Management History : Reflections On Key Thinkers In Management 9781845447083, 9780861767618

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ISSN 0025-1747

Management Decision Volume 40, Number 10, 2002

Management history: reflections on key thinkers in management Guest Editors: Mitchell Langbert and Kenneth Aupperle This issue is part of a comprehensive multiple access information service comprising:

Contents

Paper format Management Decision includes ten issues in traditional paper format. The contents of this issue are detailed below.

922 Access to Management Decision online 923 Abstracts & keywords 926 Introduction: Part 1 Mitchell Langbert

928 Introduction: Part 2 Kenneth E. Aupperle

Part 1 932 Continuous improvement in the history of human resource management Mitchell Langbert

938 The control of pensions: a brief history and possibilities for the future Richard L. Hannah

947 Human resource accounting: a historical perspective and future implications Eric G. Flamholtz, Maria L. Bullen and Wei Hua

955 Improving employer-employee relationships: a biblical and Talmudic perspective on human resource management Gordon Cohn and Hershey H. Friedman

Internet Online Publishing with Archive, Active Reference Linking, Emerald WIRE, Key Readings, Institution-wide Licence, E-mail Alerting Service and Usage Statistics. Access via the Emerald Web site: http://www.emeraldinsight.com/ft See overleaf for full details of subscriber entitlements.

962 The role of economics and industrial relations in the development of the field of personnel/human resource management Bruce E. Kaufman

Part 2 980 Chester Barnard’s ‘‘executive’’ and the knowledge-based firm R. Ray Gehani

992 ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren

1003 Juxtaposition of Chester I. Barnard and Frederick W. Taylor: forerunners of management Satyanarayana Parayitam, Margaret A. White and Jill R. Hough

1013 Managing a riot: Chester Barnard and social unrest James Hoopes

1024 Chester Barnard: member of the ‘‘e´lite’’? Steven M. Dunphy and James Hoopes

1029 Deming: a new philosophy or another voice? John B. Washbush

1037 Note from the publisher

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Abstracts & keywords

Continuous improvement in the history of human resource management Mitchell Langbert Keywords Human resource management, History, Total quality management, Values Human resource management’s challenge is to improve the balance among three competing quality targets: equity, flexibility, and alignment. Management of these targets has improved through four historical periods: the pre-industrial, paternalist, bureaucratic, and high performance. There always have been trade-offs among the three quality targets, but the balance among them has improved through history.

The control of pensions: a brief history and possibilities for the future

Improving employer-employee relationships: a biblical and Talmudic perspective on human resource management Gordon Cohn and Hershey H. Friedman Keywords Human resource management, Employee relations, Welfare, Capitalism, Religion The authors demonstrate that the Bible and Talmud provide many insights as to how employers ought to manage human resources. Issues discussed include employee theft, motivation (providing an honest day’s work and providing employees with meaningful and dignified work), compensation (paying wages on time), providing benefits for employees, and ethics in negotiations.

Richard L. Hannah Keywords Pensions, Control, History Institutional history is important in the context of understanding the control of pension systems. This history has both theoretical and practical value for developing policy choices at the micro and macro levels. The central theme is that we can raise the quality of thought about options for the future if we better understand the past. The paper synthesizes previous work, and draws upon archive research and unpublished case studies by the author.

Human resource accounting: a historical perspective and future implications Eric G. Flamholtz, Maria L. Bullen and Wei Hua Keywords Human resource accounting, Accounting history, Human resource management The purpose of this paper is to provide an overview and history of human resource accounting (HRA) with the objective of promoting both continued academic research and organizational applications. The history of HRA illustrates how academic research can generate improvement in management systems. The paper defines HRA and suggests implications of measuring human capital for financial reporting and managerial uses. Recent Swedish-based HRA applications with respect to measuring human assets and intellectual capital, including the Skandia Navigator, illustrate how intellectual history and developments in business schools can influence business history.

The role of economics and industrial relations in the development of the field of personnel/human resource management Bruce E. Kaufman Keywords Economics, Employee relations, Human resource management This paper surveys the contribution of economics and industrial relations (E/IR) to the development of the field of personnel/ human resource management (P/HRM). A brief review of existing accounts of the evolution of the field reveals that they give little mention to the role of E/IR. A re-examination of the early years of P/HRM suggests, however, that this is a serious omission. It is demonstrated, for example, that E/IR was in fact the principal disciplinary base for research and teaching in P/HRM in US universities into the 1940s and that for the first two decades of the field’s existence the most influential and authoritative academic-based writers came from the ranks of economists and economicstrained IR scholars. After describing the reasons for this close relationship. The centrifugal forces that caused a gradual split between E/IR and P/HRM are described. This split had roots in the 1920s, became increasingly visible in the 1950s and beyond, and by the late 1980s had reached a point where the two subject areas had little intellectual or organizational interaction. The paper ends with a brief review of recent developments that herald a modest rapprochement between E/IR and P/HRM.

Management Decision 40/10 [2002] Abstracts & keywords # MCB UP Limited [ISSN 0025-1747]

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Abstracts & keywords Management Decision 40/10 [2002] 923–925

Chester Barnard’s ‘‘executive’’ and the knowledge-based firm R. Ray Gehani Keywords Knowledge management, Leadership, Resources Chester Barnard’s 1938 book The Functions of the Executive is re-examined in the context of the emerging knowledge-based dynamic theory of the firm. The key constructs and the underlying principles for Barnard’s functions of the ‘‘executive’’ and organization as a cooperative open-system are reassessed for the evolving knowledge-driven firm competing in the twenty-first century global economy. Surprisingly, after more than six decades, Barnard’s cooperative ‘‘executive,’’ well-versed in the logical-rational and the non-logical-intuitive decision-making processes, still seems quite competent to effectively lead the knowledge-driven e-business enterprise evolving in the twenty-first century. The Barnardian ‘‘executive,’’ however, must evolve by acquiring and integrating the newly available knowledge-related technologies and other adaptive competencies to help develop new drivers of global competitiveness.

‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren Keywords Intuition, Management, History, Tacit knowledge In the closing decades of the twentieth, and at the start of the twenty-first, centuries, attention has again turned to the critical role of intuition in effective managerial decision making. This paper examines the history of intuition in management thought by tracing its origins to Chester I. Barnard. This paper reveals not only the intellectual roots linking Barnard’s conceptualization of intuition in management thought to, among others, the influential works of the economist and sociologist, Vilfredo Pareto; Lawrence Henderson’s influence on Barnard through Henderson’s leadership and direction of the Harvard Pareto Circle; the works of the early pragmatist John Dewey; Humphrey’s The Nature of Learning; and Koffka’s Principles of Gestalt Psychology. Further, Barnard’s conceptualization of intuition foreshadowed by nearly two decades nearly all of Polanyi’s thinking and elaboration of tacit knowledge. This paper also examines Barnard’s and

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Simon’s differing views on intuition and provides a brief overview of contemporary research on intuition in managerial decision making.

Juxtaposition of Chester I. Barnard and Frederick W. Taylor: forerunners of management Satyanarayana Parayitam, Margaret A. White and Jill R. Hough Keywords Management, History, Management theory Much has been written about the works of Chester I. Barnard and Frederick W. Taylor but little attempt has been made by scholars to compare Barnard and Taylor. Barnard is a successor of Taylor and this may be one of the reasons why there has been a reluctance to place them side-by-side. The purpose of this paper is to capture the similarities and differences that existed in the thinking of these two individuals who greatly influenced management thinking during the twentieth century.

Managing a riot: Chester Barnard and social unrest James Hoopes Keywords Management theory, Human relations, Motivation, Leadership This paper examines a key event in the life of Chester Barnard, a ‘‘riot of the unemployed’’ in Trenton, New Jersey in 1935 when Barnard was director of the state Emergency Relief Administration. In a later influential lecture at Harvard, Barnard used the incident to support the ideas of the Harvard human relations group that recognition and dignity were more powerful motivators than money and fear. Contemporary newspaper accounts show that the rioters were motivated more strongly by monetary concerns than Barnard admitted. Barnard was misled by the ideology of the Harvard human relations group to underestimate the importance of power and money, an underestimation that may still be important today, given his continuing influence. That a man of Barnard’s integrity was misled by his ideology is grounds for us in our time to maintain some humility as to the extent of our managerial knowledge.

Abstracts & keywords Management Decision 40/10 [2002] 923–925

Chester Barnard: member of the ‘‘e´lite’’?

Deming: a new philosophy or another voice?

Steven M. Dunphy and James Hoopes

John B. Washbush

Keywords Management theory, Social responsibility, History

Keywords Deming, Management theory, Quality management, Taylorism

This paper asks whether or not Chester Barnard was a member of an intellectual or managerial ‘‘e´lite’’. While it is clear that Barnard provides great insight regarding leadership and social responsibility, it is also apparent that his views regarding, for example, race relations were, at least by our contemporary standards, unenlightened and may have conformed more with the ‘‘e´lite’’ of that time. With the stronger democratic sensibilities of our time, represented by affirmative action, etc., Barnard has to be read historically and understood in the light of his own time in order to get out of him what is still useful today. The paper does not propose to resolve the issue of whether or not he was an e´litist. The conclusion is reached, however, that the continuation of the debate regarding Barnard’s membership of an intellectual or managerial e´lite may have implications for the ongoing reading of Barnard’s work by the management students of today.

This article questions the widely held proposition that the management philosophy of W. Edwards Deming, with its focus on quality improvement and pragmatic thinking, is a new conceptual paradigm which renders previous management thought, particularly that represented by the scientific management concepts of Frederick W. Taylor, obsolete and wrong-headed. A closer examination of the similarities between older management theories and those of Deming indicates that there is significant commonality. Deming has provided, not a radical new school of thought, but a complementary body of emphases that enrich our understanding of management rather than revolutionize it.

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Introduction: Part 1

About the Guest Editor Dr Mitchell Langbert is Assistant Professor of Business, Management and Finance at Brooklyn College of the City University of New York. His many research interests include the application of Talmudic principles in the modern workplace and he has written extensively on the history of human resource management. He is the co-author with Bernard Handel of Wellness Programs for Taft Hartley Funds, published by the International Foundation of Employee Benefits Plans, Brookfield, Wisconsin, 1992 and has contributed to a number of other important publications in the field.

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Introduction to the special issue on the history of human resource management It is my great pleasure to serve as a special issue editor for this issue of The Journal of Management History in Management Decision. The historical context in which managerial theory and practice have evolved is too often overlooked. Academics, researchers and practitioners tend to forget the past, and too often overlook historical patterns of which today’s theories and ‘‘innovations’’ are but echoes. Conversely, too much history is written without an interest in revealing the cultural roots and patterns that can inform and improve current practice. The historical context in which economic and sociological phenomena occur often sheds considerable light on the telos of human action, the purpose toward which managers and employees strive. Such context sheds considerable light on econometric and empirical data that can reveal relationships but not underlying purpose and meaning. Thus, history and management theory should inform each other. Rather than be viewed as a narrow and isolated subspecialty, a historical perspective needs to be integrated with mainstream management theory and research. Jack Rabin asked me to edit a special issue on the history of human resource management (HRM) in response to my paper ‘‘Continuous improvement in the history of human resource management.’’ This provided an opportunity to encourage human resource scholars to examine the historical context in which their fields and managerial practice have evolved. The result was gratifying. In ‘‘Continuous improvement in the history of human resource management,’’ I argue that the evolution of human resource management can be viewed as a quality improvement process, as the minimization of loss under a Taguchi loss function. The history of HRM has proceeded through four broad stages: 1 the pre-industrial; 2 the paternalist; 3 the bureaucratic; and 4 the high performance. Each phase has balanced the competing interests of employees, managers and external constituencies including investors and customers. There has been

improvement, or reduction in efficiency losses, in each period. However, each period has tended to favor different ones of the three interests. The pattern of past gains suggests further gains in the future. In his paper ‘‘The control of pensions: a brief history and possibilities for the future,’’ R.L. Hannah examines the evolution of pension governance in light of the larger history of the evolution of retirement schemes and the evolution of thought about the relationship between managerial authority and pensions. Hannah argues that the structure of control of modern pensions has tended to encourage passivity on employees’ part at the very moment that many management experts call for empowerment of employees and enhanced participation. Hannah’s argument that pension policy ‘‘is hardly the stuff of a democratic society’’ sounds prophetic in light of recent events at Enron. In ‘‘Human resource accounting: a historical perspective and future implications,’’ Flamholtz et al. argue that the history of human resource accounting (HRA) illustrates how academic research can influence and improve management practice. The paper traces HRA’s intellectual history from the work of Likert, Brummert, Pyle and Flamholtz in the 1960s through recent applications at various large firms, such as Skandia. Flamholtz et al. suggest that financial accounting has tended to favor conservatism over relevance with respect to the valuation of human resources. The result is likely inefficiencies in capital markets as critical HR variables remain hidden from investors. As theory has interacted with practice, firms have begun to experiment with ways to improve the reporting of human capital data in their financial statements. The result is likely improvement in the information the financial markets will some day receive with respect to HRM. Cohn and Friedman take a longer historical view and argue that the Bible and the Jewish Talmud provide insights into modern ideas in welfare capitalism (Jacoby, 1997), job redesign, business ethics, compensation management and employee benefits. While Flamholtz et al. suggest that better financial information about the economic consequences of layoffs would likely reduce the prevalence of the practice, Cohn and Friedman argue that biblical law

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discourages employment-at-will and so provide a moral and historical argument against down-sizing. In ‘‘The role of economics and industrial relations in the development of the field of personnel/human resource management’’, Kaufman argues that HRM has evolved out of economics rather than psychology and organizational behavior. Several decades ago, the field split into two paradigms, industrial relations and personnel/HRM. The end result was that HRM was dissociated from economics, and so lost much of its emphasis on policy. However, in recent years there is growing evidence of a rapprochement. This can be seen in the rise of strategic human resource management as

well as in a burgeoning literature on the economics of HRM. The earlier phases of industrial relations and human resource management studies were infused with a historical perspective. Culture is ultimately historical and, to understand the aims and practices of management, history is an important component. It is hoped that the reader will enjoy these contributions. Mitchell Langbert Guest Editor

Reference Jacoby, S.M. (1997), Modern Manors: Welfare Capitalism since the New Deal, Princeton University Press, Princeton, NJ.

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Introduction: Part 2

About the Guest Editor Kenneth E. Aupperle is a Professor of Management at the University of Akron. He earned his PhD at The University of Georgia in 1982. His original training as an undergraduate was in history. His teaching and research interests are in the areas of strategic management, corporate social responsibility and organizational structuring/corporate culture. He regularly publishes in refereed journals and spends considerable time in corporate training.

The Guest Editor would like to thank Dr William Acar, Kent State University, and Dr Avis Johnson, the University of Akron, for taking the time to provide thoughtful reviews for this special issue on Chester Barnard.

