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The Theory of the Firm Goes Rogue - Elf M. Sternberg
The Theory of the Firm Goes Rogue
In the past couple of days, the Theory of the Firm has been on my radar. Specifically the modern formulation known as "Team Production", and how well it overlaps with two other prevailing memes popular in outstanding culture.

The original Theory states that a corporation has two distinct population: Principals who own and manage the firm, and Agents who do all the work. Team Production Theory states that this organizational structure is inadequate to describe what modern coporations have become, and proposes a three-tiered structure. The "team" in Team Production Theory is Labor and Management. Management organizes and reifies the desires of the corporation, directing labor, who do the work, as a consequence. The third tier is Corporate Ownership (aka "The Board"), whose main duty is to police managerial shirking.

What's fascinating to me is how readily this three-tiered structure overlaps with Venkatesh Rao's "Theory of The Office," in which he proposes three kinds of participants in corporate culture: a psychopathic who claw their way up the ladder and into positions of ownership and authority; a managerial class that is generally clueless as to the real machinations going on, of which the "office politics" they grouse about is a facile understanding; and a laboring class that knows its working for psychopaths, but isn't interested in playing the game, instead desiring to just do their work, get paid and go home to their real lives.

Validation of this overlap came from a surprisingly place: Bob X Cringley and his piece, The US Computer Industry is Dying, and I'll Tell You Exactly Who is Killing It and Why. Cringley looks at The Board piece of the puzzle and concludes that the Board's impulse to "Maximize Shareholder Value" is the main culprit, preventing corporations from formulating long-term plans, organizing in the best interests of their customers, or extracting the best from their workforce. In short, the psychopaths are driving (although Cringley calls them "Assholes driven by greed and indifference," but basically the same thing).

Cringley's argument gets a different push from this NY Times article, Why Don't the Poor Rise Up? The article points to individualization; that we have been compelled to adopt an asocial, acommunal vision of ourselves and our cities, that we are forced to make so many choices just to get through the day that we literally don't have the bandwidth to engage in collective action.

There's another piece to this puzzle, though, and I think it's in the basis of Team Production. Management is close at hand. Your supervisor is in the next room. The Board, on the other hand, is remote and distant. Possibly physically so, in a penthouse office in New York or San Francisco. The notion of collective action develops enormous inertia when "shareholders" are distant and diffuse. The original Theory of the Firm seemed to imply that collective action was possible, but Team Production Theory says that it's not: labor and management are both aware that neither currently owns the capital that represents the means of production. Labor knows management is just as fucked.

Current Mood: thoughtful thoughtful

2 comments or Leave a comment
kengr From: kengr Date: June 26th, 2015 01:56 am (UTC) (Link)
The blame can't be entirely placed upon the Board. There's a several decades old supreme Court decision that held that if the shareholders want to maximize there value (short term) and the Board wants to work towards the company being around and profitable for the long term, the shareholders must take precedence.

Given that decision, what Board is going to vote for long term profit versus higher short term profits that kill the company?
rkda From: rkda Date: June 26th, 2015 08:26 am (UTC) (Link)

C Corp verses B Corp.

With the creation of the B Corp as a legal entity, the shareholders will start to have less short term power, and the board and senior management will start to have more long term power. This is an important and welcome change to the legal environment of director/officer liability to minority shareholder law suits.
2 comments or Leave a comment