economy, according to its definition, this would be exceptionally true. Everything would be placed under the context of profit and shareholder value. Therefore, what value would the environment have to top-tier General Motors executives who have to report to major investors tomorrow about whether or not the company plans on using local forests for auto factory destinations?

The simple answer is that the environment would have no (or not enough) value, because the institutional structure of GM isn’t designed to protect the environment. Values like sustainability or humanitarian concerns and others must be placed “in the context of maximizing shareholder value,” and are therefore irrational to the interests of the organization.

Let’s look at another example of corporate decisions made in line with maximizing shareholder value, profits and overall market share.

The U.S is currently awash with capital. Businesses are sitting on more than $1 trillion in cash, yet they’re not hiring workers at a faster pace. Meanwhile, the Chamber of Commerce and the business community are calling for corporate tax breaks so they can “start hiring again.”

Well, the U.S political system isn’t democratic enough to socially ridicule the proposals, and it’s certainly not democratic enough to reform the institutional goals behind them. Therefore, the business community can continue to threaten more job losses and capital strikes for additional tax breaks, and the public has to either cater to it or face economic collapse and staggering unemployment.

The institutional structure in place is admittedly designed to “maximize shareholder value,” so those who investors hold responsible for this, the top management officials, must strictly act in accordance to the goals mentioned above or risk losing their jobs.

However, according to Mr. Darrell, those in what he calls “mid-management,” don’t come under the kind of intense, goal-oriented scrutiny that CEOs encounter. As Mr. Darrell points out, they also don’t have nearly as much structural power. Whatever power they do have is extremely confined to their buildings and spheres of influence.

The extent of mid-management’s capability to have an effect on a business’s institutional structure is almost none, because the concentration of power within the institutions is simply too strong. The result of this is that not only do activists on the outside have very little influence on dominant institutions, but neither do corporate executives.

From the outside looking in, it would appear as though the employees of an international corporation would have more opportunities to reform the institutional structure in a meaningful way than an average community organizer. In reality, a corporate executive of General Electric has no more power to fundamentally transform and restructure the system than you do.

By William Shaub, Online Editor
On Twitter @weshaub

The ARB Team
Arbitrage Magazine
Business News with BITE.

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