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Is Chester Barnard still relevant for the new millennium? Introduction to the Chester Barnard special issue Five articles highlight this special issue on Chester Barnard. Each one represents a unique perspective on Barnard’s contributions and whether these contributions remain relevant for the new millennium. Most of the articles have gone through a double review process since all but one were originally presented at the Academy of Management meetings in Toronto, August 2000, as part of a symposium on Barnard. As special issue editor, I invited all the paper presenters to submit a revised manuscript for this issue. In addition, nonpresenting participants of the Barnard Symposium were encouraged to submit a manuscript to the special issue so long as the focus remained consistent with the broad theme adopted in this introduction piece. One team of writers chose to do this. The five papers that are part of this special issue include: 1 ‘‘Chester Barnard’s ‘executive’ and the knowledge-based firm’’, by R. Ray Gehani; 2 ‘‘‘Playing by ear’ . . . ‘in an incessant din of reasons’: Chester Barnard and the history of intuition in management thought’’, by Novicevic et al.; 3 ‘‘Juxtaposition of Chester I. Barnard and Frederick W. Taylor: forerunners of management’’, by Parayitam et al.; 4 ‘‘Managing a riot: Chester Barnard and social unrest’’, by James Hoopes. 5 ‘‘Chester Barnard: member of the ‘e´lite’?’’, by Steven Dunphy and James Hoopes. All of the articles noted above provide provocative insights regarding Chester Barnard. In fact, most readers will be unfamiliar with many of the unique observations these papers provide us in the special issue. While the tone of this issue is, as might be expected, generally very positive regarding the work and contributions of Barnard, some qualified concerns are also raised here, which are likely to generate some extended debate in other forums as a result. However, collectively the five articles present an interesting portrait of Barnard’s strengths and weaknesses and in a creative manner give the reader a 360-degree feedback on modern management’s first philosopherking. Gehani’s article looks at the close connection between Barnard’s The Functions

of the Executive and a contemporary topic, ‘‘Knowledge management’’. Like Novicevic et al., Gehani too finds the seeds of knowledge management in Barnard’s seminal text. In addition, this article discusses intuition and Barnard’s contribution to it. However, Gehani takes a broader stroke to intuition by looking at it as a subset in the knowledge management domain. He then illustrates how contemporary developments in knowledge management compare favorably with the much earlier conceptualizations of Barnard. The Gehani article essentially argues that Barnard’s The Functions of the Executive was perhaps the first serious management work to focus on a topic that would one day be referred to as knowledge management. Gehani goes on to argue that Barnard’s cooperative, open-systems perspective is essential to becoming a learning organization that skillfully employs knowledge management by harnessing the unique talents of all participants in the system. In making this connection, Gehani seems to be intuitively harnessing Gareth Morgan’s (1986) organism metaphor when describing and analyzing Barnard’s contributions. To prosper in the new millennium and to succeed in a global context one will need, according to Gehani, to more creatively tap into the unique knowledge of various organizational participants as well as that of one’s most significant stakeholders. The knowledge that will need to be obtained will be both logical and non-logical, both explicit and tacit. Unfortunately, powerful computers and sophisticated technology alone will not solve the knowledge management riddle. This riddle is highly qualitative and ultimately takes us back to where Barnard begins – with intuition. Managing and organizing the tacit contributions of a diverse group of individuals are the true test here. Perhaps knowledge management is also a bottom-up process that materializes best when inspired, compassionate and humanistic leadership is found to exist. The second article is particularly bold and insightful regarding Barnard’s lasting contributions. The focus of the Novicevic et al. piece pertains to Barnard’s very significant contribution to intuitive decision making. The authors carefully reveal the very significant work Barnard did in this area and they reference many writings and

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speeches beyond what one might find in the seminal text The Functions of the Executive. It is particularly interesting to observe Novicevic et al. arguing persuasively that Barnard’s thoughts regarding intuition are still remarkably fresh and not far from where research today would take one. However, they note that researchers who study intuition in decision making have basically ignored Barnard’s work. The authors make a good effort to account for the current research in the field of intuition in decision making and to then connect Barnard’s thoughts to it. Novicevic et al. go on to reveal how concepts such as organizational learning and tacit knowledge can be linked back to early conceptual work performed by Barnard. The authors provide an insightful observation when using a quote from Barnard that observes how difficult it would be for anyone to function in a work environment without relying to a certain extent on intuition. An argument can perhaps be made that Barnard was one of the very first to recognize how managerial effectiveness is linked to one’s capacity to be both a right and left brain thinker in the decision-making process. The third article in this issue is by Parayitam et al. and it takes an unusual approach of comparing and contrasting the ideas and contributions of both Chester Barnard and Frederick Taylor. Their paper takes the view that not only do these two icons of managerial thought have much in common but they also remain relevant for the new millennium. This well written and interesting treatise appears to effectively illustrate the broad similarities of Barnard and Taylor more than demonstrate why the two should any longer be a concern of academicians, students and practitioners. Still, being able to argue persuasively how much these two have in common catches the reader by surprise. A long-held view, at least among most scholars and academics acquainted with management history, would assume that one could not find two individuals to be more different. In fact, many Barnardians might feel that any effort to suggest that there are many broad areas of overlap between Barnard and Taylor would be heretical. Parayitam et al. do a convincing job of demonstrating how Barnard and Taylor connect, even though a generational difference exists. As the father of Scientific Management, Taylor is contrasted with Barnard, given the emphasis he placed on shopfloor management, the degree he focused on the issue of productivity, and the fact that he felt workers had to perform well before

rewards were dispensed. Likewise, Barnard as the ‘‘philosopher-king’’ of US management was much more centered on the entire organization than on just one part of it. In addition, Barnard was strategically centered as well as employee focused. Interestingly, Taylor had a supra-macro orientation that exceeded Barnard’s. He was particularly interested in how micro-processes could have a broadly profound impact on society. The authors also do an excellent job of comparing Taylor and Barnard. Both individuals are portrayed as practicing managers whose work experience is translated into well-articulated academic theory. Both approach their work from a systems perspective, see the need for workplace cooperation and have respect for each individual employee. It is also argued that these two early seminal thinkers had a profound effect on some core issues in human resource management. With Taylor trying to help firms and organizations to become more efficient, we see Adam Smith’s invisible hand having a much better chance of bettering all of society. In fact, Taylorism is often depicted as a core philosophy that helped to shape Western democracies and their capitalistic systems. Ironically, this is Taylor’s own version of a bottom-up process. When reflecting back on Barnard’s own emphasis on the acceptance of authority, the zone of indifference and the bottom-up nature of leadership, power and influence, we have yet another interesting way where these two thinkers connect. The next article to address is one provided by James Hoopes. The portrait drawn here is certainly much less flattering and is particularly provocative. The particular focus is on how Chester Barnard conducted himself in the face of a depression era riot. The concern raised by Hoopes is that Barnard’s behavior in an official capacity as a government executive failed to reveal the very qualities he extols in his own seminal text. Hoopes relies on an extensive set of original sources to better understand one of the major challenges that Barnard was to confront in his professional life. Contemporary newspaper articles of the time are used to then depict a man who was perhaps unable to demonstrate executive leadership properties that are fundamental to his text, The Functions of the Executive. In 1935, Barnard took temporary leave of absence from his position as president of the New Jersey Bell system to function as the head of New Jersey’s Welfare Relief in Trenton. The position produced a difficult managerial scenario when the Trenton riot took place in late April. Hoopes observes that

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the manner that Barnard used to manage the riot and the disgruntled rioters and in particular their representatives is later used as proof that his managerial theories have validity when addressing students and faculty at Harvard University in the late 1930s. What is interesting is Hoopes’ claim that Barnard’s own interpretation of how he managed the crisis is influenced by the conservative ideology of his close friends and associates at Harvard along with the ideas of Vilfredo Pareto. Hoopes argues that Barnard and his associates were e´litists that feared a shift in the social order. Given the magnitude of the Great Depression, the sweeping changes in society, and the ever-increasing role of the corporation in the lives of citizens, it was imperative to embrace a view, a theory, a perspective that would facilitate balance and stability. Hoopes does in fact provide a very nice view of what Barnard was able to accomplish in his public leadership role. The newspaper accounts as well as Hoopes’ own description of the Trenton riot do reveal Barnard to be a masterful businessperson. The concern here lies more with how the events are interpreted and how Barnard’s motives are analyzed. Barnard appears true to the themes he pronounces both in lectures and in his writings by espousing a bottom-up, humanistic approach that embraces that dignity and worth of subordinates for the unemployed dissidents. He does this in a manner that depicts a firm resolve and a recognition that the government does have very limited resources as its disposal. It is difficult to see how Barnard might be viewed as one who takes a controlling and conservative approach. However, in summing up his article, Hoopes notes that Barnard should feel more comfortable with the use of power and money. Power and money are a practical reality which new millennium managers and global businesses need to employ in order to perform well. If anything, Hoopes appears to be frustrated with Barnard’s reluctance to focus on power and money and, for an e´litist, this is a very strange perspective. It does seem true that Barnard may have had e´litist qualities. That is hardly the whole picture as we can see in this country’s own ‘‘Founding Brothers.’’ One can probably make a case that throughout history many progressive thinkers have elements of e´litism in their background. That would seem to be true for Disraeli who helped to ‘‘dish the Whigs’’ in England in the 1860s when enfranchising the lower middle class. Certainly Gaius and Tiberius Gracchi in the second century BC in Rome functioned as progressive tribunes of

the people despite their noble origins. Paralleling their tragic demise we have the Kennedy brothers in the 1950s and 1960s in the USA. They often pursued liberal causes despite e´litist roots. Perhaps the key issue for Dunphy and Hoopes to consider is whether one can have e´litist links but still function in an independent and progressive manner: . When Barnard interacted with the rich, the famous, the important, did he feel free to share his honest thoughts? . What was the tone of his regular conversations? . Did Barnard speak, behave and interact in a manner that reinforced his ideas or betray them? . What is the integrity behind the ideas that Barnard illuminates for us and which remain so germane to management thought? Hoopes raises important issues by closely examining Chester Barnard in action at a critical moment in his professional life. However, the mystery of who Barnard really was may only be resolved when addressing his actual state of mind. Intuitively, the Guest Editor guesses that Barnard stayed true to his values and convictions regardless of circumstances and with whom he interacted. As to that, however, perhaps only William Wolf can provide a definitive answer, given his extensive interviews and thoughtful discussions with Barnard. In turning our attention to the Dunphy and Hoopes article, an interesting issue surfaces in the critical form of whether or not Barnard was an e´litist. The authors make a persuasive case that Barnard may have been an e´litist. While one might think, ‘‘So what if Barnard was an e´litist? How would that matter?’’ That certainly was my first reaction. However, when re-examining the many, almost infinite, contributions of Barnard, it would be safe to observe that his profoundly humanistic orientation could seemingly be viewed as less than sincere if he were correctly identified as an e´litist. Dunphy and Hoopes illustrate a number of examples in their article that suggest the possibility of e´litism despite the protestations of Barnard’s most prolific and determined champion, William Wolf. Dunphy, through numerous conversations with Bill Wolf, tried to obtain greater insight into Barnard’s true character and motivations but ultimately chose a divergent perspective which, while respectful of Wolf’s insights, ultimately concluded that a strong element of e´litism was part and parcel of Barnard, given the circle of intimates with whom he regularly

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associated. It is quite likely that Barnardians will take exception to Dunphy’s arguments but this special issue intends to embrace differing perspectives. Dunphy and Hoopes provide numerous quotes from various printed sources of Barnard’s work that are then used to suggest a pattern of e´litism. In particular is a statement made by Barnard, which addresses the issue of race, differences and the proper functioning of the democratic process. Dunphy and Hoopes, through these different quotes, make a case that Barnard was an e´litist. They also match up Barnard’s e´litist peers and colleagues to suggest a pattern of

behavior, of intimate friends, and well established quotes to argue that at a minimum there is certainly the appearance of e´litism. This is certainly a theme that Hoopes takes even further. The quote from Barnard in a 1948 source is particularly powerful and lends some credence to the arguments of Dunphy and Hoopes. Kenneth E. Aupperle Guest Editor

Reference Morgan, G. (1986), Images of Organization, Sage, Beverly Hills, CA.

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Continuous improvement in the history of human resource management

Mitchell Langbert City University of New York, Brooklyn College, New York, New York, USA

Keywords Human resource management, History, Total quality management, Values

Abstract Human resource management’s challenge is to improve the balance among three competing quality targets: equity, flexibility, and alignment. Management of these targets has improved through four historical periods: the pre-industrial, paternalist, bureaucratic, and high performance. There always have been trade-offs among the three quality targets, but the balance among them has improved through history.

Only a decade ago, at the end of the cold war, there was considerable pessimism about the future. Management theorists like Grayson and O’Dell (1988) and Dertouzos et al. (1989) warned US business about losing its productive edge in the face of Asian competition. Historians like Robert Nisbet (1980) and Paul Kennedy (1987) also warned of decline in light of, respectively, a dampening in the spirit of progress and excessive military spending. Yet the last decade has seen a renewal of optimism. The optimism is attributable not only to economic and technological forces, but also to a twocentury old quality improvement process in human resource management (HRM).

Theoretical background Despite Sanford Jacoby’s (1985) excellent historical analysis of the human resource (HR) function, in recent years the HR literature has been ahistorically defensive about HRM’s strategic role. Managers and professors have forgotten that HRM has stabilized the workplace and, over many decades, better aligned it and made it more flexible by introducing equitable, responsive systems. This improvement process has reflected the purposeful choices of top HR and line managers, who have tended to more effectively balance competing values over time. That is, the evolution of HRM has amounted to a succession of purposeful experiments aimed at developing balancing systems that integrate three sets of competing values: those of: 1 external constituencies; 2 managements; and 3 employees.

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Improvement has enabled firms to become more effective in satisfying the goals of each The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

through productivity growth and more equitable institutions.

HRM and competing values Quinn and Rohrbaugh (1983) and Ulrich (1997) have developed models of organizational effectiveness in light of competing values. Quinn and Rohrbaugh (1983) find that there are four competing models of effectiveness: 1 human relations; 2 internal process; 3 rational goal; and 4 open system. Ulrich (1997) finds that there are four HR deliverables: 1 employees; 2 efficiency; 3 strategy execution; and 4 capacity for change. My claim is that Ulrich’s (1997) four HR deliverables capture the competing values that HR departments have targeted in improving HRM over time. Furthermore, each reflects the interests of one of HR’s three competing classes of constituencies: 1 management; 2 employees; and 3 external constituencies. Progress has meant that HR managers have successfully designed systems that have achieved better balance in targeting and exceeding all constituents’ expectations[1].

Competing values and continuous improvement HRM’s balancing of competing values over time can be viewed as a process of continuous improvement. Deming (1986) and Taguchi (1986) argue that continuous improvement depends on managements’ and employees’ better meeting customers’ expectations and systematically reducing variability in doing so. Since HR’s effectiveness depends on multiple sources of quality gain arising from multiple constituencies, the quality

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challenge with respect to HRM involves the management of interactions among the competing constituencies. As Deming expresses it, the balancing of the HR quality targets requires profound knowledge about HR systems’ effects on employees, managers, customers and the public.

History as continuous improvement I claim that there have been four broad periods of HR history: 1 pre-industrial; 2 paternalist; 3 bureaucratic; and 4 high performance. In each, firms have responded to constituents’ demands, trading among the three quality goals in ways that the environment has compelled them. Because of improving productivity and sophistication of HRM, each period has seen a net improvement over the prior one.

History of HRM In the following four sections I trace the historical process of quality improvement in HRM. In comparison with subsequent periods, the highest degree of inequity and inflexibility characterized the pre-industrial period, which lasted in the USA until the late eighteenth century. Subsequent periods saw continuously decreasing levels of quality loss and increasing levels of quality in HRM. HRM in today’s world has the least variability and highest quality in history.

Pre-industrial period The pre-industrial period[2], which ended with the Revolutionary War, saw a level of HRM loss due to inequity, inflexibility and misalignment that would be unimaginable today. In the seventeenth and eighteenth centuries, the medieval Statute of Laborers, restated in the Tudor Industrial Code’s Statute of Artificers, was the regulatory backdrop for HRM. It contained the principles of compulsory labor and physical punishment for idleness. Indentured servants and slaves were employed throughout the colonies. Apprenticeship, itself a form of bound labor, was the only way to procure training in a craft. Laws restricting freedom of employment were routinely passed. The pre-industrial system certainly took some equity targets into account. The requirement that three months’ notice be given before an employee was discharged was widely observed. At the same time, workers were aligned to owners’ goals

through state-enforced power and privilege. Since compulsion implies little motivation above compliance, it is unlikely that broad categories of workers were well motivated. If it is not too much of a stretch to call the pre-industrial period’s practices ‘‘HRM,’’ the quality of HRM in this period was low across all three quality targets.

Paternalist period The paternalist period lasted from the late eighteenth century until the early twentieth century. During this period, expansion of markets and industrialization shattered the rigid legal mandates that had previously aligned servant and master (Commons et al., 1946; Morris, 1981). Their doing so enabled firms to dramatically improve labor productivity, life expectancies and standards of living. Flexibility was enhanced through the evolution of employment-at-will, the abolition of slavery, and the early development of modern management practices such as incentive plans. The changes during the paternalist era were needed to accommodate industry’s increasing scale. But flexibility came at a steep cost in equity and alignment. There were ideological as well as economic reasons supporting flexibility. The Civil War was in large part caused by what might be called the most inequitable and inflexible HR practice: slavery. The Republican ideology of free labor evolved from northern distaste for the slave power’s (sic) pro-slavery arguments. The Republican advocates of the free labor ideology held that there is alignment of interests between labor and management, in part because laborers are often future entrepreneurs (Foner, 1995). Abraham Lincoln, for example, once remarked that: The man who labored for another last year this year labors for himself and next year he will hire others to labor for him (Foner, 1995, p. 30).

The free labor ideology’s emphasis on flexibility and alignment thus had some unfortunate effects on equity. For example, the creation of the employment-at-will doctrine during the paternalist period both freed employees from compulsion and created the ‘‘right’’ to be terminated at will. In fact, capricious treatment of workers characterized the late nineteenth century’s employment relationship. Employers would often pay wages in devalued paper money or arbitrarily cut pay. The drive system often led to bribery of foremen to obtain jobs and physical abuse of workers (Jacoby, 1985). These practices implied levels of HR quality loss that would be unimaginable in the USA

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today. Such losses included violent strikes (Brecher, 1972). In sum, there were both quality improvements and losses in the paternalist period. In contrast with the pre-industrial period, the improvements outweighed the losses. The improvements in flexibility and equity included the abolition of slavery and other forms of compulsory labor. These improvements outweighed the alignment and equity losses from violent strikes, unpredictable pay practices and arbitrary paternalism. Nevertheless, quality losses from HRM in the nineteenth century were unpalatably large in comparison with today’s management practices.

