You have a boss, and at the same time people report to you. In fact, at the company where you work, every employee reports to a single other person.
Actually, that’s the way it works in just about every company, notwithstanding a popular perception that the trend toward flatter organizations equates to a weakening of corporate America’s traditional hierarchical power structure. That popular perception is nonsense, according to Jeffrey Pfeffer, a professor of organizational behavior at Stanford Graduate School of Business. Indeed, the hierarchical structure has barely changed in hundreds of years and shows no signs of doing so now, Pfeffer says in this article published by the school. That’s because it inevitably creates solid benefits, for both the organization and its individual members.
That’s not what many Millennials want to hear, of course. Millennials — the generation of current workers born from about 1980 to the mid-1990s — tend to have “this belief that we are all living in some postmodernist, egalitarian, merit-based paradise and that everything is different in companies now,” Pfeffer says in the article. “But in reality, it’s not.” In fact, even companies started by Millennials ultimately wind up with the typical organizational structure around leadership and power, the article notes.
This does not come as a surprise. Back in the 1990s, I reached the same conclusion in Privately Ordered Participatory Management: An Organizational Failures Analysis (September 1997). Available at SSRN: http://ssrn.com/abstract=38600:
Abstract: American industrial enterprises long organized their production processes in rigid hierarchies in which production-level employees had little discretion or decision making authority. Recently, however, many firms have adopted participatory management programs purporting to give workers a substantially greater degree of input into corporate decisions. Quality circles, self-directed work teams, and employee representation on the board of directors are probably the best-known examples of this phenomenon.
These forms of workplace organization have garnered considerable attention from labor lawyers and economists, but relatively little from corporate law academics. This is unfortunate, both because the tools routinely used by corporate law academics have considerable application to the problem and because employee participation is ultimately a question of corporate governance.
According to conventional academic wisdom, perceptions of procedural justice are important to corporate efficiency. Employee voice promotes a sense of justice, increasing trust and commitment within the enterprise and thus productivity. Workers having a voice in decisions view their tasks as being part of a collaborative effort, rather than as just a job. In turn, this leads to enhanced job satisfaction, which, along with the more flexible work rules often associated with work teams, results in a greater intensity of effort from the firms workers and thus leads to a more efficient firm.
Although this view of participatory management has become nearly hegemonic, the academic literature nevertheless remains somewhat vague when it comes to explaining just why employee involvement should have these beneficial results. In contrast, my article presents a clear explanation of why some firms find employee involvement enhances productivity and, perhaps even more important, why it fails to do so in some firms. Despite the democratic rhetoric of employee involvement, participatory management in fact has done little to disturb the basic hierarchial structure of large corporations. Instead, it is simply an adaptive response to three significant problems created by the tendency in large firms towards excessive levels of hierarchy. First, large branching hierarchies themselves create informational inefficiencies. Second, informational asymmetries persist even under efficient hierarchial structures. Finally, excessive hierarchy impedes effective monitoring of employees. Participatory management facilitates the flow of information from the production level to senior management by creating a mechanism for by-passing mid-level managers, while also bringing to bear a variety of new pressures designed to deter shirking.
