SUMMARY OF MINTZBERG’S “WHO SHOULD CONTROL THE
CORPORATION?”
Explanatory Note: This is a summary of Part V, “Who Should Control the Corporation?”
from Henry Mintzberg, Power In And Around Organizations (Englewood Cliffs, N.J.:
Prentice-Hall, Inc. 1983). The summary covers pages 517 to 663 and Mintzberg relates
his analysis back to the model developed in Parts I, II, III and IV. This summary omits
reference to the model and the terminology Mintzberg has developed, and is only
intended as a basis for classroom discussion of the role of the corporation in society. To
gain an appreciation for Mintzberg’s theory of power, the whole book should be read.
Introduction
After developing a model to explain power in and around organizations, Mintzberg
applies the model to the business corporation. He believes that the control of the
corporation is of concern today for four reasons: economic power has become
concentrated in the private sector; the economic power of the private sector has become
increasingly important from a social perspective; public expectations about the use of
economic power and the social behaviour of business have risen; and it is now realized
that large corporations are often controlled by management without a legitimate basis for
power. Mintzberg claims that these reasons are why big business is being attacked.
Mintzberg makes several proposals for controlling big business, that is, the corporation.
These proposals are illustrated in graphical form by a “conceptual horseshoe” (Exhibit 1)
and each position represents different views on who controls the corporation. Briefly, the
positions are:
1. Nationalize It – The government takes over the corporation and determines its
behaviour.
2. Democratize It – The goals of the corporation are broadened by changing the basis of
power, that is, allowing various groups to participate in managing.
3. Regulate It – Government has an active, formalized role in determining what the
corporation does.
4. Pressure It – Change is brought about through pressure campaigns by special interest
groups and others.
5. Trust It – There is a balance between economic and social goals as managers believe
it is their moral duty to act responsibly. There is a status quo in the power system and
managers retain control because they will act responsibly.
6. Ignore It – Social goals are attended to because “it pays to be good,” that is, it is in
the corporation’s economic to be good,” that is, it is in the corporation’s economic
interests to attend to social goals.
7. Induce It – Management recognizes the conflict between economic and social goals,
but the economic goals win out with social goals only attended if it pays in economic
terms. Thus, social goals only attended if it pays in economic terms. Thus, social
goals are looked after if society pays terms. Thus, social goals are looked after if
society pays the corporation to do so.
8. Restore It – The Corporation is controlled by its rightful owners, the shareholders,
who are interested only in economic goals.
Note: These positions will be explained in greater detail.
EXHIBIT 1
Mintzberg’s Conceptual Horseshoe
Diagram to be presented during class lecture
SOURCE: Page 529
Mintzberg places his model in several contexts as summarized in Exhibit 2. These
contexts are: conventional politics; the goals favored, with “Trust It” in a balancing
position; different disciplines with ‘sociological’ indicating the need to challenge the
control of managers, ‘managerial’ meaning that the good will of managers will look after
economic and social concerns, and ‘economic’ advocating that the corporation be kept
private; interpersonal relationships involving conflict in three positions and harmony in
the others; the external means of influence as a solution to the problem of corporate
power, including the Board of Directors with a formal change in governance, formal
constraints through government legislation, pressure through informal campaigns,
informal social norms being the basis of change, and pure economic forces being the
source of change with no need for any external means necessary; and who, such as
government, employees, management and so on. (Mintzberg presented a seventh context
omitted in this summary, the power configurations developed in his model).
Each of the positions on the conceptual horseshoe is discussed in more detail.