Bureaucratic period Leading up to and after the First World War, management experts, trade unions, institutional economists and reformers applied pressure on firms to reform the paternalist period’s low quality practices. Such pressure amounted to a systems response to poor alignment and inequity. The improvements came along four lines: 1 management practice; 2 bureaucratization; 3 protective legislation; and 4 unionization. But these improvements in equity and alignment came at the expense of flexibility. The earliest inspiration for quality improvement through better alignment came from late nineteenth and early twentieth century industrial engineers, most famously Frederick Taylor’s scientific management school (Taylor, 1972). Taylor advocated a rational goal-setting model that focused on fractionalization of jobs, tight control of workers and improved methods of employee selection, training and incentives. These practices met with resistance from unionists as well as shop foremen, but offered a paradigm for rationalization and control of the workplace. Another set of management ideas that supported bureaucratization and rational goal setting was the welfare capitalism that executives like Gerard Swope of General Electric and John D. Rockefeller Jr advocated. From 1919 to 1928, membership in employer-initiated representation schemes grew from 400,000 to 1.5 million (Brody, 1993; Freeman and Rogers, 1993). Bureaucratization also proceeded along the lines of the early evolution of the modern personnel department that was derived from social work and other reform movements (and was connected with the growth in scientific management and welfare

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capitalism). Job analysis, job evaluation, job classification, training and development and employee selection techniques evolved as bureaucratic systems responses to arbitrary, high-variance practices of foremen (Jacoby, 1985). Even with improvements in management practice, including scientific management, welfare capitalism and personnel departments, there was still considerable public support for protective legislation aimed at enhancing equity. Thus, in the early twentieth century, states passed Workers’ Compensation and other protective statutes. This trend continued through the late twentieth century, when Congress focused on individual rights and passed Title VII of the Civil Rights Act, the Occupational Safety and Health Act, the Employee Retirement Income Security Act and the Americans with Disabilities Act. Unionization represented the most potent and controversial balancing force with respect to employers’ high-variance practices during the paternalist period. Trade unions had existed at least since the late eighteenth century. Their leaders advocated bureaucratization of the workplace through collective bargaining, protective legislation, and mutual insurance (Commons et al., 1946; Webb and Webb, 1926; Hoxie, 1936). Indeed, Freeman and Medoff (1984) provide considerable empirical evidence that unions have reduced variability in treatment of employees and so enhanced quality with respect to the equity target. They show that unions reduce variability in treatment of employees by forcing managers to discard authoritarian practices in favor of explicit rules; by raising blue-collar wages relative to white-collar, particularly with respect to benefits; and by instituting procedures for appealing against supervisors’ decisions. According to Freeman and Medoff (1984), in the American manufacturing sector the standard deviation of earnings is about 50 per cent lower in union that in non-union plants, and quits are lower by 31 per cent. This lowering of variability is consistent with Deming’s (1986) and Taguchi’s (1986) concept of quality improvement as the reduction in variability around a customer’s (in this case employee’s) expectations. At the same time, Freeman and Medoff’s (1984) analysis, as well as Kochan et al.’s (1986), unduly discount the importance of managers’ alignment concerns about business unions. Flexibility and organizational learning require trust. They also require that executives retain a certain degree of power with respect to their workforce. Many executives remain

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convinced that labor unions create impediments to trust and alignment. Every observer of bureaucratic labor institutions has noted that, although unions improve equity, they have done so in spite of managers’ alignment and flexibility concerns, although there is debate as to whether managers’ concerns are justified. Therefore, just as the flexibility of the paternalist period came at the expense of equity, so the stability and equity of the bureaucratic period came at the expense of alignment and flexibility. Other factors also played a role in flagging productivity. By the 1970s, the baby boomers’ entry into the labor force coincided with expanding labor force participation and possibly contributed to reduced productivity improvement rates[3]. Furthermore, technological shifts involving computers and telecommunications began to create the need to experiment with new work methods.

High performance period By the late 1970s there were popular as well as managerial balancing responses to declining competitiveness. First, there was a renewal of public support for free market ideology. Important industries like transportation were deregulated. Monetary policy was stabilized. In some ways, the election of President Ronald Reagan may be interpreted as a popular reassertion of the Republicans’ nineteenth century free labor doctrine. For example, there was widespread reassertion of belief in the importance of small business and entrepreneurship to the economy. There were numerous avenues for experimentation as firms sought organizational citizenship behavior (Morrison, 1996), an empowered workforce (Bowen and Lawler, 1992), customer focus (Zemke and Schaaf, 1989), commitment (Walton, 1985), psychological motivation (Quinn, 1992) and even personal mastery (Senge, 1990). Most recently, executives and management theorists have debated ways to develop learning organizations, that is, flexible organizations capable of change and progress. In such learning organizations, alignment as well as flexibility become key quality challenges. Many of these efforts are reminiscent of Abraham Lincoln’s view of the worker as a potential entrepreneur. They contrast with the view of the US worker as ‘‘scarcity conscious’’ and ‘‘risk averse’’ that was prevalent during the bureaucratic period (Perlman, 1928; Knight, 1933). A wide range of HR techniques has been developed to meet these flexibility and

alignment goals. For example, a number of authors have emphasized the efficacy of a systemic approach to HR strategy. Lawler et al. (1995) find that in 1993 30 per cent of firms covered employees with individual incentives and about 14 per cent of firms covered employees with team incentives. They also find that 42 per cent of firms use at least one power-sharing approach, to include job enrichment, self-managing work teams and minibusiness units. Perhaps the late twentieth century can be best characterized as a period of learning through experimentation. Some of the experiments have failed and some have been successful. Overall, the flattening of productivity during the late 1970s has been remedied. Thus, the high performance period has been one of improvement in the flexibility and alignment targets. But the problems HR faces continue to be problems of balance. Just as in the nineteenth century, in the twentieth century enhanced flexibility has been associated with some equity losses, although the losses are much smaller than before. Real median money income and real compensation per hour have remained flat between 1980 and 1997 despite productivity gains (US Bureau of the Census, 1998). At the same time, the real median income of females with less than a ninth grade education fell by more than 40 per cent during the period (Office of the President, 1999). While these trends need to be addressed, perhaps through improved recruiting, selection and training, they are of small magnitude in comparison with the equity losses from earlier periods. The share of income going to the low fifth decreased by about 13 percent from 1980 to 1997 (while the share going to the high fifth increased by 26 percent, yielding a decrease in the ratio of low to high of 45 percent). In contrast, nineteenth century railroads sometimes reduced their workers’ pay by 10 percent in a single day (Brecher, 1972).

Conclusion Ever since the industrial revolution began, HRM’s challenge has been that of balance. In the paternalist period, flexibility came at the expense of equity. In the bureaucratic period, equity was improved at the expense of flexibility. In the high performance period again there have been flexibility and alignment gains at the expense of equity. But late twentieth century losses in equity are small by historical standards. The result is that the stagnation in productivity growth that characterized the late bureaucratic

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period has been ameliorated. Current HR practice provides the best balance in history. HRM has reduced losses from the interaction of the equity, flexibility and alignment goals of management, workers and society at large. It has helped to improve workplace quality along all three dimensions. But the process has involved an ebb and flow. Over the long term, it is realistic to expect continued gains in equity, flexibility and alignment to come at the expense of ever-smaller short-term quality losses.

Notes 1 This model of progress contrasts with the macro-economic views of industrial relations pluralists like Dunlop (1958) and Kerr (1983), the micro-economic views of Austrian economists like von Mises (1966) and Hayek (1960) and the reformist views of institutionalists like Commons et al. (1946) and Webb and Webb (1926). Dunlop (1958) and Kerr (1983) argue that a nation’s industrial relations system results from bargaining and collaboration among three bargaining agents: labor, management, and government. Technology, market processes and the locus of power influence the bargaining and collaboration. The outcome is a web of rules. Furthermore, the rules tend to converge toward a mixed economy, which they see as optimal. In contrast, von Mises (1966) and Hayek (1960) see progress as the outcome of individual purposefulness. Equilibrium is reached when the purposes of each actor are satisfied. An ‘‘evenly rotating economy,’’ where each actor’s purposes are fully satisfied, is possible only with minimal state involvement, according to the Austrians. The institutionalists’ view is that institutions evolve in light of powerful interests whose power derives from preexisting habits, institutions and distribution of wealth. Progress is possible through reform of state institutions to accord with equitable standards. However, from a normative standpoint the institutionalists tend to emphasize improvement in equity at the expense of flexibility and alignment. 2 This section on the pre-industrial period relies on Morris (1981). 3 The labor force participation rate has increased from under 60 percent in 1950 to 67.1 percent in 1998, putting downward pressure on wages and productivity (US Bureau of the Census, 1998).

References Bowen, D.E. and Lawler, E.E. (1992), ‘‘The empowerment of service workers: what, why, how and when’’, Sloan Management Review, Vol. 33 No. 3, pp. 31-9.

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Brecher, J. (1972), Strike!, South End Press, Boston, MA. Brody, D. (1993), Workers in Industrial America, Oxford University Press, New York, NY. Commons, J.R., Saposs, D.L., Sumner, H.L., Mittelman, E.B., Hoagland, H.E., Andrew, J.B. and Perlman, S. (1946), History of Labor in the United States, Macmillan, New York, NY. Deming, W.E. (1986), Out of the Crisis, MIT Center for Advanced Engineering, Cambridge, MA. Dertouzos, M.T., Lester, R.K. and Solow, R.M. (1989), Made in America: Regaining the Productive Edge, MIT Press, Cambridge, MA. Dunlop, J.T. (1958), Industrial Relations Systems, Holt, Rheinhart & Winston, New York, NY. Foner, E. (1995), Free Soil, Free Labor, Free Men: The Ideology of the Republican Party before the Civil War, Oxford University Press, Oxford. Freeman, R.B. and Medoff, J.L. (1984), What Do Unions Do?, Basic Books, New York, NY. Freeman, R.B. and Rogers, J. (1993), ‘‘Who speaks for us? Employee representation in a nonunion labor market’’, in Kaufman, B.E. and Kleiner, M. (Eds), Employee Representation: Alternatives and Future Direction, Industrial Relations Research Association, pp. 13-81. Grayson, C.J. and O’Dell, C. (1988), American Business: A Two-Minute Warning, The Free Press, New York, NY. Hayek, F.A. (1960), The Constitution of Liberty, The University of Chicago Press, Chicago, IL. Hoxie, R.F. (1936), Trade Unionism in the United States, D. Appleton-Century, New York, NY. Jacoby, S. (1985), Employing Bureaucracy, Columbia University Press, New York, NY. Kennedy, P. (1987), The Rise and Fall of Great Powers: Economic Change and Military Conflict from 1500 to 2000, Vintage Books, New York, NY. Kerr, C. (1983), The Future of Industrial Societies, Harvard University Press, Cambridge, MA. Knight, F.H. (1933), Risk, Uncertainty and Profit, London School of Economics and Political Science, London. Kochan, T.A., Katz, H.C. and McKersie, R.B. (1986), The Transformation of American Industrial Relations, Basic Books, New York, NY. Lawler, E.E., Mohrman, S.A. and Ledford, G.E. (1995), Creating High Performance Organizations, Jossey-Bass Publishers, San Francisco, CA. Morris, R.B. (1981), Government and Labor in Early America, Northeastern University Press, Boston, MA. Morrison, E.W. (1996), ‘‘Organizational citizenship behavior as a critical link between HRM practice and service quality’’, Human Resource Management, Vol. 35 No. 4, pp. 493-512. Nisbet, R. (1980), History of the Idea of Progress, Basic Books, New York, NY. Office of the President (1999), Economic Report of the President: Transmitted to Congress

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February 1999, US Government Printing Office, Washington, DC. Perlman, S. (1928), A Theory of the Labor Movement, Macmillan, New York, NY. Quinn, J.B. (1992), Intelligent Enterprise, The Free Press, New York, NY. Quinn, R.E. and Rohrbaugh, J. (1983), ‘‘A spatial model of effectiveness criteria: towards a competing values approach to organizational analysis’’, Management Science, Vol. 29 No. 3, pp. 363-78. Senge, P. (1990), The Fifth Discipline: The Art and Practice of the Learning Organization, Currency Doubleday, New York, NY. Taguchi, G. (1986), Introduction to Quality Engineering: Designing Quality into Products and Processes, Asian Productivity Organization, Tokyo.

Taylor, F.W. (1972), Scientific Management, Greenwood Press, Tokyo. Ulrich, D. (1997), Human Resource Champions, Harvard Business School Press, Boston, MA. US Bureau of the Census (1998), Current Population Reports, P60-203, Measuring 50 Years of Economic Change Using the March Current Population Survey, US Government Printing Office, Washington, DC. von Mises, L. (1966), Human Action, Contemporary Books Inc., Chicago, IL. Walton, R.E. (1985), ‘‘From control to commitment in the workplace’’, Harvard Business Review, Vol. 85 No. 2, pp. 76-84. Webb. S. and Webb, B. (1926), Industrial Democracy, Longman, Green, London. Zemke, R. and Schaaf, D. (1989), The Service Edge: 101 Companies That Profit from Customer Care, American Library, New York, NY.

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The control of pensions: a brief history and possibilities for the future

Richard L. Hannah Economics & Finance Department, Middle Tennessee State University, Murfreesboro, Tennessee, USA

Keywords Pensions, Control, History

Abstract Institutional history is important in the context of understanding the control of pension systems. This history has both theoretical and practical value for developing policy choices at the micro and macro levels. The central theme is that we can raise the quality of thought about options for the future if we better understand the past. The paper synthesizes previous work, and draws upon archive research and unpublished case studies by the author.

The author wishes to thank the following for assistance in archival research: AFLCIO George Meany Library, TIAA-CREF, the International Foundation of Employee Benefits Library, and the Tennessee Consolidated Retirement System.

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Introduction The study of pension system governance is a study of control, and the history of this control recognizes the shifting balance of power and inherent conflicts between employers and employees, either through the duality of this relationship or as mediated through government regulation. The evolutionary perspective of the institutional control of pensions is the niche of this paper. The primary objective is to write an account of the qualities of and prospects for the control of pension governance, which is defined to include not only the more commonly understood control of pension capital, but also the strategic manipulation of the administrative apparatus and pension plan rules. This topic is not self-contained, being integrated into the larger context of the USA’s adaptive institutions and complementing relationships among government, labor, capital, and management. This blend of actors has produced pension institutions shaped by social and economic policy, market forces, and political pragmatism. For a thorough description of these interdependencies, see Skocpol (1995). The twentieth century gave rise to a magnitude of pension capital that remains associated with persistent questions of ownership, control, and use of this resource. At the beginning of the twenty-first century the issues of control remain unsettled, while the stakes continue to escalate. Related questions are not just a matter of scholarly inquiry. The introduction of the theme of control into the practice and discourse among affected Americans is critical to public policy. This article is divided into three parts. First is the development of a brief historical perspective of pensions. Second is a The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

description of the history of thought about pension control. Conclusions are offered in the third section.

