Power is Relational

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Power is Relational
Power in organizations is inherently the property
of a relationship between actors. Max Webers
two famous definitions explicitly asserted that
power (Macht) is not the resources held by an
actor, but occurs during situated interactions
involving actors with potentially opposed
interests and goals.
Power is the probability that one actor within
a social relationship will be in a position to
carry out his own will despite resistance,
regardless of the basis on which that probability
rests. (1947152) We understand by power the ch
ance of a man or a number of men to realize their
own will in a social action even against the
resistance of others who are participating in the
action. (1968962)
Some power is based on force (coercion). But, if
actors willingly assent or consent to obey
anothers commands, power becomes legitimate
authority (Herrschaft), which may be based on
actors traditional, charismatic, or
rational-legal beliefs in the rightness of their
relationship.
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Social Exchange Power Dependence
Peter Blau and Richard Emerson theorized that
unequal social exchanges generate power
dependencies within dyads
Power is a structural relationship, inverse to
the cost that one actor willingly pays to another
for an exchange. If actor B accepts a higher
cost than actor A, then B has a greater
dependence on A. As power over B is (1) directl
y proportional to the importance B places on the
goals mediated by A and (2) inversely
proportional to the availability of these goals
to B outside the A-B relation. (Emerson 1962)
If you need a service from a more powerful person
(e.g., a professor), you face four alternatives
1. Coerce her to give the service use physical
threats or blackmail 2. Supply her with a servic
e/good she needs in exchange, resulting in
relative equality 3. Find the needed service from
another source 4. Do without the service If non
e of these alternatives is possible, then youre
dependent on the powerful person and must
exchange deference in order to receive the needed
service. (Blau 1964118-119)
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Power Bases Tactics
French Ravens classic typology (1960) of five
bases of power
Coercive Forced against will Boss demands you
wash her car Reward Play for pay Boss promises
you a raie for good work Legitimate Its righ
t to do Boss asserts she has authority to act
Referent Personal charisma Boss is a legend in
her own mind Expert Know-it-all Boss hangs her
CSOM diplomas on wall
Behavioral tactics for the most profitable use of
power resources (Kipnis et al. 1980)
Assertiveness Ingratiation
Rationality Exchange
Upward appeal Coalition formation
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The Political Organization
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Management Power
During 20th century, diluted stock ownership
enabled top managers to take de facto control of
many large corporations (Berle Means 1932 The
Modern Corporation and Private Property)
Owner-management separation gave control over
company assets operations to executives often
more motivated by power, prestige, job security
than by shareholders short-term
profit-maximization goals.

• Management control via board elections
• Altho shareholders elect directors, top mgmt
  controls access to proxy machinery needed to
  win
  
• Recommend a hand-picked candidate slate
• Solicit proxy cards authorizing the execs to
  vote
  
• SEC rules permit firm to pay mgmt expenses
• Insurgents lack adequate campaign resources

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GOVERNING the CORPORATION
Legal theory treats the corporation as its stock
owners private property. Elected board of
directors manages supervises the firm by
setting strategy, appointing monitoring top
executives. Only goal of business leaders must
be to maximize financial returns on shareholder
investments.
Corporate executives sole responsibility to
shareholders is to conduct the business in
accordance with their desires, which generally
will be to make as much money as possible while
conforming to the basic rules of the society,
both those embodied in law and those embodied in
ethical custom. Milton Friedman. 1970. The Soc
ial Responsibility of Business Is to Increase Its
Profits New York Times Magazine Sept. 1333
Stakeholder theory asserts that companies also
have a social responsibility to serve the
interests of nonowners. Business is permitted
and encouraged by the law because it is of
service to the community rather than because it
is a source of profits to its owners.
E. Merrick Dodd. 1932. For Whom Are Corporate
Managers Trustees? Harvard Law Review
451145-1148.
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The Stakeholder Model
Stakeholder theory corporations should be
socially responsible institutions managed in the
public interest. Many organziational
constituencies have interests other than
maximzing firm profits.
Political Groups
Investors
Governments
Suppliers
Customers
FIRM
Trade Associations
Communities
Employees
(SOURCE Donaldson, T. and L.E. Preston. 1995.
The Stakeholder Theory of the Corporation
Concepts, Evidence, and Implications. Academy of
Management Review 2065-91.)
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Corporate Constituency Laws
During 1980s hostile takeover wave, 28 states
enacted corporate constituency laws that seemed
to broaden business judgment rule to act in good
faith to serve the best interests of the
corporation. Statutes permit companies to consid
er how their response to an attempted takeover
would likely affect the firms stakeholders, not
just its shareholders
EXAMPLE Acme Inc. is targeted for takeover by
two raiders. Bustups wants to sell off Acmes
unprofitable plants and relocate others overseas.
ReWorks is known for restructuring efforts that
often turn troubled firms around. Bustups bid
is 5/share higher than ReWorks offer.
What factors should Acmes Board of Directors
take into account in deciding which bid to take?
Why?
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GOVERNING the CORPORATION
19th century U.S. statutory and case law assigned
legal private property rights to a business
owners proprietors, partners, or corporation
shareholders
Natural entity theory of corporate governance
treats firm as a corporate personality
originating in the contractual relations between
private individuals

• Purchase of corporate equity (stock) entitles a
  risk-taking shareholder to
  
• dividends from future company profits
• capital gains by re-selling their shares in
  stock market
  
• residual assets if firm dissolves, after
  debtors paid off

Legal theory and courts were slow to develop
alternative theories for employee rights
consumer protection
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