Business restructuring, management control, and corporate organization

Conclusions

After half a century of growing dominance of the large corporation by non-owning managers, the 1980s were marked by a slowing or even reversing of their quiet revolution. Professional managers had come to control the corporation on the premise that they could more efficiently produce shareholder value than the original founder-owners. They turned shareholding into a passive investment on the same premise. As companies faced increasingly competitive pressures during the 1980s, however, the legitimacy of the rule of incumbent management came under challenge. No longer could government interference be blamed for many of the problems facing business; fingers pointed at management itself. As the criticism of corporate leadership gathered momentum, a leading diagnosis focused on one of managerial capitalism's crowning achievements: the autonomous power of professional management.

The critique viewed the managerial autonomy as excessively permissive, the agency system as no longer effective. Professional managers had come to show too much concern for the social welfare of various stakeholder groups, including themselves, and too little concern for the financial welfare of the only stakeholder group that should really count — the shareholders. Many of the restructuring efforts were thus undertaken in the name of returning companies to the single-minded pursuit of ownership interests. What had stood in the way of such a pursuit was less a matter of government constraint and more a matter of inadequate stockholder vigilance by their appointed agents.

Mindful of the critique, incumbent managements moved during the mid- to late-1980s to improve stockholder returns by paring the workforce and cutting other costs. Corporate acquisitions and leveraged buyouts brought new management teams to the fore where others had seemingly fallen short. The resulting restructuring reached a large proportion of the nation's major companies. Half or more of the largest companies had undergone a significant reduction in their workforce. And the dollar value of company resources changing ownership hands expanded considerably. The aggregate purchase price of mergers and acquisitions of publicly-traded firms in 1988 was nearly three times greater than in 1981. Even more striking was the sharp increase in the number of publicly-traded companies and divisions that were taken private. The aggregate dollar value of such buyouts in 1988 had increased almost 25 times over that in 1981. This opening of the market for corporate control among major U.S. firms brought a significant fraction of the nation's large corporations more directly under the immediate oversight of ownership interests.

The reassertion of ownership control over large corporations was usually taken in the name of improving corporate earnings. Would be takeover groups generally promised more internal discipline and stronger financial performance.¹ Whatever the actual financial impact of the intensification of ownership interests, available research suggests that it has had organizational impact. General company strategies may come to be more centrally guided while specific operating actions are devolved further down the organization.

Ownership change and other restructuring steps have also ramified into corporate social and political action. That outreach is likely to be less vigorous and more divided. It is also being redirected. During the 1970s and early 1980s, corporate energies focused on reducing government regulation and improving community opinion. Those energies are now increasingly focused on facilitating or resisting restructuring. Companies have fought legislation that would limit the process of plant closings, but they have also sought legislation to protect themselves against hostile takeovers.

The evidence also suggests that considerable managerial discretion remains in shaping company response to the restructuring pressures. Although market and organizational factors are sure to act as constraints, top management, whether a relatively autonomous non-owning management group or an owner-dominated management, retains an important independent capacity to exercise strategic choice. That choice is likely to receive special shaping by the long-term ascendance of financial managers and the decline of manufacturing personnel at the executive level.

Yet corporate change must not be viewed as isolated managerial responses to changing market conditions. Companies and managements frequently look to one another for guidance in coping with ambiguous circumstances. DiMaggio and Powell's analysis of organizational “isomorphism,” for example, suggests that firms frequently adopt organizational practices not because they are dictated by the firm's market strategies, but rather because they are already used by other companies.² Similarly, Granovetter's analysis of the social “embeddedness” of economic action indicates that company decisions are partially shaped by top management's contacts with their counterparts in other firms.³ Understanding company responses to restructuring pressures therefore requires a focus on inter-company flows of ideas and doctrines as well as purely internally generated responses specific to the company. Reactions to the restructuring pressures that are collectively developed and defined in the broader business community may prove to be as critical as individually fashioned solutions in guiding management approaches to restructuring during the years to come.