Historical perspective While the primary topic of inquiry into pension control focuses on the relationships between the individual (beneficiary or participant) and the pension institution (trust or governing board), a brief chronological perspective of pensions in the USA will establish a common basis from which to proceed. The idea of ‘‘civilian’’ pensions was initially introduced in 1741 in North America during the colonial era through the grant of pensions to British hirelings and church-provided pensions to clerical widows and orphans (Sass, 1997, p. 6). More directly related to a broader and more persistent theme, origins can also be traced to 1636 in Plymouth Colony, which provided that maimed soldiers should be competently maintained by the Colony during the remainder of their lives (Grubbs, 1990). So began a stream of thought and resource allocation in US pension evolution that strongly tied the tragedies of war to social policy as manifested through pensions. This picture emerges beginning with annuities being granted to Revolutionary War generals, heroes, and disabled veterans (Sass, 1997, p. 6). The service-connected disabilities of veterans of the War of 1812 also resulted in pensions, as did the Mexican-American War, the Civil War, the Spanish-American War and the conflicts of the twentieth century. Within this spectrum, a shift occurred when the political weight of the numbers of Civil War veterans expanded the coverage of pensions from service-connected disabilities to include the dimension of time. This was accomplished through a combination of legislation and executive orders from which the qualification for a pension expanded from service-connected disability to any disability, and finally to age. However, the pension

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amounts were different for these categories (Costa, 1998). While Sass (1997, p. 20) describes the Civil Service path of pension evolution as traceable to the administrative and managerial complexity of ancient civilizations, in US history the pension initiatives of government as an employer took root beginning in New York City in 1850 with the first public sector plan (Salisbury, 1982). This may have been a function of employer size in the pre-industrialization period, when governments had grown to the point of requiring an organizational system of employment management rather than passively functioning within the larger labor market context. This makes sense because governments are subject to political pressure through the democratic process, a theme consistent with the veteran politics previously described. Local government pension plan growth in the USA did not accelerate until the 1920s, probably boosted by the US Civil Service Retirement Act of 1921 (Seburn, 1991). The American Express pension plan of 1875 is often cited as the first private sector plan. By 1900 the industrialization models of pensions had been established in the railroad, utility, banking, oil, and steel industries (International Foundation of Employee Benefit Plans, 2000). Throughout this era there was generally unfettered discretion, indeed arbitrariness, in the control of public and private pension plans. A notable exception was Andrew Carnegie’s implementation of pre-funding plan obligations for his steel company (an idea he may have borrowed from an earlier Baltimore and Ohio Railroad plan). This solidified the use of the trust in the control of plan assets and projected the historical path into another dimension – accumulation and control of capital (Pensions & Investments, 1999). In the twentieth century, four additional forces accelerated the spread of pensions. The first was tax policy. Almost an obscure event after nearly a century, one might not appreciate the profound changes in corporate accounting practices beginning with the Payne-Aldrich Tariff Act of 1909. This initiated the modern era of IRS regulations of compliance with respect to computation of net income and allowable deductions. Next, the Revenue Act of 1913 replaced the 1909 Act and required income taxes on both businesses and individuals (Giroux, 1996, pp. 123-4). The first applications of tax policy to pensions (i.e. making them tax exempt as a corporate expense deduction) came with the Revenue Acts of 1921, 1926, and 1928 (Beam

and McFadden, 1998, p. 456). The Revenue Act of 1942 ended what Sass (1997, pp. 46-118) describes as a ‘‘two-class’’ system in which pensions were designed to benefit the privileged (those in control of pension plans). The Revenue Act required broad employee participation to curtail discrimination in favor of the privileged, the leverage being plan qualification for favored tax treatment. From the perspective of the federal government’s tax policy, the rest of the twentieth century was oriented to fine-tuning and reforming taxation and promulgating regulations applied to pension systems. The exception was the adoption of IRAs and other deferred compensation plans (e.g. 401ks, 457s, and 403bs) under the Employee Retirement Income Security Act and the Economic Recovery Tax Act. The second force was the establishment of Social Security in 1935. Social Security served as a catalyst in national thinking about retirement. This system not only solidified the principle of retirement benefits based on employment service as a national policy, but also served as a focal model for the creation of other retirement institutions in the public and private sectors. As social security coverage of employees has expanded over the decades, the influence on employer pension institutions has been pervasive, especially with respect to integration of Social Security with employer plans[1]. The third force was World War II, which played an especially important role in the spread of benefits in general and retirement plans in particular. The anti-inflationary policies of the National War Labor Board encouraged this kind of compensation vis-a`-vis direct pay. Unions in particular seized the opportunity to include these initiatives into the collective bargaining framework. Furthermore, the financing of the war with both higher tax rates and the spreading of the tax burden to a much higher proportion of the population than in the prewar era contributed to the growing popularity of pensions because of favored tax treatment (Sass, 1997, p. 118). Finally, retirement plans responded to an increasingly competitive labor market in the twentieth century. The attraction and retention of skilled workers required a more comprehensive and competitive compensation package, of which retirement benefits are a component. National economic policy, through changes in the tax code, greatly accelerated pension plan growth. However, beginning in the 1980s pension plans attracted more attention with respect to their funding status (under- or overfunded). By the late 1980s pension plans also

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were viewed as a mechanism to encourage employment exit by workers. Early retirement incentives became an integral response to very different labor market conditions from those giving rise to the plans. In summary, the spread of pensions as generally derived from the employment relationship started with the ad hoc granting of gratuities (gifts) from employers to employees. Pensions then evolved as contractual commitments, based on the idea of economic exchange of deferred wages for employment service. As government tax policy evolved and regulation was imposed, the design and administration of pension systems became increasingly complex. The economic stakes have grown to immense proportions. The Statistical Abstract of the United States (2000 version, Table No. 846) reports a total of $9.62 trillion in public and private plans as of 1999 (US Census Bureau, 2000).

History of thought about pension control We now move from the origin and conditions that gave the pension institutions their form and function to a history of the more narrowly focused theme of control. Early twentieth century scholarly articles were primarily reports of the relatively new phenomenon of pension plans in the private sector, especially in the railroad industry (Tunell, 1901). However, philosophical issues were emerging. For example, DeRoode (1913, p. 295) argued that pensions were wages, and not mere gratuities, and that pensions should be protected as a contractual right. In addition, Conant (1922, pp. 17-49) depicted pensions as conflicted institutions that were, on the one hand, humanitarian and moral but, on the other, instruments to chain workers to jobs, or to use as disciplinary threats for workers on strike, by stopping pension payments. Also, the American Federation of Labor held that economic freedom required that pensions ought to be established and administered by the government (Green, 1936). To complement the increasing complexity of pension institutions, at about mid-century more diverse scholarship articulated different perspectives about pension control. Some of the most important ideas are in Harbrecht’s (1959) Pension Funds and Economic Power. Harbrecht explored the mechanisms of control within pension institutions in the context of the origin of their capital and individual claims on (or

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ownership of) that capital. His view was that institutional control, which did not require ownership, had become the organizing principle. This economic shift tilted the balance away from the importance of owning property and toward having the power over property. Harbrecht did not speculate on what this new order might bring, except to warn that political power would be more directly brought into this system if pension institutions did not meet expectations. A stronger view of the political economy perspective is taken by Deaton (1989), who contrasted unilateral control with co-management of pension plans. He viewed this conflict in the context of power relationships. He based the rationales for pension co-management on the doctrine that deferred wages (pension funds) belonged to workers. He also argued that employer representatives as fund managers had mixed loyalties. In addition, he claimed that there was a need for a system of checks and balances (e.g. via watch-dog effect of unions), and that co-management would serve a democratizing role. Subsequently, Schuller (1985) placed the subject of pension control in the context of the evolution of industrial democracy toward economic democracy, which must incorporate new forms of capital ownership and control. Schuller’s arguments are strongly rooted in the concept of deferred wages as the property of workers. Building on these views, Alexander (1993) described the passive ownership of pension plans as a deviant model of the classical liberal concept of private property. In this deviant model, workers exhibit apathy toward control. From the employment relationship perspective, yet another school of thought is that the genuine and substantive participation of employees in workplace decisions naturally extends to pension control (Gates, 1998). Still another set of issues involves the emergence of control in the context of pension fund investment practices – socially or economically targeted investing – and in the context of influence on the governance of corporations through the stock voting rights exercised by pension institutions. These are not explicit subjects of this paper, but an excellent recent overview can be found in Fung et al. (2001). Ghilarducci (1992, pp. 23, 134, 146) summarizes the current state of affairs in her discussion about pension institution governance: [T]he pension plan was always seen as a management tool, instrumental in solving particular labor problems that could change

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at any time. Employer discretion seems to have been one of the most important elements of an employer pension plan, and it is the one element that firms have not relinquished (Ghilarducci, 1992).

Ghilarducci (1992) emphasizes the importance of democracy, first by asserting that pension systems’ legitimacy requires more than financial security and stability: To be legitimate, the system must involve participants so that changes are anticipated and decision making is not autocratic.

She continues this line of reasoning to say, ‘‘Democracy can have a use value beyond itself,’’ making enforcement cheaper by curtailing illegal and unethical behavior. In a later publication Ghilarducci (2001) describes the agency problem and advocates employee representation as a solution. She also presents some interesting data describing retirement security that argues favorably for worker representation. Finally, we turn to Hawley and Williams (2000, pp. 175-6). While these authors inquire into the role of pension institutions in corporate governance, they turn the inquiry inward, concluding their book in the final section with ‘‘Who will watch the watchers?’’ as one of the most important questions in the rise of fiduciary capitalism. These authors offer the weaker argument for more information transparency to strengthen the institution of fiduciary capitalism, opting not to advocate fiduciary democracy.

Fiduciary standards No review of thought about the control of pension institutions would be complete without reference to the role of fiduciary standards. The reason is that fiduciary standards speak to the central issue of control. Though public sector plans are not subject to the Employee Retirement Income Security Act of 1974 (ERISA), the Act’s language is still the operational standard for the regulatory model of US pension system governance. The core principle is the exclusive benefit rule embodied in ERISA language: [The] trustee must discharge his or her duties with respect to the retirement system solely in the interest of participants and beneficiaries . . . (ERISA 404(a)(1), 29 USC).

This principle comes with a heavy baggage of contradictions. First, let us consider fiduciary representation in the structural context. ERISA requires that a plan document identify one or more named fiduciaries. Besides the corporate unilateral control model characteristic of single

employer plans and the shared governance under Taft-Hartley plans, there are many other practical alternatives as illustrated by examining the position (or status) of the named fiduciaries with respect to the plan sponsor and employees. Related empirical research examines board composition and is generally limited to the public sector. For example, in a survey of 50 states, 45 responded that retirees and/or actives were elected or appointed to serve as trustees. Of the remaining five systems, two had advisory boards composed of actives and retirees (Moore, 1993, p. 4). Other studies focus on board size and process of appointment or election (Zorn, 1991), the relationship between board structures and fund performance (Mitchell and Hsin, 1995), and the relationship between the political power of public employees and plan governance (Taylor, 1986). Such models might be applied to the single employer plans in the private sector, and their absence from single employer plans suggests the importance of the control issue. Greenough (1990) illuminates the insider’s perspective of the largest non-government pension system in the USA, the Teachers’ Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF), which in 1921 took the extraordinary steps to set up a governing board elected from policy holders. When the system was expanded in 1952 to include the CREF (equities) investment options, the pattern of democratization was repeated. Greenough (1990) deemed governance important enough to dedicate a chapter to the topic, covering such dimensions as the structuring of governance to preclude undue special interest influence. This kind of representation was based on the philosophy that every board member represented all the members. Structural conflicts are unavoidable, and might perhaps even intensify in democratized pension boards, given the ‘‘legitimization’’ of special interest groups in the governance process. However, these interests can be balanced in the design of representation on boards. This approach makes more sense than perpetuation of unbalanced interests in boards of single employer plans that only have employer-appointed representatives, who are subject to individual conflicts because of the power of their employer over them. Institutionalization of democratic processes of control would, of course, strike at the heart of managerial control of capital. Next, the accepted fiduciary (or regulatory) model is subject to more direct criticisms.

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While excellent textbook summaries and interpretations of ERISA’s treatment of trustee duties abound (McGill et al., 1996), Clark (1993) concluded that pension regulation in the USA is not sufficient protection for employees in an increasingly competitive economic environment. The temptations and pressures are simply too great. In the ethical context, Clark includes a chapter on ‘‘Ethics and the strategies of subversion,’’ which explores such phenomena as secrets, lies, and deception – all within the recognition of the power of information access and control in pension governance. Clark’s (1993) assertion of the potential for abuse does draw us to peel back the regulatory veneer and look deeper into the conceptual and practical variations of the institution of pension trusts. For example, the principal-agent model defines the institutional relationships based on accountability – especially with respect to by whom and for whom power and control are exercised (see Bowen, 1994, p. ix). In the context of pension boards this model is underpinned by checks and balances inherent in democratic systems of control only in plans where board members are elected or appointed by elected representatives (such as in Taft-Hartley plans). Otherwise, such a system conforms to an authoritative corporate chain of command, which confounds the principal-agent relationship. The intellectual conflict is that, outside of a professed belief that paternalism is superior to democratic principles of governance (or at least some semblance of shared control), there is considerable difficulty in squaring this corporate unilateral control exercised through the principal-agent relationship with the ERISA defined duty of plan fiduciaries to act ‘‘solely in the interest of participants and beneficiaries:’’ The breakdown of this accountability promotes a sense of immunity to criticism and a permanence of office that are autocratic, arbitrary, and insensitive to the views of others (Anderson and Anthony, 1986, p. 5).

At the personal level, the principal-agent problem of employer appointments places pension board members in a decision-making capacity of conflicted loyalties and duties. They are agents representing the interests of the employer, which may place them in conflict with ERISA-charged duties to represent participants and beneficiaries. Some scholars of ERISA have been attentive to the derived kinds of strategic manipulation of plans that include selfinvesting, under-funding, over-funding,

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reciprocal agreements between banks and corporations, pressures on actuaries to change assumptions, and soft dollars (e.g. brokerage commissions as payment for additional services attached to pension transactions) (Brooks, 1975). Another dimension of the principal-agent problem is the conflicting state of union (Taft-Hartley) plans with respect to balancing relationships with corporations through pension capital with union goals (Bledgett, 1977). Making the range of discretion more explicit when inquiring into the fiduciary principle further illuminates the nature of control. Pension board manipulation of interest rates, discount rates, actuarial assumptions, or other components of a defined benefit plan have been well documented. For example, consider the language of a recent highly critical article in the Wall Street Journal that described the strategic manipulations of pension plans (increased discount rates to reduce lump sum payouts): Some of the changes are so complex that even government pension experts are not sure how they work. Created by consulting firms and companies’ finance departments, the maneuvers flourish with little oversight . . . Never have so few plundered so much from so many (Schultz, 2000, p. 1A).

However, the Schultz (2000) article exemplifies a common omission in the popular press with respect to the process of decision making, namely, the accountability of the pension board (trustees) charged to represent the interests of the plan participants. The article suggests regulation to curtail questionable activities, but does not consider the possibility of more direct or indirect employee participation to safeguard their interests. Whether pension boards are merely instruments of the employers, a truly independent decision-making body or functionally somewhere within this spectrum would seem rather crucial in evaluating the decisions taken. This discretion flows beyond financial decisions and includes responsibilities in the formulation and interpretation of retirement plan rules, such as setting early and normal retirement ages, limiting settlement options, prohibiting withdrawals, and changing vesting provisions. To proceed with this approach, a bit of refinement of the idea of discretion is necessary. On one end of the spectrum, ERISA is instructive. ERISA contains language in which the presence of discretion (and the implied authority) is a test of whether a pension plan exists. Unbounded discretion (e.g. ad hoc benefits) is generally

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not ERISA-covered. However, if discretion is coupled with reasonable employee expectations of a benefit, of fiduciary competence, and of fair dealing, the finding may be that a plan exists (Wiedenbeck, 1998). On the other end of the spectrum no substantive discretion exists for the pension board to exercise. There are two plausible explanations for this situation. One is a complete regulatory model in which government essentially co-opts plan independence. The other is the argument that participants in a defined contribution plan have total control because they can individually allocate contributions into accounts[2]. There is only partial credence to this argument.

Participant control Participant control, even in a defined contribution plan, still does not extend to such crucial benefit decisions as vesting, cashability, roll-overs, and annuity options. Furthermore, even defined contribution plans can retain their instrumentality in the shaping of worker decisions with respect to early retirement incentives. Therefore, the general conclusion is that the pension institution functions in an environment neither of unbounded discretion nor of absence of discretion (i.e. total participant control), but can be better understood in the context of bounded discretion. To illustrate this point, consider TIAA-CREF, a defined contribution plan to which higher education institutions contribute funds. While the degree varies, educational institutions (or the state in the case of public universities) often retain control. For example, the Tennessee Consolidated Retirement System (TCRS) pension council, the body that makes pension recommendations to the legislature, decides whether the state’s TIAA-CREF participants can exercise a cashability option. On the surface this might seem trivial – except that the TCRS is a defined benefit plan and among the pension council’s elected and appointed officials there is no TIAA-CREF representation. While individual account allocations are obviously not controlled, the choices pertaining to the accumulated pension capital are in this and in other respects at the discretion of the council. The exercise of discretion in good governance requires more than meeting the conditions of disclosure after the fact. Of course, one way to keep plan members informed is to have elected board members who are sensitive to sharing information

(shifting the control model from paternalism to democracy). This would appear to be a better option than coping with irate members who perceive themselves to have been uninformed or misinformed by boards or their agents. The pattern of recent court cases on this topic is quite interesting, generally reinforcing the rule that the employer cannot lie, withhold, obfuscate, or remain silent about material matters. Note, however, that this duty to avoid misrepresentation does not go so far as to require unreasonable burdens of prediction about pending board decisions – i.e. no implication of a ‘‘duty of clairvoyance’’ (Schmall, 2000). Barring structural or compositional change in governing boards, Ghilarducci (1992) and Hawley and Williams (2000) have strongly advocated the need for improved information transparency and information flow to participants with respect to the governance process. In our modern environment of distributed electronic information networks, this would appear to be a reasonable and significant participant benefit in the development of self-reliant judgment about retirement choices and voice in the system. In retrospect, an interesting test of control occurred in 1989. Peter Visclosky (D-IN) introduced legislation that would require elected representation of plan participants on single employer plan boards. Ultimately, the bill failed in the House by a vote of 250 to 173, but a review of the battle lines is instructive. Proponents argued on the basis of deferred wage theory and on the basis of fairness of representation. Those speaking against the legislation argued that equal representation was unwarranted, would harm investment strategy and capital markets, and would reduce investment returns (Chernoff, 1989). More pragmatic opponents raised questions of the workability of boards if representatives were geographically dispersed and/or of unwieldy size. Others argued that the legislation’s force of elected representation offered a foothold for organized labor. A final obstacle was the ambiguous status of third-party trustees in proposed legislation (Stupek, 1989). While the implementation phase of this legislation may not have been well thought out, many of the practical objections can be readily dismissed when considering the functionality of corporate boards, non-profit boards, and even existing pension boards. The resistance is to shifting the control of capital, even if predicated on democratic principles. In the end, these objections may prove an interesting irony as we await the

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possible partial privatization of social security, and the decision of who would control that institution. In summary, this section has provided a sampling of thought about pension control, possible paths of evolution, and the ideological alignment of proponents and opponents of institutional change in light of its historiography. In general, the theory of deferred wages and its implied property rights has been persistent for nearly a century, though mitigated by the contractual nature of exchange between employer and employee, and by the evolving nature of capital itself – i.e. ownership versus control versus use – an interesting juxtaposition with the separation of ownership and control in corporations. The broad shoulders of deferred wage theory hold up the ideological arguments favoring worker control (or representation), but this body of thought does not have the weight of practical and universal acceptance regarding policy changes oriented toward more liberalized control.