EXHIBIT 2
Summary of Mintzberg’s Positions Around Conceptual
Horseshoe and Contexts
Contexts
Positions
Conventional
Politics
Goals
Favoured
Disciplinary
Perspective
Interpersonal
Relationships
Around
External
Who
Means of
Influence
Horseshoe
Nationalize It
Radical
Social
Sociological
Harmony
Boards of
Directors
Government
Democratize It
Radical
Social
Sociological
Conflict
Boards of
Directors
Employees
Regulate It
Liberal
Social
Sociological
Conflict
Formal
Constraints
Government/
Management
Pressure It
Liberal
Social
Sociological
Conflict
Pressure
Campaigns
Special
Interest Groups/
Management
Trust It
Liberal
Corporate
Managerial
Harmony
Social Norms
Management
Ignore It
Skeptic
Economic
Economic
Harmony
Social
Management
Norms
Induce It
Conservative
Economic
Economic
Harmony
Pure
Economic
Forces
Management
Restore It
Reactionary
Economic
Economic
Harmony
Board of
Directors
Shareholders
SOURCE: Refer to pages 530-535
“Nationalize It” (pages 538-543)
One approach to controlling the corporation is government ownership, involving the
takeover of power at the top of the corporation. The new owner would then give the
corporation new social goals. Governments have found that it is not easy to
operationalize such goals. One reason is that the goals are difficult to formulate as the
government is not a monolith, but instead is an organization with conflicting goals.
There are other reasons for the “nationalize it” position’s lack of appeal. Government
ownership has not been acceptable, for the most part, in the United States as it does not
correspond with the prevailing ideology which holds the right of private property to be
preferable to collective public property. Large scale nationalization creates a monolithic
society and centralizes power, reduces dissent and discourages adaptability. Despite a
government’s intentions, social goals still tend to get displaced by economic ones when
public enterprises are operated.
Mintzberg concludes that nationalization is not the answer to the problem of social
performance of large corporations. He questions whether public enterprises are more
socially responsive anyway. He concedes that nationalization occurs for many reasons
and that it may be appropriate in some situations. One situation is where something
necessary to society is not provided by the private sector, for example, postal service. It
is noted that even in the U.S. government ownership is accepted in such situations. The
second situation is where the activities of an industry are closely tied to government
policy as with the petroleum industry in many countries. Mintzberg’s final comment is
that nationalization should not be embraced as a panacea, but should not be rejected
completely as irrelevant.
“Democratize It” (pages 544-567)
This approach proposes formal devices to broaden the governance of the corporation.
The existing governance structured of the corporation does not allow for political
freedom, freedom to publish, freedom of speech, and the right of trail as no judiciary
exists independent of the corporation’s management. The law is that shareholders govern
through the Board of Directors and mangers serve as trustees. In widely held
corporations, the shareholders are often unable to exercise their power.
Mintzberg claims that the corporation might be democratized by two means:
representative democracy and participative democracy. Two groups have been involved
in democratizing the corporation, employees, an internal influence, and interest groups,
external influences. The result is four basic forms of corporate democracy:
1. worker representative – workers have representatives on the Board of Directors. The
European “co-determination” would be an example.
2. pluralistic representative – “public interest” representatives are elected to the Board
of Directors.
3. worker participation – workers are given some control of decision making, for
example, worker councils.
4. pluralistic participation – external influence groups are somehow included in internal
decision making.
The four forms are presented in matrix form in Exhibit 3.
In the United States, there has been some discussion of pluralistic representative
democracy by allowing interest groups, such as consumers or environmentalists, to have
representatives on the Board of Directors, already a common practice with non-profit
institutions. Problems with the idea, such as how to ascertain representation and conflicts
representation of interest, have precluded its use. In Europe, representation of one group,
workers, is common. Co-determination, as it is referred to, is considered to have several
faults, including: it leads to politicization of decision making, it increases bureaucracy, it
hampers entrepreneurial drive, it dilutes responsibilities, it delays decisions, and it
endangers the unity and flexibility of management. Moreover, it is considered to be
incompatible with the free market system and existing concept of private property rights.
Mintzberg concludes that worker representation has had minor impact upon business. It
does not automatically increase participation by workers and actually concentrates power
at the top. Only one interest group is involved, labor, and selection of representatives is
not easy. The commitment and involvement of representatives presents a dilemma.
