Corporate Business, Society and Bureaucracy: Why do we need Corporate Democracy

Companies today are in the forefront of creating social wealth. Unlike the classical model of capitalism today’s capitalism can be considered to be a social capital which has popular participation cutting across class, gender, caste etc. In the advanced societies particularly, capitalism has a mass base. Not just a class base. Any good corporation of note has thousands of shareholders: a complex governing machinery and process. As a result companies themselves have become big bureaucracy today.

Bureaucracy is a normative model of organization which emphasizes the structure of an organization. Many of its concepts have been used for several years, but the first systematic development of the theory was contributed by Max Weber around 1900. Bureaucracy shares a number of concepts such as order and rationality with administrative theory and scientific management. These three approaches together make up classical management thought.

Elements of bureaucracy are found almost universally in modern organizations if they are complex than simple face-to-face relationships. Business organizations largely are based on bureaucratic concepts. Although the demise of bureaucracy has been predicted, no alternative has been developed that can so well bring the necessary order to a complex organization.

Bureaucracy provides ordered hierarchies that can take advantage of specialization. Office holders [other than chief executive] are selected by objective qualifications rather than nepotism, patronage, or other personal whims of managers. Employees usually have a career emphasis and employment security is emphasized .Decisions are made by a consistent system of abstract rules, regulations and procedures. Authority rests with an office, not in the person of an individual holding the office.

Authority, responsibilities, activities, communication, power, and other features of the organization are structured by the bureaucracy. Bureaucracy manages complexity: it produces rationality, stability and predictability. In some ways it makes an organization more democratic by reducing patronage and other privileged treatment.

Bureaucracies are the means by which people are employed to carry out work for an association. One of the difficulties of course, is that the term bureaucracy has collected to itself an even wider range of different meanings. As Mouzelis [1992] have pointed out, there is a serious state of confusion and ambiguity about its use in modern social theory. The definition that can be used in this particular context is a more limited one than the concept as originally propounded by Weber [1948]. This definition is used as it is more apt with today’s industrial world. Bureaucracy here is defined as a hierarchically stratified managerial employment system in which people are employed to work for a wage or salary; that is to say, a stratified employment hierarchy with at least one manager who in turn has a staff of employed subordinates.

The major characteristics of bureaucracy which are applicable to any modern corporate structure are:

Employment Relationship
The office is a vocation and a full time undertaking. Officials are selected on a basis of technical qualification, education and expertise. There is a separation of office and office-holder. It is not his or her property and the employee does not possess the means of administration. Thorough and expert training is part of the conditions of employment.

A career structure is provided based on the organizational hierarchy. Tenure is for life, with fixed salary, pension rights and appropriate social status. Officials are appointed by higher authority, not and promotions are similarly regulated, for example through seniority.

Work Structures and Relations
There is a hierarchy of offices, with continuous and regulated activity within a fully ordered system of super and subordination. Within the chain of command, there is a division of labor based on defined responsibilities, rights and duties. Calculable rules and regulations, impersonal modes of conduct and a common control system govern the conduct of work. Written documentation is the basis of management of the office.

Rationalization is held to be the key modernizing characteristic for the development of industrial societies. Authority in industrial societies is rational because it is formal and based on precise and predictable rules, calculation and accounting. For these reasons the bureaucratic organization and administration best permitted the development of appropriate attitudes, structures and practices in public and private sectors. In this context bureaucracies are a specific type of rational-legal authority: officials work within a framework in which command and task are based on authority derived from impersonal rules. Weber made it clear that they referred to bureaucracy management as well as administration. The Weberian ’causal chain’ links the concept of rationality explicitly to the emergence of capitalistic enterprise and markets. These were held to be rational because of their capacity for calculability, predictability and routinisation-through production, distribution, accounting and market pricing mechanisms. Precondition for the rationalized capitalism started from the complete private appropriation of the means of production, which Weber said must be unhampered by ‘irrational obstacles’ such as workers’ right to participate in the management. In addition, there was the need for common management, free labor under the compulsion of the ‘whip of hunger’, mass markets, minimal trade restrictions and institutional, legal support from the bureaucratic state.