Industrial hypocrisy There is little evidence to support the idea that industrial democracy or worker participation that evolves toward economic democracy exists in the pension field outside of organized labor. Yet, advocacy of worker participation in work and not in retirement control is hypocrisy in the sense that workers are exhorted to offer intellectual capital to increase the value of production while at the same time deemed incompetent to govern their own lives with respect to pensions. Shared pension control would indeed be the ultimate acid test in labormanagement collaboration, would it not? At the microeconomic level the pension institution is a valuable management tool, and management cannot be expected to relinquish unilateral control voluntarily. At the macroeconomic level, there is no widespread activism for democratic control, with apparent acceptance by workers of passive capitalism, a condition that may or may not be sustained with progressive information transparency. The previous arguments that defined contribution plans do not give plan participants total control duly noted; perhaps the growing popularity of these plans has shifted the focus of control just enough toward the individual to deter any ground swell for more control. Furthermore, this shift is ongoing at the margin. For example, the recent Economic Growth and Tax Relief

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Reconciliation Act of 2001 accelerates vesting for employer matching contributions and enhances portability of section 457 and 403b plans – both consistent with increased individual control. Pension institutions may carry on in this state of marginal liberalization as long as there are no massive disruptions. Revolutionary change is effectively diffused in what Hirschman (1970, p. 35) describes as a mixture of the ‘‘inert and the alert.’’ Hirschman’s (1970) reasoning is that this complementarity produces an institutional evolution that is optimal, or at least preferred to outcomes based on total activism or total apathy. As we look to the future we have to ask ourselves whether we see conflict, cooperation, or collaboration on this issue of control. Policies at the micro or macro levels should be crafted with multi-dimensional interests and objectives. History provides a sense of this contextual boundary, and the evolution of different models of pension governance at least enlightens us as to possibilities. The future of pension institutions may increasingly reflect both changing social values and the balance of economic power.

Conclusion At best, the history of retirement systems in the USA is disjointed and complex. With respect to governance, decisions are not, and have not, been made in a vacuum. However, they have been made in relative darkness. This is hardly the stuff of a democratic society. As a significant part of the nation’s financial capital and as part of our ever-evolving economy, pensions and their control demand more attention. So, pension history and some sense of institutional evolution have value, especially related to issues of control. Understanding this helps explain our current circumstances and enrich our choices. That pension capital largely remains in the control of corporations through the governance institutions suggests passivity on the part of US workers. US labor has shown itself to be evolutionary rather than revolutionary in nature, and there is no reason to suspect more than plodding progress in changing views and actions about the control of pension institutions. But interesting ideas still ferment. Indeed, the intellectual treatment of pension control suggests a re-examination of such estranged theoretical perspectives as Marxism and private property. Academics and

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practitioners have much work to sort out the frameworks of how pension capital fits into labor and industrial relations theories, especially given the recent emphasis on collaborative workplace models, which in the totality of the employment relationship should also include collaboration in the control of deferred wages. In recent years there has been much cosmic scripting about the new economy. However, in the context of pension control, there has been no similar sweeping chronicle of a new social or economic order. Given the magnitude of the economic stakes involved, this is disappointing. My arguments in this paper have leaned toward democratization of the governance process, in part based on my bias that economic evolution must be balanced with the evolution of democratic institutions. True enough, there is risk of politicization from within by special interest groups, and even polarization of boards that embrace democratic representation. But politicization of the governance mechanism can occur from without, by those same interest groups and others – e.g. lobbyists and personal relationships of board members with a wide array of parties who can benefit from pension dealings. It seems we have more to gain by advocating democracy than by abdicating our duty and responsibility as academics and participants in the control of such collective and individual wealth. Does history matter? Yes, it matters because truth matters, especially in institutions founded for the collective good. The collective in this sense would seem to have a claim on shared power, which includes information access and decentralization of control. There is no perfect institution, just as there is no perfect market. The question in the balance between these two idealistic extremes is what improvements we as scholars or practitioners can make. The published intellectual history is fair and balanced. But there is still much work to be done. Unlike the public issue of the control of pension capital and more subtle manipulation of plan design and modification, the control of (or denial of access to) the total institutional history is much less understood.

Notes 1 The reader might take note of this complex issue of integration when considering how efforts for partial privatization of social security contributions could play out in this framework. 2 I thank an anonymous referee for bringing this point to my attention.

References Alexander, G. (1993), ‘‘Pensions and passivity’’, Law and Contemporary Problems, Vol. 56 No. 1, pp. 111-39. Anderson, C. and Anthony, R. (1986), The New Corporate Directors: Insights for Board Members and Directors, John Wiley & Sons, New York, NY. Beam, B. and McFadden, J. (1998), Employee Benefits, Financial Publishing Inc., Dearborn, MI. Bledgett, R. (1977), Conflicts of Interest: Union Pension Fund Asset Management, The Twentieth Century Fund, New York, NY. Bowen, W. (1994), Inside the Boardroom, John Wiley & Sons, New York, NY. Brooks, J. (1975), Conflicts of Interest: Corporate Pension Fund Asset Management, Twentieth Century Fund, New York, NY. Chernoff, J. (1989), ‘‘Joint trustee rule rejected’’, Pensions & Investment Age, Vol. 17 No. 21, pp. 1, 71. Clark, G. (1993), Pensions and Corporate Restructuring in American Industry, Johns Hopkins University Press, Baltimore, MD. Conant, L. Jr (1922), A Critical Analysis of Industrial Pension Systems, The Macmillan Co., New York, NY. Costa, D. (1998), The Evolution of Retirement: An American Economic History 1880-1990, University of Chicago Press, Chicago, IL. Deaton, R. (1989), The Political Economy of Pensions: Power, Politics and Social Change in Canada, Britain and the United States, University of British Columbia Press, Vancouver. DeRoode, A. (1913), ‘‘Pensions as wages’’, American Economic Review, Vol. 3 No. 2, pp. 287-95. Fung, A., Hebb, T. and Rogers, J. (2001), Working Capital: The Power of Labor’s Pensions, ILR Press, Ithaca, NY. Gates, J. (1998), The Ownership Solution: Toward a Shared Capitalism for the 21st Century, Addison-Wesley, Reading, MA. Ghilarducci, T. (1992), Labor’s Capital: The Economics and Politics of Private Pensions, The MIT Press, Cambridge, MA. Ghilarducci, T. (2001), ‘‘Small benefits, big pension funds, and how governance can close the gap’’, in Fung, A., Hebb, T. and Rogers, J. (Eds), Working Capital: The Power of Labor’s Pensions, ILR Press, Ithaca, NY, pp. 158-80. Giroux, G. (1996), Dollars & Scholars, Scribes & Bribes: The Story of Accounting, Dame Publications, Houston, TX. Green, W. (1936), letter from AFL President Green to Carrol Brewster III, AFL-CIO Legislative Reference File, March 23, George Meany Library, Washington, DC. Greenough, W. (1990), It’s My Retirement Money – Take Good Care of It: The TIAA-CREF Story, Irwin, Homewood, IL.

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Grubbs, D. (1990), ‘‘Defined benefit plans vs. defined contribution plans: a reassessment’’, Proceedings of the Conference of Consulting Actuaries, Vol. XL. Harbrecht, P. (1959), Pension Funds and Economic Power, The Twentieth Century Fund, New York, NY. Hawley, J. and Williams, A. (2000), The Rise of Fiduciary Capitalism: How Institutional Investors Can Make Corporate America More Democratic, University of Pennsylvania Press, Philadelphia, PA. Hirschman, G. (1970), Exit, Voice, and Loyalty, Harvard University Press, Cambridge, MA. International Foundation of Employee Benefit Plans (2000), ‘‘Historical perspective of multiemployer defined contribution plans’’, Employee Benefit Basics, 1st quarter, pp. 1-12. McGill, D., Brown, K., Haley, J. and Schieber, S. (1996), Fundamentals of Private Pensions, University of Pennsylvania Press, Philadelphia, PA. Mitchell, O. and Hsin, P. (1995), Public Pension Governance and Performance, a Pension Research Council working paper, University of Pennsylvania, Wharton, available at: www-penninfo.upenn.edu/9000/ Moore, C. (1993), Public Pension Plans: The State Regulatory Framework, National Council on Teacher Retirement, July. Pensions & Investments (1999), ‘‘Steel baron Andrew Carnegie pioneered pension funding’’, Vol. 27 No. 26, December 27, p. 34. Salisbury, D. (1982), ‘‘The private pension system in the United States’’, Benefits International, Vol. 12 No. 3, September, pp. 5-19. Sass, S. (1997), The Promise of Private Pensions: The First 100 Years, Harvard University Press, Cambridge, MA.

Schmall, L. (2000), ‘‘Keeping employer promises when relational incentives no longer pertain: ‘right sizing’ and employee benefits’’, George Washington Law Review, Vol. 68 No. 2, pp. 276ff. Schuller, T. (1985), Democracy at Work, University of Oxford Press, Oxford. Schultz, E. (2000), ‘‘Pension cuts 101: companies find host of subtle ways to pare retirement payouts’’, Wall Street Journal, Vol. CCXXXVI No. 18, 27 July, pp. 1A, 6A. Seburn, P. (1991), ‘‘Evolution of employer provided defined benefit pensions’’, Monthly Labor Review, Vol. 114 No. 12, pp. 16-23. Skocpol, T. (1995), Social Policy in the United States: Future Possibilities in Historical Perspective, Princeton University Press, Princeton, NJ. Stupek, V. (1989), ‘‘Employers say budget reconciliation provision would cause a flurry of benefit plan terminations’’, Profit Sharing, Vol. 37 No. 9, September, pp. 6-7. Taylor, S. (1986), Public Employee Retirement Systems: The Structure and Politics of Teacher Pensions, ILR Press, Cornell University, Ithaca, NY. Tunell, G. (1901), ‘‘The pension system in the Chicago and Northwestern Railway Company’’, Journal of Political Economy, Vol. 9 No. 2, pp. 271-2. US Census Bureau (2000), Statistical Abstract of the United States (2000 Version), available at: www.census.gov/statab/www/ Wiedenbeck, P. (1998), ‘‘ERISA’s curious coverage’’, Washington University Law Quarterly, Vol. 76, pp. 311-50. Zorn, P. (1991), Survey of State and Local Government Employee Retirement Systems, Public Pension Coordinating Council, November.

Human resource accounting: a historical perspective and future implications

Eric G. Flamholtz The Anderson School, UCLA, Los Angeles, California, USA Maria L. Bullen School of Accountancy, Robinson College of Business, Georgia State University, Atlanta, Georgia, USA Wei Hua The Anderson School, UCLA, Los Angeles, California, USA Keywords Human resource accounting, Accounting history, Human resource management

Abstract The purpose of this paper is to provide an overview and history of human resource accounting (HRA) with the objective of promoting both continued academic research and organizational applications. The history of HRA illustrates how academic research can generate improvement in management systems. The paper defines HRA and suggests implications of measuring human capital for financial reporting and managerial uses. Recent Swedish-based HRA applications with respect to measuring human assets and intellectual capital, including the Skandia Navigator, illustrate how intellectual history and developments in business schools can influence business history.

Introduction This paper traces the history and development of human resource accounting (HRA). HRA involves accounting for people as human assets. Although HRA has important implications for external financial reporting, in the contemporary economic environment HRA has even greater significance as a powerful managerial tool in internal human resource management decisions. In light of the history of labor and human resource management, HRA suggests a vehicle for improvement of management as well as measurement of human resources. If HRA can demonstrate that improvement in human resource management enhances profits, then managers will integrate human capital implications in their decision making to an enhanced degree.

HRA and external financial reporting

Management Decision 40/10 [2002] 947–954 # MCB UP Limited [ISSN 0025-1747] [DOI 10.1108/00251740210452818]

External financial reporting, information disclosed in a company’s annual report to shareholders, is geared primarily to external users such as stockholders, bankers, potential investors and lenders. Currently, financial accounting treats human resource costs as current expenses that reduce the net income of the company, as opposed to investments that will provide future benefits to the company and that are reported as assets on the company’s balance-sheet. There are problems with reporting human assets on the balance-sheet. Although various HRA cost- and value-based models have been developed, there is subjectivity in measuring human assets. One reason is that the company does not actually own human assets so that there is risk of employee turnover. Value-based models resolve this problem by The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

estimating the probability of exit along with probabilities of promotions, mortality and future wages. In contrast, most financial reporting has been objective, historical and cost-based. The reason is that accounting generally takes a conservative position with regard to recording gains and losses. Thus, appreciated market values are not shown for most accounts (with the exception of trading securities expected to be sold in the near future). One main reason why ‘‘generally accepted accounting principles’’ encourage objective, reliable and verifiable measurement is the aim of comparability among organizations. It is of course harder to compare across companies when the measures involve subjectivity and considerable use of estimates. On the other hand, traditional accounting’s conservatism has made it difficult for investors to compare human capital investments in firms. The result is likely considerable imperfection in the capital markets because of lack of information about management quality. In addition to the absence of human resources on the balance-sheet, other significant intangible assets, such as goodwill, have not been shown on the balance-sheet unless paid for in a company purchase transaction. Large expenditures in developing new products and patents are written off to research and development expense rather than capitalized as assets. Indeed, there is a conflict between reporting information that is reliable or easily and objectively measured and information that is relevant to decision making. Although HRA measures incorporate subjectivity, they are very relevant to the real needs of decision-makers and investors. The relevance of intangible assets has been increasingly recognized. There has been increased interest in accounting for intangible assets for financial reporting purposes on the part of the Financial Accounting Standards Board (FASB) and the

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Securities and Exchange Commission (SEC). There also has been international corporate and academic interest. Since a firm’s human resources are a prime component of its intangible assets, the stage is being set for a renewed interest in HRA from a financial accounting perspective.

decisions and to better understand the long-term implications and hidden costs of management’s business decisions. In addition to the significant costs of rehiring qualified employees, layoffs may also affect the morale, productivity and even retention of the employees not laid off.

Managerial functions of human resource accounting

Historical development of human resource accounting

Although HRA could be used in some form to improve financial reporting, probably the most important benefit of HRA is that it is a managerial tool. Management can use HRA measures for HR decision making. If management has gone through the process of measuring and has HRA information available, it is likely that important management decisions such as those involving job cuts and layoffs will be made differently. A related point is that the very process of measuring HRA information can have the effect of placing more emphasis on it. That is, HRA can be thought of as having three major functions: 1 providing numerical information about the cost and value of people as organizational resources; 2 serving as an analytical framework to facilitate decision making; and 3 motivating decision-makers to adopt a human resource perspective.

Whence has HRA arisen? Having introduced HRA and provided some insights into its timely importance to organizations in the contemporary economic environment, we now provide an overview of the history of accounting for human resources. The development of HRA has passed through five stages as follows: 1 1960-1966: Derivation of basic HRA concepts from related bodies of theory. 2 1967-1970: Basic academic research developing measurement models. 3 1971-1977: Rapid growth of interest in HRA. 4 1978-1980: Period of declining interest in academia and corporations. 5 1981-present: Renewed international interest in HRA theory and practice.