(cont’d below)
EXHIBIT 3
Four Basic Forms of Corporate Democracy
Focus
of
GROUPS INVOLVED
Internal Influencers External Influencers
Pluralistic
Representative
Worker
Democracy
Representative
Democracy
Board of Directors
(American style, e.g.,
public interest
(European style, e.g.,
directors)
"co-determination" or
worker ownership)
Attention
Internal Decision
Making Process
Worker Participatory
Democracy
(e.g., works councils)
Pluralistic
Participatory
Democracy
(e.g., outsiders on
new product
committees)
Source: Page 546
Pert time representatives are too busy with their jobs to devote much time to their
representative role and therefore are often unable to question management. Full time
representatives may have the time and knowledge but may lose touch with those they are
representing. Representatives are often considered remote from their constituents and
many workers have been found to be disinterested in the approach.
On the other hand, representative democracy gives an air of legitimacy to the governance
of the corporation. Benefits include: opening the channels of communication spurring
management to pay more attention to the human side and recognize the needs of workers;
and greater access to management information is provided with some influence being
exerted over working conditions, and social and personnel policies. Nevertheless,
economic goals are still foremost and little difference has been made to the distribution of
power and how decisions are made.
The approach to participative democracy is more internal to the firm and is referred to as
worker participation, or participative management. Workers are involved in decision
making but with little success according to Mintzberg. Representatives are often
uninformed and managers do most of the talking and initiate actions. Workers are
usually interested in the direct effects on them and then only in the short term. Mintzberg
also states that the need for coordination in an organization precludes the serious use of
participative democracy.
Examples of pluralistic participation are consumers being involved in product safety
decisions, consumers serving on new product committees, and environmentalists being
consulted on new plant locations. Mintzberg claims that there are many approaches to
pluralistic participation but that all pose problems: who should serve as representatives?,
how many representatives should there be?, how should the representatives be chosen?,
and who should choose the representatives?. Mintzberg believes that greater efforts
should be made to democratize power in an organization.
“Regulate It” (pages 568-579)
With this position, the corporation is made responsive to social needs by having decisions
and actions subjected to controls of a higher authority, usually a government or
government agency. Change in the behaviour of the corporation is initiated to make it
give more attention to social goals. The case for this position is that competition does not
enable the manager to pay attention to social goals and thus must be forced. It is best
suited for controlling alternatives, ensuring that the corporation pays the full costs or
reduces costs.
Regulation has been good for business. It dissolved the giant trusts (in the U.S.), enabled
labour unions to emerge as responsible entities, and forced disclosure of financial
information leading to a more honest and effective stock market. In other words, it
helped business help itself! Nevertheless, it is viewed by business as an encroachment
upon its freedom. Mintzberg does not feel that it is an ideal solution either. The
approach only imposes formal constraints and sets minimum standards. It is a crude
instrument in that the same rules usually apply to all, that is, the constraints are
standardized and cannot differentiate among firms in differing circumstances. The
formalized nature of laws and courts may be ineffective in dealing with social issues of a
judgmental nature. Regulation tends to constrain unacceptable behaviour; it is unlikely to
provoke desirable behaviour. It is punitive rather than motivational, and tends to be
applied slowly and conservatively due to procedural delays and lobbying. Finally, it is
difficult to enforce as courts are expensive, agencies are often not competent, and
regulators are sometimes captured by the regulated. Mintzberg concludes that regulation
is no panacea either, but is a possibility for controlling the corporation.
“Pressure It” (pages 580-587)
This approach accepts the power of the managers to make decisions but seeks to
influence decisions through informal pressures. The concept of countervailing power is
important and the basis of this approach. Examples of pressuring are: Ralph Nader’s
activities since the 1960’s, boycotts of products, class action suits, and participation in
corporation annual meetings. Pressure can take many different forms, some are shortlived while others are more permanent.
The advantages of the approach are that is informal, flexible, and focused. The giant
corporation is reluctant to endure exposure to well-founded, well-organized pressure
campaigns. But, pressure tends to be irregular and ad hoc, and is not grounded in any
formal or permanent change in the power relationships of those who control the
corporation. Inconsistent demands are often made and at times it is not clear how the
corporation should respond. The approach is based upon confrontation, that is, the
corporation has to be forced to change as it does not want to, and this is a drawback.
