The Circulation of Corporate Control: Selection of Functional Backgrounds of New CEOs in Large U.S. Manufacturing Firms, 1981-1992

Administrative Science Quarterly,  Sept, 1999  by William Ocasio,  Hyosun Kim

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During the 1960s and 1970s, executives with financial backgrounds gained prominence in U.S. industrial enterprises, attaining the highest levels of the organizational hierarchy and achieving control over how the corporate purpose was conceived, defined, and executed (Hayes and Abernathy, 1980; Fligstein, 1987). The rise of finance personnel to positions of formal authority led to a transformation in critical outcomes and strategies in large corporations (Fligstein, 1985, 1990; Davis and Stout, 1992; Fligstein and Brantley, 1992; Mizruchi and Stearns, 1994). The rise to power of financial CEOs altered the agenda and direction of large U.S. industrial corporations and led to an articulation of corporate assumptions, values, and goals that Fligstein (1990) has termed the finance conception of control. According to this conception, the corporation is a portfolio of diversified businesses earning differential returns. It focuses on attaining short-term profitability, using financial tools to evaluate existing product lines and divisions and engaging in mergers and acquisitions as central elements of corporate strategy (Fligstein, 1987, 1990).(1)

The decade of the 1980s, however, was characterized by widespread changes in corporate governance, including hostile takeovers (Davis and Stout, 1992), corporate restructurings (Useem, 1993), and the decline of conglomerate forms of organization (Davis, Diekmann, and Tinsley, 1994). These changes were accompanied by ideological challenges to the finance conception of control and the view of the corporation as a portfolio of business assets that could be managed through the use of economic and financial indicators. The question is whether the rise in the prominence of financial CEOs and the finance conception of control continued during the 1980s and early 1990s. To explore how these economic and ideological changes affected prevailing conceptions of control, we studied the selection of functional backgrounds of new CEOs in U.S. manufacturing firms during 1981-1992. In doing this, we extend and develop earlier theory on intraorganizational political dynamics and apply it to the study of stability and change in CEOs' functional backgrounds.

We analyze the contests for control among elite members of functional groups within organizations (Perrow, 1970; Zald and Berger, 1978; Fligstein, 1987; Chaves, 1993). Our study complements recent research that highlights political struggles between the CEO and the board of directors (Wade, O'Reilly, and Chandratat, 1990; Westphal and Zajac, 1995) but focuses instead on the conflicts within top management (Hambrick, 1994). We develop a conceptual model of changes in corporate control - the circulation of corporate control - that highlights the obsolescence and contestation of executive power, as corporate elites vie for status, position, and control of the organizational hierarchy (Ocasio, 1994). We contrast our model with the model of the institutionalization of power (Salancik and Pfeifer, 1977; Pfeifer, 1981). While both models rely on political, cultural, and social psychological mechanisms, they vary in how they explain stability and change in power in organizations and the rise and fall of alternative conceptions of control (Fligstein, 1990).

POLITICAL DYNAMICS IN ORGANIZATIONS

Institutionalization of power. The institutionalization of power (Salancik and Pfeffer, 1977; Pfeffer, 1981; Boeker, 1989) is the dominant model of political dynamics in organization theory.(2) It highlights the ability of powerful individuals and groups to entrench themselves in the formal positions of authority and to increase their control of the corporation over time. The institutionalization of power is shaped by symbolic as well as material forces that operate both within the organization and at the level of the organizational field. According to this theory, conceptions of control (Fligstein, 1990) serve to institutionalize the power of dominant groups, as the goals and orientation of the governing subunit become infused with value (Selznick, 1957) and corporate elites protect and enforce these values by implementing programs and selecting executives consistent with dominant ideologies. Institutional forces create both normative and mimetic pressures for isomorphism (DiMaggio and Powell, 1983), as the power of the dominant group becomes culturally embedded within the field's dominant conception of control (Fligstein, 1987, 1990).

Circulation of corporate control. In large industrial corporations control of formal authority and the means of administration resides in corporate elites, the corporation's senior executives or top management. These corporate elites are subject to intraelite conflict, circulation, and change as diverse individuals and factions contend for control over the organization's dominant ideology and ruling coalition (Michels, 1962; Zald and Berger, 1978; Hambrick, 1994; Ocasio, 1994).(3) The circulation of corporate control - the instability in formal authority at the top of large corporations - is the dynamic outcome of how contests for control play out in a changing environment among contending individuals, groups, and identities (White, 1992). While at any one point, one individual and function will gain control over the firm's political coalition, the leadership in the dominant coalition will change across generations of executives, as different issues and problems come to the forefront and require attention in the firm's environment (March, 1962; Cyert and March, 1963; Ocasio, 1997). Which individuals and groups are in positions of authority over the dominant coalition over the long run is inherently unstable, as the outcome of recurring political struggles will lead to sequential attention to the firm's issues and problems, with resulting fluctuations in executive power.