Weber also argued that large capitalist enterprises were becoming ‘unequaled modes of strict organization’ [Weber, 1984:32].he was aware and approving of the role played by scientific management in this process. It was completely the ideal vehicle for the necessary imposition of military discipline in the factory, given its capacity for dehumanization and conditioning of work performance.

Bureaucracy has many unintended consequences, or dysfunctions. It tends to be non adaptive and impersonal. Some critics claim bureaucracy as a rigid ‘machine model’ that fails to account adequately for many human characteristic. It offers numerous opportunities for members to displace objectives and to work for personal goals that may not adequately contribute to the overall objectives of the organization. Bureaucracies may tend to grow and perpetuate themselves beyond their useful lives. By pressure for routine and conformity the bureaucracy may produce anxiety in members. It does not fully account for the fact that organizational activities really cannot be squeezed into all-inclusive, mutually exclusive positions. The cost of implementing rules, regulations, and other bureaucratic elements often is substantial.

No doubt, bureaucracy is among those set of concepts that have had the most profound effects upon mankind. Its benefits can be powerful, but it is far from being a generally perfect approach to organizations. In a corporate structure as there is immense human stake involved it becomes very important to look at the shareholders interest. It is important to police the top management [the bureaucrats in a corporate setup] so that they act in the full interest of the shareholders and other stake holders. In this context it becomes useful to have a look on the principal-agent theory which talks in length about the shareholders stake in a corporation

The development of agency theory is often traced beck to Berle and Means [1932], although some writers suggest that one can go back to Adam Smith in 1776 and his influential book The Wealth Of Nations. Letza, Sun and Kirkbride [2004] point out that the agency problem was effectively identified by Adam Smith when he argued that the company directors were not likely to be as careful with other people’s money as with their own.

Subsequently the firm was viewed as the nexus of a set of contracting relationships among individuals. most important among these was the agency relationship, which has been defined as ‘a contract under which one or more persons[the principal]engage another person[the agent] to perform some services on their behalf which involves delegating some decision making authority to the agent’[Jensen and Meckling,1976:308].The agency relationship can be a problem because the agent may not always act in the best interest of the principal[s].Agency costs are then incurred, which include monitoring costs incurred by the agent, and reductions in welfare resulting from decisions taken by the agent which are not consistent with maximization of the principal’s welfare. Moreover, Jensen and Meckling were aware that it was costly, if not impossible, to write contracts which would clearly delineate the rights of principals for all possible contingencies.

Shleifer and Vishny [1997] argue that the agency problem is an important element of the contractual view of the firm. The analysis then focuses on the impossibility of writing complete contracts, and the complexities arising from incomplete contracts. Hart[1995]offers three reasons why principals and agents tend to write incomplete contracts ,it is difficult for people to think ahead and plan for all possible contingencies; secondly, it is hard for the contracting parties to negotiate effectively, especially where prior experience may not be helpful guide; thirdly, it is difficult for plans to be written down in such a way that an outside authority ,such as a court, will be able to interpret and enforce the contract. Moreover Aghion and Bolton [1992] argue that-as a result of contractual incompleteness and wealth constrains-it is not possible to resolve all potential conflicts between the agent and the principal.

In a traditional shareholder perspective, the corporation can be viewed as a’ legal instrument for shareholders to maximize their own interests-investment returns’[Letza,Sun and Kirkbride,2004:243]. Within this model, it is often assumed that the managers are more /better informed about the firm then are the shareholders. In other words there is information asymmetry: agents have better access to information than shareholders. In an agency setting, principals can attempt to overcome the information asymmetry by monitoring management, but this is a costly activity for individual principals. The overall costs of information-gathering can be reduced if systems are put into place to provide relevant information to all shareholders. For example, there could be the provision of regular audited financial reports or ensuring that systems operate to deter agents from benefiting from the use of their privileged knowledge.

For all these, the corporation should maintain a proper democratic environment.