Flamholtz (1979, 1980) described the HRA paradigm in terms of the ‘‘psycho-technical systems’’ (PTS) approach to organizational measurement. The PTS approach holds that there are two functions of measurement: 1 process functions in the process of measurement; and 2 numerical or informational functions from using the numbers or measurements. That is, one role of HRA measurement is to provide numerical information as an input to management and financial decisions. But another and even more important role comes from the measurement process, from the act of monitoring and quantifying the costs and value of people from a human resource perspective. From a managerial perspective, the process of measuring, as well as the measurements themselves, send the message that people are valuable organizational resources and should therefore be managed as such. One example is the management of layoffs and down-sizing. Management can use HRA technology to analyze the effects of such

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This paper will offer insights on the above stages, starting with the first stage and ending with some thoughts on the current state-of-the-art and future developments. The history has evolved from theory to practice; from the schools of business and commerce to professional application. It illustrates that academic theory can have important practical implications.

Stage I: Derivation of basic HRA concepts Early interest in HRA came from a variety of sources. Some of the early accounting theorists (Scott, 1925; Paton, 1962) provided support for treating people as assets and accounting for their value. Early organizational psychologists such as Likert were concerned with leadership effectiveness and the ‘‘human resource perspective’’ that was based on the premise that people were valuable organizational resources (Odiorne, 1963; Likert, 1961). In his pioneering monograph Accounting for Human Assets, Roger Hermanson (1964, 1986) described a model to measure human resource value in external financial reports. Hermanson’s work was instrumental in providing inspiration for the next phase in the development of HRA.

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Stage II: Basic academic research developing measurement models Stage two was a period of basic academic research to develop and assess the validity of models for the measurement of human resource cost and value. It was a time of research designed to formulate the present and potential uses of HRA as a tool for human resource professionals, line managers, and external users of corporate financial information. It included a few exploratory experimental applications of HRA in actual organizations. The research done during the early stages of the development of HRA was conducted at the University of Michigan. In addition, beginning in 1967, a research team that included the late Rensis Likert, R. Lee Brummet, William C. Pyle, and one of this paper’s co-authors, Eric Flamholtz, carried out a series of projects designed to develop concepts and methods of accounting for human resources. The outcomes of this research included an article by Brummet et al. (1968a) representing one of the earliest works in the area of human resource measurement, and the one in which the term ‘‘human resource accounting’’ was used for the first time. The authors analyzed the deficiencies of treating employee costs as expenses rather than as assets, and concluded that human resource accounting is primarily used as a managerial tool. In another article published the same year, ‘‘Accounting for human resources’’ (Brummet et al., 1968b), the authors assess the impact that HRA can have on management. Flamholtz’s (1969) PhD dissertation was an exploratory study that formulated a theory of an individual’s value to an organization. In the same year, Brummet et al. (1969) emphasized HRA as a tool for increasing managerial effectiveness in the acquisition, development, allocation, maintenance, and utilization of its human resources. One of the first attempts to develop a system of accounting for a firm’s investments, it studied the application of HRA in R.G. Barry Corporation, an entrepreneurial public company.

Stage III: Significant academic research and growth The third stage of development of HRA, which dated from 1971 to 1977, was a period of rapid growth of interest in human resource accounting. It involved a significant amount of academic research throughout the Western world and in Australia and Japan; and it was a time of early attempts to apply the HRA theory to business organizations.

Thus, during this stage, the R.G. Barry experiment continued and received considerable recognition because, at least for a few years, the company published pro forma financial statements that included human assets. This, in turn, stimulated increased interest in HRA. Because it was dramatic and innovative, ‘‘putting people on the balance-sheet’’ became the dominant image of HRA for many people. But it was controversial. One objection was that HRA communicated management’s ownership or control of employees. Nevertheless, overall interest in HRA increased and this stage was characterized by a considerable amount of published research dealing with HRA, as well as a great deal of seminar activity. Another indication of the practical dissemination of academic theory was that, during this stage, the American Accounting Association established committees on HRA in 1971-1972 and 1972-1973; and these committees published reports on the development of HRA. The AAA’s involvement proved a catalyst for additional research. Empirical research studies found that HRA had an impact on decision making. Some examples of the effect of HRA on external decisions included Elias’s (1972) experiment that determined that external users’ decisions on investments in common stock were made differently with the inclusion of HRA information. Following the work of Elias, Hendricks (1976) found that stock investment decisions were significantly affected by additional HRA cost accounting information. Schwan (1976) further extended the Elias and Hendricks studies by examining the effects of HRA cost information on financial decisions in comparison with decisions based on conventional financial information. The results showed that the firm with HRA information was considered better prepared; and the inclusion of HRA information resulted in statistically significantly better predictions of a firm’s net income. Likewise, Acland (1976), who presented quantified behavioral indicators to financial analysts, found that financial analysts prefer a firm with improving financial operating performance but with declining behavior indicators. Such preferences decrease when the human resource indicators are provided. One study of the effect of HRA on internal managerial decisions was Zaunbrecher’s study of the impact of HRA cost information on a personnel selection decision (Zaunbrecher, 1974; Spiceland and Zaunbrecher, 1977). Their results indicated that HRA information was considered even

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when conflicting traditional information was presented along with it. Tomassini (1974) studied differences in decision preferences involving the length of a layoff and found that HRA data can affect managerial decisions, both at the choice and the process levels. Flamholtz (1976) studied whether human resource value numbers influence the decisions made by certified public accountants. He found statistically significant differences in decisions made using: . traditional personnel numbers; and either . non-monetary HR value numbers; or . monetary HR value numbers. He did not find differences using non-monetary versus monetary measures. Flamholtz suggested that the results may have been due to the nature of the research design, and called for future research. Lombardi and Flamholtz (1979) also found a difference in decisions between traditional information and HRA information, but no difference between monetary and non-monetary HRA information. Using Air Force colonels as subjects, Harrell and Klick (1980) found that, contrary to the Flamholtz findings, participants placed significantly greater weight on monetary information and that their decisions were more consistent when they used monetary information. Again the need for future research was emphasized, and a number of researchers heeded the call. In addition to study of the effect of HRA information on decisions, research during the third stage involved the continued development of concepts and models for measuring and accounting for human resource cost and value. Likert and Bowers (1973) included a number of non-monetary behavioral measures, including those involving human resources, in their computation of a monetary estimate of the expected change in the value of a human organization. They expanded the earlier work of Likert (1967) which focused on non-monetary behavioral variables. Flamholtz (1971, 1972) utilized both non-monetary and monetary measures in drawing upon behavioral and economic variables. The Flamholtz model proposes that an individual’s value to an organization is based on the future services that are expected to be rendered to the organization in future roles or service states. It views the movement of people among organizational roles over time as a Markovian stochastic or probabilistic process with service rewards. An individual’s ‘‘conditional value’’ consisting of promotability, productivity and

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transferability, is considered in combination with the probability of the individual’s occupying various service states, to result in a monetary measure of an individual’s ‘‘expected realizable value.’’ Drawing on the Flamholtz model, Ogan (1976) proposed a model that focused on measuring an individual employee’s ‘‘certainty-equivalent net benefits.’’ Gambling (1974) extended the Flamholtz model by applying a dynamics simulation in order to capture the relevant variable in accounting for human resources. Several other models that combined behavioral and economic approaches were Myers and Flowers (1974), Macy and Mirvis (1976), and Mirvis and Macy (1976). In their model, Lev and Schwartz (1971) consider the human capital concept and discount the employee’s future earnings to the present value. Morse (1973) combined the Flamholtz model and the Lev and Schwartz model into one which specified the present value of the organization’s human assets to equal the present value of human resources less the present value of payments to employees. Sadan and Auerbach (1974) also synthesized the contributions of Lev and Schwartz and Flamholtz in their stochastic model for valuation of human resources. During this stage other models included Jaggi and Lau (1974) and Lau and Lau (1978). For further assessment of human resource measurement models, see Grove et al. (1977), who attempted to clarify and evaluate the various methodologies. In 1974, the first edition of Flamholtz’s book Human Resource Accounting (Flamholtz, 1974, 1985, 1999) was published, presenting the state-of-the-art of HRA.

Stage IV: Declining interest in HRA The fourth stage in the evolution of HRA from 1977 to 1980 was characterized by a decreased interest in HRA. Although it waned, interest in HRA did not completely die, and some worthwhile activity took place. For example, Ansari and Flamholtz (1978) suggested that the development of management science facilitated the development of HRA as a managerial tool. In the same year Oliver and Flamholtz (1978) conducted an empirical study on the perceived uncertainty of decisions, decision style, and tolerance for ambiguity and found that HRA monetary replacement cost information did make a difference in layoff decisions. One reason for declining interest in HRA was that most of the relatively easy preliminary research had been accomplished. The remaining research required to develop HRA was complex, could

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only be accomplished by a relatively few scholars, and required the cooperation of organizations willing to serve as research sites for applied research studies. Since relatively few individuals had either the skills required to do such research or the qualifications required to obtain the necessary corporate participation, few major studies were performed. Furthermore, the required research involved the application of HRA in organizations, and the cost of subsidizing such research was significant, while the benefits either were uncertain or would accrue to the field as a whole and not necessarily to the sponsoring firm. It was at this point that HRA seemed to have been an idea that was promising but that would not be developed much further. Significant trends in the environment changed that within a few years.

Stage V: Resurgence of interest in HRA Stage five, the current stage of HRA development dates from 1981. It has involved the beginnings of a resurgence of interest in HRA as well as some (albeit relatively few) practical applications. The first sparks of renewal occurred during 1980, and since that time there have been an increasing number of significant new research studies dealing with the development and application of HRA as well as an increasing number of attempts to apply HRA based on the theory. There has been considerable interaction between theory and application. For example, the US Office of Naval Research (ONR) sponsored research dealing with the feasibility of applying HRA to the navy. Flamholtz’s resultant study involved the development and application of a model for measuring the replacement costs of civilian industrial engineers. This was the first project of significant scope by a major institution in either the public or the private sector (Flamholtz and Geis, 1984; Flamholtz, 1999). Around this time there was also growing recognition that most of the world’s advanced economies had made a gradual yet fundamental transformation in shifting from industrial economies in which plant and equipment are the core assets, to post-industrial economies in which human capital and intellectual property are the core assets. The potential success of an organization now lies in its intellectual capabilities rather than in its physical assets. Accordingly, organizations must pay attention to the development and deployment of intellectual capital, or the sum of human capital and intellectual property.

While long-dominant companies such as US Steel and General Motors have declined, new companies such as Microsoft, Intel and Amgen have emerged as the hallmark of the new era. The make-up of the Standard and Poors 500 index has significantly changed, away from manufacturing toward technology companies, which rely more heavily on their human resources than industrial firms. Unfortunately, accounting has not responded to this change in circumstances – and it is likely that investors have paid a price due to lack of information about managerial and human capital. As a result, measurement tools cause anomalies. Accounting today is still based on an industrial paradigm in which only physical and tangible property is considered an asset. But organizations now need systems that continually assess and re-assess the people they employ, including their skills, talents and behavioral attributes, while paying attention to how human resources impact the bottom line. One accounting tool that is relevant to the measurement and, in turn, the management of intellectual capital, specifically human capital, is HRA.

Organizational applications of HRA A number of organizational applications of HRA concepts and models have arisen during the fifth phase in response to the earlier academic work. Some examples of these applications and research include the following (Flamholtz, 1999). A US bank with more than $20 billion in assets applied HRA to measure the replacement cost of tellers and management trainees to resolve an internal debate over their true cost. Another example is that a major US financial institution sponsored a project to measure the value of human assets acquired in a corporate purchase in order to determine the amortization of human capital for corporate income tax purposes. A third example is a major US aerospace firm that sponsored a study using HRA to measure the value of executive time saved when corporate aircraft were used in place of commercial aircraft. A fourth example is that a $450 million industrial component distributor was experiencing a high rate of employee turnover but the human resource manager could not get the CEO’s attention until HRA methods were used to quantify the cost of the turnover. A fifth application is that a major Canadian industrial company has established a project to account for human resources in order to assess costs and benefits of layoff decisions. A sixth

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application is that an international certified public accounting firm has initiated a project to develop an operational system of accounting for the cost and value of its human resources. From the examples cited above, it is clear that there has been an interaction of the evolution of management practice with HRA’s intellectual history. Major institutions have chosen to develop and/or apply HRA in response to a solid research foundation that was established through work on small firms. In the initial periods of development of HRA the major studies involved relatively small, entrepreneurial firms. By 1980, scholars had documented their research findings, and managers of well established firms had begun to adopt HRA practice in response to the academic findings. This historical record runs counter to the beliefs of many critics of business school research, who sometimes have complained that research tends to be unrelated to practice.

Recent Swedish-based developments In addition to the research cited above, another major catalyst to the resurgence of interest in human resource accounting was research conducted at Stockholm University by members of the faculty of the Personnel Economics Institute, including Jan-Erik Grojer, Ulf Johansson, and Brigitta Olsson. This ‘‘Stockholm school’’ of human resource accounting has led to a critical mass of scholars who are concerned about the development of the field. Contributions by this group have ranged from a monograph authored by Grojer and Johanson (1991) entitled ‘‘Human resource costing and accounting’’ to an empirical study by Bo Hansson of the relevance of HRA information in investment decisions, using data from the Swedish stock exchange. Hansson (1997) presented evidence that supports the hypothesis that HRA information is critical for increased accuracy in investment-related decisions, especially in knowledge-intensive organizations. As in the USA, in Sweden there has been interaction between academic research and practice in industry. The Skandia Group, an international corporation that offers insurance and financial services, has experimented with HRA. Leif Edvinsson, vice-president and corporate director of Intellectual Capital and Skandia Future Centres, has taken a major role in Skandia’s initiatives to develop its intellectual capital and become the field’s model for human and intellectual capital asset management.

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Under the direction of Edvinsson, the Assurance and Financial Services Division (AFS), Skandia’s fastest growing division accounting for 60 per cent of its gross volume, pioneered the field of knowledge management by creating the first intellectual capital supplement to a corporate annual report in 1991. Designed to reflect the value of intellectual capital within the organization, it measured the impact that human capital has on shareholder-owned structural capital, and gauged how intellectual assets had been leveraged over the preceding year. Edvinsson argues that it is more important for companies to measure the relative value of intellectual capital from one year to the next than to arrive at a grand total of their intellectual and human assets. The Skandia Navigator concept, which resulted from the work conducted by AFS, has since been applied to other divisions in Skandia and further developed into a general model that assists Skandia in measuring its intellectual capital. The Skandia Navigator, designed to provide a balanced picture of the financial and intellectual capital within an organization, consists of four intellectual capital focus areas: 1 customer focus; 2 process focus; 3 the human focus; and 4 the renewal and development focus. In dividing intellectual capital using such broad categories, intellectual capital has a greater potential of being transformed into financial capital because the relationships among the focus areas themselves can serve as lead indicators. In addition to providing a general overview of intellectual capital, the Skandia Navigator provides a management process with which to develop and predict the future value of this capital. Skandia’s leaders hope to foster a sense of worth and value in the corporate culture by encouraging constant improvement on the part of its employees. By supporting this development, Skandia is in a prime position to become a strong global leader in the efforts focused on human assets and intellectual capital management.

Conclusions and future implications The history of HRA illustrates how intellectual conceptualization and empirical testing in academic settings can serve industry’s practical needs. It has been in the fifth phase of the development of HRA that large firms have begun to adopt HRA techniques. After a 30-year history of

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intellectual development, firms are initiating new projects involving the application of HRA. Accountants, lawyers, corporate acquisition specialists, and company management, including human resource professionals, are applying HRA. Now that firms have begun to apply HRA, its development might be expected to proceed at an increasing rate. At the same time, study needs to be undertaken on how HRA technology can be adapted and extended to the measure of various types of intellectual property. In addition to improving internal managerial decisions such as in layoffs, implementation of HRA will lead to better overall firm valuation techniques and better decision making in buy-sell-merge transactions.

References Acland, D. (1976), ‘‘The effects of behavioral indicators on investor decisions: an exploratory study’’, Accounting, Organizations and Society, Vol. 1, August, pp. 133-42. Ansari, S.L. and Flamholtz, D.T. (1978), ‘‘Management science and the development of human resource accounting’’, The Accounting Historian’s Journal, Fall, pp. 11-35. Brummet, R.L., Flamholtz, E.G. and Pyle, W.C. (1968a), ‘‘Human resource measurement: a challenge for accountants’’, Accounting Review, April, pp. 217-24. Brummet, R.L., Flamholtz, E.G. and Pyle, W.C. (1968b), ‘‘Accounting for human resources’’, Michigan Business Review, March, pp. 20-5. Brummet, R.L., Flamholtz, E.G. and Pyle, W.C. (1969), ‘‘Human resource accounting: a tool to increase managerial effectiveness’’, Management Accounting, August, pp. 12-15. Elias, N. (1972), ‘‘The effects of human assets statements on the investment decisions: an experiment’’, Empirical Research in Accounting: Selected Studies, pp. 215-33. Flamholtz, E. (1969), ‘‘The theory and measurement of an individual’s value to an organization’’ PhD dissertation, University of Michigan, Ann Arbor, MI. Flamholtz, E. (1971), ‘‘A model for human resource valuation: a stochastic process with service rewards’’, The Accounting Review, April, pp. 253-67. Flamholtz, E. (1972), ‘‘Assessing the validity of a theory of human resource value: a field study’’, Empirical Research in Accounting: Selected Studies, pp. 241-66. Flamholtz, E. (1974), Human Resource Accounting, Dickenson Publishing, Encino, CA. Flamholtz, E. (1976), ‘‘The impact of human resource valuation on management decisions: a laboratory experiment’’, Accounting, Organizations and Society, Vol. 1, August, pp. 153-65.