“Trust It” (pages 588-612)
Control of the corporation is left to the goodwill of mangers as social goals weigh heavily
on their minds. Managers will attend to social goals for their own sake as it is the proper
thing to do, not because there are pressures or incentives to do so. This position
postulates a natural balance between social and economic goals, and Mintzberg places
social responsibility here. He claims that there is a renewed interest in social
responsibility as mangers are concerned about the legitimacy of their power base. This is
the position of the professional manager who believes that the corporation exists to serve
all of society. The issue becomes one of determining the pace at which business should
respond. Does it stay in pace with society’s wishes, lag behind or be socially responsive
anticipating wishes and preventing problems?
There are several attacks on the social responsibility position. It is considered by some to
be all rhetoric and no action. Businessmen lack the personal capabilities required to
pursue social goals, it is claimed that the corporation has no right to pursue social goals.
Another issue is whether or not the corporation can be trusted as it may not be possible to
implement social responsibility in the large corporation given its structure and control
systems. At the present, implementation of social responsibility in corporations is not
encouraging according to Mintzberg. Proposals to “socialize” the corporation lead to
bureaucratic procedures such as the use of codes of ethics, or are based upon personal
control which is unreliable.
There are two fundamental reasons for trusting the corporation. First, the strategic
decisions of large organizations inevitably involve social as well as economic
consequences and they are inextricably intertwined. Secondly, there is always some zone
of discretion in strategic decision making and this zone involves social goals. Society is
obligated to “trust it” as society is worthless without responsible and ethical people, some
of whom are managers.
“Ignore It” – Because “It Pays to Be Good” (pages 613-625)
Society can ignore the corporation because it will behave in its own enlightened selfinterest, that is, it pays to be socially responsive. There is nothing to worry about as
managers remain in charge because their behaviour has to be socially responsible if the
best interests of the shareholders are to be considered. With this position, social needs
just fall conveniently into place.
The individual corporation will benefit from its own socially responsible action, that is,
there is a specific pay off. Corporations in general will benefit as in the long run all
benefit from social responsible behaviour even if an individual firm does not. The
arguments to justify the position are the direct rewards obtained and that is a sound
investment. The corporation’s image will be improved because: it will have a more
positive relationship with its suppliers, partners, and competitors; there will be a healthier
and more stable society in which to do business; it will be easier to attract customers;
employees will be more loyal; and there will be better cooperation from the local
community. Lastly, it is a desirable position as it avoids other action, for example,
government intervention or reprisal.
Some evidence is presented that socially responsive corporations are more profitable.
Other corporations have been recognized for their commitment to some identifiable
community. However, this is not the case in large, diversified, divisionalized, dispersed,
and detached firms. In other words, this position is more likely to work in single business
firms and smaller ones.
"Induce It” – Pay It to Be Good (pages 626-630)
This position concentrates on incentives to business to behave in a socially responsible
manner. Social goals are not pursued as such, but social programs are carried out when
they enable the corporation to satisfy economic goals. In other words, the corporation
minds its own business and responds to social needs only when there is direct economic
gain from doing so. If society wants help from the corporation, it should pay for it.
Government would induce the corporation to do those things it is capable of doing. This
way the government makes use of market mechanisms to satisfy social needs and
prevents an increase in its size. This position is used where business possesses specific
skills or knowledge necessary to deal with a problem and works where solutions are
clearly defined and, of course, tied directly to economic rewards. There would appear to
be limited application as not many social problems can be stated precisely in economic
terms.
“Restore It” (pages 631-645)
All social goals are rejected in this position in favor of economic ones. The corporation is
to be restored in that it is believed that to some extent owners have lost control, and the
corporation has therefore lost its legitimacy. Control is to be restored to its rightful place,
with shareholders. A proponent of this position is Milton Friedman.
Managers have displaced owners in the determination of corporate goals and
governments have interfered with the marketplace. There is no place for social
responsibility as such, and profits are to be maximized. Government action is needed to
restore the corporation. Such action would include provisions for new voting procedures
to give shareholders more effective control of the Board of Directors. There would also
have to be changes in the tax laws to return all corporate profits to the shareholders.
Criticisms of this position are many. Fallacies based on economic assumptions are:
shareholder control; free markets; and a “private” enterprise with isolated economic
goals. It is questionable whether or not shareholders are willing or capable of controlling
the corporation. Also, it is questionable whether or not it would make any difference.
