Questioning Institutional Power: From Outside and Within

An analysis of who can influence dominant global institutions and examination of corporate centralization

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By William Shaub, Online Editor

In the past decade, the world has seen the kind of power that private, international and unaccountable institutions yield. The effects of globalization since the 1970’s have revealed highly centralized structures of power from financial conglomerates to pharmaceutical monopolies and international enterprises. These dominant institutions not only have extensive control over resources and capital, but make social, economic, and political decisions that never come under public scrutiny.

Extensive analyses of private global institutions have been done in the past by intellectuals and journalists. Work has been done on explaining the roles these businesses have to play in what’s called a market society, and their respective (and general) interests have been closely examined. The books and studies of public figures, such as Justin Lewis and Edward Herman, have inspired activists in communities all around the world to socially pressure powerful institutions to work for the public good.

New York

However, there is only so much an activist can do alone outside the corporate hierarchical structure.

Michael Moore filmed a documentary on the issue, and not a single global company or even an institutional goal changed. Corporations and financial institutions, decidedly private and unaccountable structures, are just that: unaccountable to the public. They lack the ‘defect’ of the state, which is potentially moral and accountable to the extent that it’s democratic. Therefore, those on the outside are remarkably limited in their influence on these massive institutions.

If a celebrity filmmaker as famous as Michael Moore or a political activist as brilliant as Noam Chomsky cannot seriously dent the institutional search for short-term profits and expanded market share at the expense of humanitarian values, who can?

It’s quite easy to overlook the idea that activists on the outside are not, in fact, the only population sample that can influence corporations. Managers, executives, creditors, CEO’s, workers and others from within the institution itself can also have an effect.

But what influence do they have on institutional goals? What is the extent of their capacity to have an effect on a business’s institutional structure?

One on One with Bill Darrell

To find some answers, I interviewed Bill Darrell, a former corporate executive at General Electric. He spoke very specifically about his role in the company, “as a humanist,” right from the beginning of our discussion. “My role…centered on my management obligations to my associates under me. The salient point being the fairness and decency to which I treated them. I found this belief to fade into obscurity the higher one went into the management hierarchy.”

After further questioning the hierarchical structure inside which he worked, I asked what he could change within GE’s personnel and business code. Mr. Darrell’s response was straightforward, “In my plant, I would have had considerable power to remove and replace positions in the hierarchy.”

What about in the expanded sense, or the ability to make institutional changes elsewhere in GE? “None. I, nor anyone else at my level, could make an impact on the company’s internal structure.” When I asked if the same applied to GE’s standard institutional goals, such as expanding market share and short-term profit, I received an equally blunt, “No.”

[pullquote]There is only so much an activist can do alone outside the corporate hierarchical structure.[/pullquote]

Mr. Darrell made a point of emphasizing the concept that moral values, like solidarity, sustainability and humanitarian consciousness, become less important as one gets more power within an organization. “Corporate decision making dissolves … the higher one elevates within an organization.”

So who does feel this responsibility and place priority on moral (public) issues? “Clarity of truth is usually found in the middle … in this case mid-management.”

Our conversation now became increasingly revealing, considering that Mr. Darrell ran an operation in Northeastern Ohio and received multiple executive’s awards from GE. If he isn’t considered upper level management, than who is, and why do important values “fade into obscurity” the higher one goes into the management hierarchy?

The standard analysis of a corporation’s goals reveals that its primary functions are to increase profits and market share. This isn’t exactly a secret, considering rudimentary business skills like the 80-20 rule exist. Therefore, those who bear the most responsibility for achieving, or more importantly, not achieving these goals are at the highest levels of corporate management and decision-making.

Who holds the strings?

Who holds top-tier executives accountable? I turned to Mr. Darrell for the answer: “Shareholders and debt-holders.” They have the power to set goals and develop their company’s interests, and “without them, the company couldn’t finance acquisitions or capital needs.”

What about those affected by institutional policies and decisions—such as communities, workers and taxpayers—do they get to hold corporate management accountable? What about externalities?

Investors, typically from the corporate community, create, expect and demand results from a company. “In a global society, the stakeholder’s role may play even larger as political and cultural ethos may be impacted for a considerable period of time, impacting the economics and status of a country.”

The mention of “investors, typically from the corporate community” refreshed my memory of an article in the Telegraph (2-23-11) explaining how “Investors are keen to have a greater say in the running” of Apple, Inc. Shareholders of Apple backed a measure in February designed to force important board directors to be elected with a majority vote, as opposed to a mere plurality. This was done despite Apple’s opposition to the measure.

It seems natural, however, for investors to want more control over their shares of a company. They provide the basis for the institutional structure of a corporation, because their motives directly set the goals for the institution. The effects of achieving these goals have an enormous impact on communities, but those communities (externalities) have no say in what the institutional goals are or how they will be achieved.

This concentration of power and decision-making can be described as corporate centralization, and it implies that resources and financial capital of a market-based society must be used to further the interests of those who hold power.

Power means nothing

My interview with Mr. Darrell provided me with new-found insight into the amount of institutional centralization and concentration of private capital. He was remarkably frank about how much power his executive level had to influence corporate goals, which is almost none.

The centralized power that modern corporations hold is not inherent, and the socioeconomic decisions made by these global elite groups are not necessarily justified. Unification of power happens to be incredibly undemocratic, because that’s almost exclusively where important decisions are made: decisions concerning resources, private capital, production, distribution, and others that have a huge impact on the public, who have virtually no say.

To learn more about these decisions and the criteria being used by those who actually control the dominant institutions, I researched Provisdom, a corporation “formed with the vision of bringing the mathematical rigor of Wall Street valuation to corporate decisions.”

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
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