Flamholtz, E. (1979), ‘‘Towards a psycho-technical systems paradigm of organizational measurement’’, Decision Sciences, January, pp. 71-84. Flamholtz, E. (1980), ‘‘The process of measurement in managerial accounting: a psycho-technical systems perspective’’, Accounting, Organizations and Society, Vol. 5, August, pp. 31-42. Flamholtz, E. (1985), Human Resource Accounting, Jossey-Bass Publishers, San Francisco, CA. Flamholtz, E. (1999), Human Resource Accounting, Kluwer Academic Publishers, Boston, MA. Flamholtz, E. and Geis, G. (1984), ‘‘The development and implementation of a replacement cost model for measuring human capital: a field study’’, Personnel Review (UK), Vol. 13 No. 2, pp. 25-35. Gambling, T.E. (1974), ‘‘A system dynamic approach to HRA’’, The Accounting Review, July, pp. 538-46. Grojer, J.E. and Johanson, U. (1991), Human Resource Costing and Accounting, Joint Industrial Safety Council, Stockholm. Grove, H.T., Mock, J. and Ehrenreich, K. (1977), ‘‘A review of HRA measurement systems from a measurement theory perspective’’, Accounting Organizations and Society, Vol. 2, December, pp. 219-36. Hansson, B. (1997), ‘‘Personnel investments and abnormal return: knowledge-based firms and human resource accounting’’, The Journal of Human Resource Costing and Accounting, Vol. 2 No. 2, pp. 9-29. Harrell, A.M. and Klick, H.D. (1980), ‘‘Comparing the impact of monetary and non-monetary human asset measures on executive decision making’’, Accounting, Organizations and Society, Vol. 5, December, pp. 393-400. Hendricks. J. (1976), ‘‘The impact of human resource accounting information on stock investment decisions: an empirical study’’, The Accounting Review, April, pp. 292-305. Hermanson. R.H. (1964), ‘‘Accounting for human assets’’, Occasional Paper No. 14, Bureau of Business and Economic Research, Michigan State University, East Lansing, MI. Hermanson. R.H. (1986), ‘‘Accounting for human assets’’, Research Monograph No. 99, Business Publishing Division, College of Business Administration, Georgia State University, Atlanta, GA (originally published in 1964 by Michigan State University). Jaggi, B., and Lau, S. (1974), ‘‘Toward a model for human resource valuation’’, The Accounting Review, April, pp. 321-9. Lau, A.H. and Lau, H. (1978), ‘‘Some proposed approaches for writing off capitalized human resource assets’’, Journal of Accounting Research, Spring, pp. 80-102. Lev, B. and Schwartz, A. (1971), ‘‘On the use of the economic concept of human capital in financial statements’’, The Accounting Review, January, pp. 103-12.

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Likert, R.M. (1961), New Patterns of Management, McGraw-Hill Book Co., New York, NY. Likert, R.M. (1967), The Human Organization: Its Management and Value, McGraw-Hill Book Co., New York, NY. Likert, R.M. and Bowers, D.G. (1973), ‘‘Improving the accurancy of P/L reports by estimating the changes in dollar value of the human organization’’, Michigan Business Review, Vol. 25, March, pp. 15-24. Lombardi, M. and Flamholtz, E.G. (1979), ‘‘The impact of human resource accounting measurement on personnel budgeting decisions: a psycho-technical system approach’’, Proceedings of the American Accounting Association Annual Meeting, Honolulu, HI, pp. 295-334. Macy, B.A. and Mirvis, P.H. (1976), ‘‘A methodology for assessment of quality of work life and organizational effectiveness in behavioral-economic terms’’, Administrative Science Quarterly, Vol. 21, June, pp. 212-26. Mirvis, P.H. and Macy, B.A. (1976), ‘‘Accounting for the costs and benefits of human resource development programs: an interdisciplinary approach’’, Accounting, Organizations and Society, Vol. 1, August, p. 181. Morse, W.J. (1973), ‘‘A note on the relationship between human assets and human capital’’, The Accounting Review, July, pp. 589-93. Myers, M.S. and Flowers, ?. (1974), ‘‘A framework for measuring human assets’’, California Management Review, Vol. 16, Summer, pp. 5-16. Odiorne, G.S. (1963), Personal Policy: Issues and Practice, Merrill, Columbus, OH.

Ogan, P. (1976), ‘‘A human resource value model for professional service organizations’’, The Accounting Review, April, pp. 306-20. Oliver, J.B. and Flamholtz, E.G. (1978), ‘‘Human replacement cost numbers, cognitive information processing and personnel decisions: a laboratory experiment’’, Journal of Business Finance and Accounting, Summer, pp. 137-53. Paton, W. (1962), Accounting Theory, Accounting Studies Press, Chicago, IL. Sadan, S. and Auerbach, R. (1974), ‘‘A stochastic model for human resources’’, California Management Review, Summer, pp. 24-31. Schwan, E.S. (1976), ‘‘The effects of human resource accounting data on financial decisions: an empirical test’’, Accounting, Organizations and Society, Vol. 1, August, pp. 219-37. Scott, D.R. (1925), Theory Accounts, Vol. 1, Holt, Rhinehart & Winston, New York, NY. Spiceland, J.D. and Zaunbrecher, H.C. (1977), ‘‘The usefulness of human accounting in personnel selection’’, Management Accounting, February, pp. 29-30, 40. Tomassini, L.A. (1974), ‘‘Human resource accounting and managerial decision behavior: an experimental study’’, PhD dissertation, University of California, Los Angeles, CA. Zaunbrecher, H.C. (1974), ‘‘The impact of human resources accounting on the personnel selection process’’, PhD dissertation, Louisiana State University, LA.

Improving employer-employee relationships: a biblical and Talmudic perspective on human resource management Gordon Cohn Department of Business, Touro College, Brooklyn, New York, NY, USA Hershey H. Friedman Department of Economics, Brooklyn College, City University of New York, New York, NY, USA

Keywords Human resource management, Employee relations, Welfare, Capitalism, Religion

Abstract The authors demonstrate that the Bible and Talmud provide many insights as to how employers ought to manage human resources. Issues discussed include employee theft, motivation (providing an honest day’s work and providing employees with meaningful and dignified work), compensation (paying wages on time), providing benefits for employees, and ethics in negotiations.

Management Decision 40/10 [2002] 955–961 # MCB UP Limited [ISSN 0025-1747] [DOI 10.1108/00251740210452827]

Introduction Most organizations realize that principled human resource management (HRM) is good business practice and pays in the long run. To be ethical requires treating others – employees as well as customers – properly and fairly. A company that is interested in growth and profits must establish relationships with employees based on trust. Improvement of the employer-employee relationship is important to both parties for several reasons. First, employee productivity increases when employers treat their employees with more respect. Second, employees may find that increased ethical behavior on their part actually results in higher compensation. For example, many companies are involved in relationship marketing, which is the process of creating and maintaining long-term relationships with customers. Relationship marketing, which can help a company increase its profits, requires the cooperation of employees. Employees who perform their jobs conscientiously and diligently are frequently rewarded with higher wages. Noreen (1988) uses agency theory to explain how everyone’s utility can be maximized by good ethics in areas such as HRM. Agency theory suggests that dysfunctional behavior can be controlled through designing a system of rewards and punishments. However, this solution is problematic in situations where activities and their outcomes are not observable. Noreen claims that the optimal solution to this predicament occurs when the participants can be trusted to adhere to a set of ethical codes. This principle applies in the well-known prisoner’s dilemma game that is presented in Table I. The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

The highest overall payoffs (ten for each player) occur in situations in which players can all rely on each other to choose the mutually beneficial solution (C1C2). According to Noreen, given enough trials, players eventually arrive at the C1C2 solution. In his view, however, ethical HRM can lead to a beneficial solution much more quickly than learning by attempted exploitation, i.e. each player trying to achieve the payoff of 15, even though it results in a payoff of ten for the other player. He notes that one of the challenges of the organizational designer is developing systems that can help organizational members quickly achieve optimal solutions. Cultivating veneration for principled HRM could assist in such endeavors. The Bible is replete with precepts that deal with business ethics and can therefore be used as a starting-point for those interested in developing moral standards for employer-employee relationships. This paper will describe principles that can be derived from the Bible and serve as a guide to HRM. The allegories and philosophy contained in the Bible provide insights that transcend religious denomination. Even in our pluralistically directed culture, those who seek moral direction can find it from exposure to the positions of the ancient and modern sages (Reich, 1971; Marcuse, 1967; Gouldner, 1975). Furthermore the fact that many modern social sciences have sources in centuries-old religious discourses offers evidence of the traditional doctrine’s usefulness. Weber, Maslow, Freud, and Jung are a few examples of modern thinkers who utilize religious concepts. This paper draws from the Hebrew Bible (specifically the Pentateuch), Talmud, and Midrash as sources of knowledge regarding workplace attitudes. The Bible is replete with precepts that deal with business ethics. It is an appropriate source for gaining insights into this subject. The Talmud, which is the compilation of Jewish oral law, explains the

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Table I Prisoner’s dilemma payoff table

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Player 2 actions C2 D2

Workplace theft

Player 1 actions C1

D1

10, 10 15, –10

–10, 15 –5, –5

meaning behind the verses in the Bible. The Talmud consists of the Mishna and Gemara. The Mishna, originally an ancient oral tradition, was compiled and redacted about 1,800 years ago. The Gemara, consisting of commentaries and discussions of the Mishna, was put into written form about 1,500 years ago. There were academies in Israel and Babylon independently studying the Mishna. Thus, there are two versions of the Talmud: The Jerusalem Talmud, a product of the academies in Israel, and the Babylonian Talmud, a product of the academies in Babylon. The Babylonian Talmud is considerably larger than that of the Jerusalem Talmud, and it is more authoritative. The Midrash, a separate scripture, recorded the views of the Talmudic sages and is essentially devoted to the exposition of biblical verses. Thus, Jewish law is based ultimately on the Hebrew Bible by way of Talmudic exegesis (these laws were codified by scholars such as Maimonides and Rabbi Joseph Karo) and thousands of responsa (legal decisions handed down by Jewish authorities). Although the Bible was written at a time when individuals mainly lived in an agricultural society, many of its ideas can be easily extended to HRM in a modern industrial workplace. Furthermore, it serves as a basis for societal laws and norms. Moreover, welfare capitalism, the idea that corporations should protect workers from the abuses of industrialization, was partially motivated by religious beliefs (Jacoby, 1997, pp. 13-14). A significant number of firms were influenced by welfare capitalism: Jacoby notes that: By 1914, the National Civic Foundation counted twenty-five hundred firms pursuing a gamut of welfare activities, from cafeterias, gardens, and profit-sharing plans to company housing, magazines, and athletic facilities (1997, p. 13).

Of course, self-interest also played a role in welfare capitalism: companies were trying to weaken trade unions and quiet the public clamor against the concentration of so much wealth in the hands of the few. The importance of religion, however, should not be minimized.

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It is well-known that employees have more opportunity than non-employees to steal from their employers without being detected. Continual scrutiny of insiders’ activities is usually not practical. Video cameras cannot observe employee activities with the same thoroughness with which they examine customers. Furthermore, it is easy for employees to rationalize the theft of small supplies such as pens, computer disks, notebooks, etc. The Bible makes clear in various places that stealing is prohibited (e.g. Exodus 20:13; Leviticus 19:11). Few employees would rationalize that stealing office equipment is acceptable behavior. What about small office supplies? The Talmud discusses whether the theft of an object worth less than one perutah (the copper coin of the smallest denomination in Talmudic times, roughly equivalent to one penny) constitutes theft (Babylonian Talmud, Sanhedrin 57a). The strict opinion, that this constitutes theft, would prohibit employees from even taking one paper clip or one sheet of paper. The Midrash (Midrash Rabbah 31:5) claims that one major sin of the antediluvian generation involved stealing objects worth less than one perutah. An individual would come to town with a basket of lupins for sale and everyone would come and steal only one lupin (worth less than a perutah) so that the merchant had no possibility of restitution through the legal system. The Bible does allow one type of worker to partake of an employer’s product. The Bible gives a field worker the right to eat of the produce with which he works. The Bible states (Deuteronomy 23:26-7): When you come [as a worker] into your neighbor’s vineyard, you may eat as many grapes as is your desire, to your fill, but you may not put any into a receptacle. When you come into your neighbor’s standing corn, you may pluck ears with your hand, but you should not lift a sickle on your neighbor’s standing corn.

These laws ensure that a field worker has a right to eat a small amount of the crop on which he or she is working while harvesting. These laws, however, also protect the field owner from a rapacious worker who will take too much. The Bible does not allow the worker to place any of the produce into a receptacle. The Talmud makes clear that the phrase ‘‘to satisfy your hunger’’ limits the worker from gorging himself, even without placing any of the food into a container (Babylonian Talmud, Bava Metzia 87b).

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The reason for this law is obvious. Most agricultural workers were very poor and it would have been very cruel to prohibit them from eating, say, a few grapes while picking grapes. The Bible is also fair to the employer and does not give laborers carte blanche and allow them to bring home a sack of their employer’s grapes. An ethical employer, especially one in the food business, should allow workers to take a reasonable amount of food for themselves or provide employees with a subsidized cafeteria. According to the Talmud, other types of employees are definitely not allowed to take anything, no matter how small, belonging to their employers. The Talmud tells the story of the son of Rabbi Yochanan b. Mattia who once hired workers and agreed to supply them with food, without specifying the quantity or type of food. When his father heard about this, he said: My son, even if you would prepare for them a banquet as majestic as those of Solomon in his grandeur, you would not fulfill your undertaking, for, after all, they are the children of Abraham, Isaac, and Jacob (Babylonian Talmud, Bava Metzia 83a).

All employers should have the attitude that their employees are special and must be treated well. This, of course, fits in very nicely with the whole concept of welfare capitalism. There is also a very practical reason for treating employees well. Jacoby indicates that: . . . there is plenty of evidence that the practices associated with modern welfare capitalism – such as employment stability, profit sharing, single-status personnel policies, and employee involvement – are positively related to corporate performance (1997, p. 264).

Providing an honest day’s work The Bible places ethical obligations on employees. An employee is obligated to work to the best of his or her ability and not malinger. Not providing an honest day’s work is also a type of theft and would fall under the biblical prohibition against stealing. Homiletically, one sees this principle in the following Bible passages. Jacob arrived in Haran, after running away from his brother Esau, and noticed some shepherds idling around the well. He remarked to the shepherds (Genesis 29:7): Look, the day is still long; it is not yet time to bring in the cattle. Water the sheep and go on grazing.

Normally, a stranger does not question the work habits of others. This can be very

dangerous. Apparently, Jacob was surprised that these shepherds appeared not to be doing an honest day’s work. Many years later, Jacob described the kind of work he had done for Laban. Jacob told Rachel and Leah (Genesis 31:6): You know that I have served your father with all my strength.

Jacob also described to Laban the kind of work he did for him (Genesis 31: 38-41): These twenty years that I have been with you, your ewes and your she-goats have not miscarried their young, and I have not eaten the rams of your flocks. That which was torn of beasts I did not bring to you; I bore the loss of it . . . In the day, scorching heat consumed me, and the frost by night, and my sleep fled from my eyes.