The fallacy of free markets with full competition, unlimited entry, complete information,
consumer sovereignty, and labour mobility is doubtful. Large corporations can
manipulate the market, but the idea may work for smaller firms. Corporations are not
isolated, or completely closed as social externalities do occur and cannot be ignored.
There are several fallacies based upon political assumptions. Despite claims to the
contrary, some means used by big business contribute to undesirable ends in society, for
example, planned obsolescence. Society cannot achieve the required balance between
social and economic goals so long as the most powerful sector attends only to economic
goals. Lastly, society cannot be considered fully democratic so long as its most powerful
institutions are not run in a democratic manner.
There are other ways to “restore it” besides returning control to the shareholders. More
efficient capital markets would help as would more active boards. Large corporations
should be involved in devolution, for example, contracting work out to smaller firms.
There should be less vertical integration and integrated corporations should consider
divesting themselves of unrelated businesses.
Mintzberg concludes that this is a nostalgic position involving a return to the past and
that it is the most ambitious as it seeks to reverse social and economic trends.
Mintzberg’s Conclusions (pages 646-663)
The author expressed some personal views of controlling the corporation under the title
“If the Shoe Fits…” Mintzberg believes that the positions on the horseshoe should be
treated as a portfolio of tools available to control the corporation. He believes that the
corporation is needed in society and it should be controlled by a variety of forces as one
force will not suffice. The position used will vary with the situation and this approach, or
way of thinking about controlling the corporation, is consistent with the concepts of
pluralism and eclecticism.
Mintzberg says to start with “Trust It” or at least “socialize it.” Trust of managers is
fundamental because large organizations require managers, economic and social goals are
intertwined, and reliance on the extreme left or right approaches is insufficient. As a
result, there is no better alternative than to promote social responsibility, that is, socialize
the corporation. But, there will be a need to complement “Trust It” with other positions.
Next Mintzberg suggests “Pressure It” ceaselessly. There is a need for countervailing
forces to concentrated internal power. Pressure is appropriate as it makes the corporation
sensitive to social goals. Pressure is advantageous as the focus can change over time, but
it is ad hoc and irregular.
After pressure, Mintzberg suggests “Democratize It.” This approach is important to all
organizations and must be followed as the existing basis of governance is fundamentally
illegitimate (given that shareholders have lost control). Representative democracy will
give legitimacy to the corporation and some of the American proposals could work.
Mintzberg favors pluralist Boards of Directors with professional directors who are paid,
provided with support staff, and who would be held legally responsible for their actions.
Participative democracy would be more difficult, but some approaches should be
attempted.
The next approach should be “Regulate It” or “Induce It”, as appropriate. Both
approaches require government involvement. Regulation should be used where power
might be abused. However, it is difficult to do effectively as it sets minimum standards.
Inducement is appropriate for social problems the corporation has not created, but has the
capability to help solve. The corporation’s involvement is defined precisely and tied
directly to financial rewards. This approach works best where the corporation can render
a specific service in return for a fair remuneration.
Occasionally and selectively, use “Nationalize It” and “Restore It.” These are extreme
positions for extreme problems. With nationalization, accountability is a problem, and
restoration would tilt the priorities too far towards economic goals. The power of giant
corporations is a social problem and these monoliths threaten free markets and populist
democracy. Corporations must be made more democratic and large firms made smaller,
and in the process become more humane, more competitive, and more efficient.
Mintzberg concludes that what blocks social responsibility is size and diversification, and
these positions do not address these issues.
Finally, Mintzberg says don’t “Ignore It.” The current situation is unacceptable and
getting worse. Changes are needed to make the corporation more inclined towards social
goals. Monolithic control by the state, owners, or managers is not desirable. Therefore,
the debate over control is anchored in the middle of the horseshoe, away from the
extremes. Business must find ways to democratize without destroying the corporation’s
effectiveness. Ways must be found to apply pressure and democratize the corporation in
an effective manner. Ways must be found to distribute power in and around the
organization so that it will remain responsive, vital and effective.
Summary prepared by Robert W. Sexty, PhD, Memorial University.