Q1) B
Q2) Prior to the 1980s, it would make sense that institutional investors would be a high priority for corporations, given that they technically contribute the most money to an organization’s success. However, given that institutional shareholders were relatively late in adopting the shareholder value culture, this perspective is flawed. While economic necessity might make organizations favor shareholder priorities, corporate culture (particularly in the 1980s) relied heavily on managers, who were thought to be in charge of corporations up to the 1970s, and whose fealty to government regulation made institutional shareholders wary of investing.
In the early ‘80s, however, the deregulation of the Reagan administration loosened federal restrictions and enforcement on the actions of corporations, allowing corporate raiders to have greater freedom in their organizational strategies and hosting hostile takeovers to increase shareholder value. Managers as a concept were relatively de-powered. Institutional investors, on the other hand, are still not interested in interfering with the whole system at first, but they soon endorse corporate raiders, and managers found new ways to thrive within this new organizational culture. By the late 1980s, the idea of shareholder value became isomorphic across the entirety of corporate America, including among institutional investors.
Looking at these changes, a cultural/cognitive perspective on shareholder value is much preferred to the economist system, in that it does away with the idea that it is objectively required that corporations place a high priority on shareholder concerns. This is the chief way in which people inside organizations deal with their largest problems, as the cultural/cognitive model determines the people in power, the strategies of an organization, and the metrics that are considered to be most important. Within the cultural/cognitive model, institutional stakeholders were wary of the heavily-regulated corporate culture of the 1970s and early 1980s; with Reagan’s deregulation of Big Business, institutional shareholders started to see the effect of corporate raiders on the managers they were initially so wary of. To that end, they waited until the corporate culture actually provided greater dividends for shareholders before diffusing into the shareholder value culture.
Q3) C
Q4) The episode of Enron Oil provides a wonderful example of the idea that profit can sometimes be a low priority for corporations, as compared to share price. In the 80s (in which this scandal took place), shareholder value culture was at an all time high, becoming the norm for corporations. In the world of shareholder value culture, share price is more important than profit; in the 1980s, the oil industry in particular was enjoying newfound freedom with their pipelines and other assets, which they could use to charge producers to move gas to consumers. The bull market of the early 1990s also made it possible for companies to grow in share price very quickly, leading to a certain opportunism in companies like Enron Oil, who wanted to maximize share prices in a culture that valued stockholders above all else. Skilling’s idea of the ‘Gas Bank’ involved producers putting gas into the bank in exchange for a rate of return, which could gain in interest; this had the effect of creating a market through trades, commodities and futures that allowed some investors and traders to take big risks on the futures market to make significant gains (while also risking significant losses).
Another clever tactic Skilling and other Enron Oil execs used was securitization, turning their debts into securities by penning sketchy deals to remove those debts off the company’s balance sheet. This resulted in the company looking less in the red than it normally did – this had the effect of making the company look more viable, and therefore stock prices went up. The Enron Oil execs deliberately fudged numbers and lied about their progress in the Gas Bank and other markets in order to artificially inflate the company’s perceived profits. While they were losing money in the short term, they were hoping to increase share prices by making the company itself look profitable (and therefore more attractive to investors). In this way, profit was the means to an end; if the company looks as though it is earning more profits than it is, they can then trick investors into investing more money into them through increased share prices.
Q5) A
Q6) Unlike Bart’s perspective, in which the bureaucracy of an organization is argued to interfere with social capital, Small believes that organizations have a critical role to play in developing social capital. Interaction context is critical to developing social capital, and organizations provide that needed context. Institutions provide categories that actors can use to interpret their social interactions and the world around them. The people who comprise organizations all have their own objectives and motivations, the goals of which must be reconciled by their inclusion within an organization. Furthermore, the agreement to participate in an organization provides the ability for people to understand these others’ motivations and cater to them. Organizations themselves can be connected to other organizations with varying levels of complexity and formality, which allows actors to operate within a variety of contexts while still using the social capital they learned from their existing organization.
Organizational contexts affect a variety of social and organizational ties for individuals, thus improving their social capital. The roles and activities within an organization shapes the nature and strength of these relationships, as well as the level of resources and mobilization enjoyed by actors participating in these relationships. These contexts are affected through different types of brokerage, in which actors and institutions increase their social networks by connecting previously unconnected actors together. This can be either purposive or nonpurposive; brokerage can occur with or without an organizational objective.
Small substantiates these claims by providing examples and instances in which organizations help to categorize and determine interpersonal interactions, thus making for good ways to develop social capital. For instance, in a child care center, there are a number of groups of different people with their own goals and priorities (directors, teachers, parents, children), and institutional practices (teaching, drop-off, naps, PTA meetings), helping to determine the ways in which people interact with each other. As opposed to learning social capital through Burt’s ideas of organizations embedded within networks, Small argues that networks form within organizations, which can then be applied to these larger or more varied organizational contexts.