Evidently, Jacob worked to the best of his abilities for Laban even though he deceived him when he substituted Leah for Rachel. An employee should work as hard as possible and do an honest day’s work. The Talmud (Babylonian Talmud, Taanith 23a) discusses the importance of employees faithfully performing their duties. A story is told of a committee of distinguished sages that went to Abba Chelkiya, an individual known for his righteousness, to ask him to pray for rain during a serious drought. Abba Chelkiya was extremely poor and was being paid for hoeing a field. He was so scrupulous about not wasting time that he ignored and did not even return the greetings of the committee. He later explained that he did not wish to waste time that was not his own. Abba could have easily rationalized that his employer would not know and would certainly not care if he took off a few minutes to talk to the committee of sages. From this story one can deduce that an employee has a responsibility to avoid personal phone calls and conversations while working. The Talmud had great respect for honest work. Laborers were exempted from the biblical obligation of standing up for elderly individuals and scholars while working (Babylonian Talmud, Kiddushin 33a). The following law, discussed in the Talmud (Babylonian Talmud, Berachos 16a), further demonstrates the importance of not wasting time that belongs to one’s employer. Laborers may recite various prayers while on top of a tree or on the top of scaffolding. The worker was not permitted to climb down the tree since it would waste time that belonged to the employer. The employer, on the other hand, was obligated to climb down the tree in order to recite the prayers with more feeling. One is obligated to perform religious obligations

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at one’s own expense, not at the expense of the employer. The Talmud does not state explicitly how to motivate employees, but Jewish law is based on the Talmud. Rabbi Joseph Karo (1488-1575), one of the codifiers of Jewish law, wrote the Shulchan Aruch, the authoritative code of law for observant Jewry. In it, he explicitly states (Shulchan Aruch, Choshen Mishpat 337: 19-20) that employees must work to the best of their abilities and should not waste time. They are not permitted to afflict themselves, starve themselves, or moonlight on a second job if this will affect their performance.

Providing employees with dignified and meaningful work The Bible also places ethical duties on employers. McGregor (1960) claimed that employers could have more success with their employees if they treated them humanely rather than mechanically. He claimed that workers’ antagonism, militant unionism, and various forms of sabotage were the result of management mistreatment. Hackman and Lawler (1971) developed the idea that workers perform better when they work on a whole task and when they see themselves as doing something meaningful. Adams (1963, 1965) claims that performance was higher when employees felt that they were being fairly compensated for their efforts. The Bible requires that employers even treat slaves humanely. The Bible (Leviticus 25:43) states regarding a freeman sold into slavery: ‘‘You shall not rule over him through rigorous labor.’’ Furthermore, his family has to be provided for (Leviticus 25:41), and his master is not permitted to make him perform debasing tasks (Leviticus 25:39). Although, strictly speaking, these laws apply to a slave, logic dictates that they should also apply to any employee. Employees, as noted above, are obligated to work to the best of their abilities and not waste time. This does not give employers the right to abuse workers. Righteous employers make sure that their employees are not overworked or asked to perform degrading tasks. Indeed, Wagschal (1990, p. 37) stresses the importance the Bible places on treating employees well. He asks: ‘‘Is an employee worse than a slave?’’ The Midrash (Sifra, Leviticus 25:39) provides examples of demeaning work which is not permitted. In biblical times, slaves often followed their masters with a chair. They also carried their master’s clothing to the bathhouse. These types of tasks are

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considered humiliating and thus one is forbidden to order one’s servant to perform these jobs. The Talmudic interpretation (Babylonian Talmud, Kiddushin 22a) of the verse (Deuteronomy 15:16), ‘‘because he fares well with you’’ is that the servant must have the same living standard as the master. In the words of the Talmud: He must be equal to you in food and drink. You should not eat refined bread and he eat coarse bread, you drink old wine and he drink new wine, you sleep on a mattress and he on straw.

The Talmud concludes that one who procures a servant acquires a master! The welfare capitalists who set up cafeterias for employees are abiding by the spirit of this law. This is especially true if there is one cafeteria for both management and labor. The egalitarianism implicit in modern human resource practices may be said to have roots in ancient Judaic law. A worker observing his boss maintaining a standard of living much higher than his own will harbor feelings of resentment. His productivity may even fall. Presumably, many management-labor conflicts have been caused by disparity between the treatment of management and labor. One can argue that the Talmud would disapprove of, for example, the widening disparities in salary due to executive compensation practices in recent years. It is also arguable that modern theories about work redesign have Talmudic roots. Hackman and Lawler (1971) proposed that work should be purposeful and have a beginning and end. The Rabbinical interpretation of the above-cited verse in Leviticus (Sifra, Leviticus 25:43) is that a master should not assign his slave work that is not purposeful. For example, the master is not permitted to tell his servant to heat up a cup when he does not need it or ask the servant to hoe the vineyard until he returns. Work has to be finite and the master is only permitted to assign work until a specific time or hoe up to a particular place. Providing meaningless work or vague and unspecific job requirements takes away a job’s meaning and is therefore not allowed. Clearly, the Bible considers it inappropriate to give an employee work that does not have a degree of intrinsic satisfaction. Such an approach is similar to Hackman and Lawler’s suggestion. Tamari (1996, pp. 87-91) makes it clear that treating employees well is an integral part of Jewish law. The Bible states over and over that one should not mistreat the orphan, widow, or stranger. Tamari makes the point that:

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. . . employees stand in relationship to their superiors in exactly the same social and psychological status as the widow and orphan.

The Bible motivates individuals and employers by making it clear that those who mistreat the helpless will be punished by God (Exodus 22:20-23; Isaiah 1:23-25; Proverbs 22:22-23) and those who help them will be blessed by God (Deuteronomy 15:7-11; Isaiah 1:17-19; Proverbs 19:17). The Talmud adds that the reward for honesty in business dealings is wealth (Babylonian Talmud, Niddah 70b).

Compensation management The Bible states (Leviticus 19:13): You shall not oppress your fellow and you shall not rob; the wages of a worker shall not remain with you overnight until morning.

This is the law that an employer must pay employees on time. Withholding payment due to workers is a violation of biblical law. The Talmud (Babylonian Talmud, Bava Metzia 111b) extends this law to all kinds of payments owed including various types of rental fees. Firms that are late in paying their landlords or suppliers have also violated this law. Many organizations violate the spirit of this law by not completing a new contract with their employees when the old contract expires or by terminating or reducing employee benefits such as health insurance, pension, etc. The importance of paying workers can be seen from the following episode related in the Talmud. Some porters hired by Rabba b. Huna were negligent and broke his cask of wine. Not only did Rabba not get restitution, but also Rab required that Rabba pay the workers. Rab felt that, since the porters were quite poor, one must sometimes go beyond the strict letter of the law. Rab, somewhat cryptically, quoted a passage from Proverbs (2:20) to demonstrate that an ethical person sometimes must do that which may not be necessary on purely legal grounds. The verse in Proverbs states: That you may go in the way of the good and keep the ways of the righteous (Babylonian Talmud, Bava Metzia 83a).

In our own time, Aaron Feuerstein, President of Malden Mills, displayed an unusually high level of ethics after his textile company burned down. Feuerstein could have taken the insurance money and not rebuild his company. Not only did he choose to rebuild, primarily in order to save the jobs of 3,000 employees, but also he paid his idled workers for 90 days and took care of their health-care

benefits for 180 days. The total cost of his generosity was about $10 million. Apparently, Mr Feuerstein chose to ‘‘keep the ways of the righteous.’’

Employee benefits The Bible requires the master/mistress to give his or her slave a severance gift known as hanakah. The Bible states (Deuteronomy 15:13-14): Do not send him away empty-handed. You shall give him a severance gift from your flocks, from your threshing floor, and from your wine cellar . . .

An ethical employer should realize that, if the Bible demands that a slave be given a severance bonus after six years of labor, it is certainly appropriate for employers to reward loyal workers who have been with a firm for numerous years.

Business ethics The negotiation between Ephron and Abraham over the Cave of Machpelah (Genesis 23) provides interesting insights into proper and improper ways to negotiate. Abraham’s wife, Sarah, had died and Abraham needed a place to bury her. Abraham was desperate for a burial plot. Ephron, knowing this, realized that he could overcharge Abraham and probably still get his asking price. Ephron, however, was also interested in posturing before his countrymen and looking generous. He said to Abraham (Genesis 23:11): No, my lord, listen to me! I have already given the field to you, and as for the cave that is in it, I have given it to you; in the sight of my countrymen, I have given it to you. Bury your dead.

Abraham certainly had the opportunity of saying to Ephron: ‘‘Thank you very much for this nice gift.’’ However, Abraham probably suspected that Ephron was only offering the land because his countrymen were watching and was not sincere in his offer. Abraham replied: If only you would listen to me! I am giving you the money for the field . . . .

Ephron said: My lord, hear me! Land worth four hundred silver shekels, between me and you what is it? Bury your dead.

Ephron, still pretending that he wanted to give away the land, slyly mentions its value. Abraham understood what Ephron really wanted and ended up paying him the grossly outrageous sum of 400 silver shekels (Jeremiah paid 17 shekels for property that

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was better, and probably larger, than the Cave of Machpelah). The Bible could simply have stated that Abraham paid Ephron 400 silver shekels for the Cave of Machpelah and left it at that. One reason why this chapter is in the Bible is possibly to teach us the proper way to negotiate. Abraham did not want to take advantage of Ephron, knowing very well that Ephron was simply posturing. Abraham desired to pay a fair price. Ephron’s behavior, on the other hand, was reprehensible. Knowing that he had the upper hand, since Abraham had a spouse to bury, he proceeded to ask for an outrageous sum. From Ephron’s conduct, the Talmud derives the principle that: . . . wicked people promise much and do not even do a little (Babylonian Talmud, Bava Metzia 87a).

Negotiations are quite common in business. In particular, there are employer-employee and buyer-seller negotiations. The story of Abraham and Ephron demonstrates the importance of being straight. Ephron comes across as a sleazy character because he promises much and then ends up overcharging for his property. Ephron was more concerned with grandstanding than in being honest and straightforward. ‘‘Hard bargaining’’ is something that is not encouraged in Jewish law, being upright and forthright is.

Employment at will The Talmud (Babylonian Talmud, Bava Metzia 75b-78a) provides many rules about hiring laborers. For instance, an employer cannot coerce employees to start working earlier than the norm or to stay later than the norm (Babylonian Talmud, Bava Metzia 83a). In general, Jewish law makes it easier for workers to retract from a verbal agreement to do a job than employers. The reason given for this is because workers cannot be treated like slaves (Shulchan Aruch, Choshen Mishpat, 333:1-3). Thus, the Talmud does not support employment at will. Even when the courts cannot do anything to protect the rights of workers, there is moral suasion based on divine authority. Thus, the Talmud discusses the case in which an employer authorizes the foreman to hire workers for four zuz per day. The foreman went and hired the workers at a rate of three zuz per day. Jewish law cannot do anything for the workers since they agreed to the lower wage; however, the workers have a right to ‘‘harbor resentment’’ against the foreman (Babylonian Talmud, Bava Metzia

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76a-76b); this is another way of saying that the foreman has acted in a very reprehensible manner. The Talmud notes that the workers can criticize the foreman for not abiding by the verse (Proverbs 3:27): ‘‘Do not withhold good from the one who needs it.’’ The Talmud thus supports ‘‘principled negotiation’’ (Fisher and Ury, 1983) and frowns on hard bargaining. Principled people have to do what is morally correct, not only what is legal. This is why the Talmud offers regulations for those who desire to follow the ‘‘way of the righteous.’’ Moreover, one unique aspect of Jewish law is that every individual is expected not only to abide by the strict letter of the law but also to go beyond it (Friedman, 1985; Kirschenbaum, 1991). The Talmud notes that the Romans destroyed Jerusalem as a divine punishment for judging strictly according to the law and not going beyond the boundary of the law (Babylonian Talmud, Bava Metzia 30b).

Conclusion Ethics in HRM is Bible ethics and should be observed as scrupulously as other laws of the Bible. Historically, the Talmudic sages considered business ethics so important that they stated that the first question an individual is asked in the next world at the final judgment is ‘‘Were you honest in your business dealings?’’ (Babylonian Talmud, Shabbos 31a). When both management and labor are primarily concerned with their own selfinterest, it is likely that both will be delayed in reaching the optimal solution that maximizes social welfare. However, when both subscribe to a mutually held higher value system, they can more quickly reach a mutually maximizing payoff. The philosophy of the Bible is an example of such a system. A simple rule of business ethics can be derived from Hillel’s philosophy (Babylonian Talmud, Avot 1:14): If I am not for myself, who will be for me? And if I only care for myself, what am I?

An organization must achieve its goals (e.g. profit) but must also care for others, especially its employees. Whether or not entrepreneurs wish to see themselves as welfare capitalists is less important than understanding that employers have a biblical obligation to help those that are weak. This is especially true for at-will workers who have no unions to protect them. Taking advantage of helpless employees is as reprehensible as taking advantage of widows, orphans, and strangers. This is a two-way street. Strong labor unions should not take advantage of

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weak firms. Employees with tenure should not slack off and find ways to minimize their productivity. It is no accident that the Hebrew word for work, avodah, is the same as the word for divine service/worship. Both employers and employees have to treat honesty in the workplace as seriously as divine service in the temple. The Avodah Institute (http:// www.avodahinstitute.com) is a Christian organization whose primary purpose is to ‘‘help leaders integrate the claims of their faith with the demands of their work.’’ The importance of God in the workplace has grown so much that Fortune magazine (2001) dedicated a cover headline to ‘‘God and business: the surprising quest for spiritual renewal in the American workplace.’’ Gunther (2001) claims that ‘‘the core principles of spirituality – the belief that all individuals have dignity, that we are all interconnected, and that a transcendent being or force defines purpose in human affairs – dovetail with contemporary management thinking about what drives great companies. These companies employ the whole person; they don’t buy a worker’s labor for eight hours a day.’’ Hillel’s version of the golden rule, ‘‘What is hateful to you, do not do to others’’ (Babylonian Talmud, Shabbos 31a), could easily be applied to organizations: Employees must treat employers fairly and employers must treat their employees equitably.

References Adams, J.S. (1963), ‘‘Toward an understanding of inequity’’, Journal of Abnormal and Social Psychology, Vol. 67, pp. 422-36.

Adams, J.S. (1965), ‘‘Inequity in social exchange’’, in Berkowitz, L. (Ed.), Advances in Experimental Social Psychology, Vol. 2, Academic Press, New York, NY, pp. 267-99. Fisher, R. and Ury, W. (1983), Getting to Yes: Negotiating Agreement without Giving in, Penguin Books, New York, NY. Friedman, H.H. (1985), ‘‘Ethical behavior in business: a hierarchical approach from the Talmud’’, Journal of Business Ethics, Vol. 4, pp. 117-29. Gouldner, A.W. (1975), ‘‘The myth of a value-free sociology’’, For Sociology: Renewal and Critique in Sociology Today, Pelican Books, Harmondsworth, pp. 3-26. Gunther, M. (2001), ‘‘God and business’’, Fortune, July 9, Vol. 144, pp. 58-80. Hackman, R. and Lawler, E.E. (1971), ‘‘Employee reactions to job characteristics’’, Journal of Applied Psychology, Vol. 55, pp. 259-86. Jacoby, S.M. (1997), Modern Manors: Welfare Capitalism since the New Deal, Princeton University Press, Princeton, NJ. Kirschenbaum, A. (1991), Equity in Jewish Law: Beyond Equity, Yeshiva University Press/ Ktav Publishing, New York, NY. McGregor, D. (1960), The Human Side of Enterprise, McGraw-Hill, New York, NY. Marcuse, H. (1967), One-Dimensional Man, Beacon Press, Boston, MA. Noreen, E. (1988), ‘‘The economics of ethics: a new perspective in agency theory’’, Accounting, Organizations, and Society, Vol. 13, pp. 359-69. Reich, C.A. (1971), The Greening of America, Bantam, New York, NY. Tamari, M. (1996), Al Chet: Sins in the Marketplace, Jason Aronson, Inc., Northvale, NJ. Wagschal, S. (1990), Torah Guide for the Businessman, Feldheim Publishers, New York, NY.

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The role of economics and industrial relations in the development of the field of personnel/human resource management Bruce E. Kaufman W.T. Beebe Institute of Personnel and Employment Relations, Department of Economics, Georgia State University, Atlanta, Georgia, USA

Keywords Economics, Employee relations, Human resource management

Abstract This paper surveys the contribution of economics and industrial relations (E/IR) to the development of the field of personnel/human resource management (P/HRM). A brief review of existing accounts of the evolution of the field reveals that they give little mention to the role of E/IR. A re-examination of the early years of P/HRM suggests, however, that this is a serious omission. It is demonstrated, for example, that E/IR was in fact the principal disciplinary base for research and teaching in P/HRM in US universities into the 1940s and that for the first two decades of the field’s existence the most influential and authoritative academic-based writers came from the ranks of economists and economics-trained IR scholars. After describing the reasons for this close relationship, The centrifugal forces that caused a gradual split between E/IR and P/ HRM are described. This split had roots in the 1920s, became increasingly visible in the 1950s and beyond, and by the late 1980s had reached a point where the two subject areas had little intellectual or organizational interaction. The paper ends with a brief review of recent developments that herald a modest rapprochement between E/IR and P/HRM.

Management Decision 40/10 [2002] 962–979 # MCB UP Limited [ISSN 0025-1747] [DOI 10.1108/00251740210452836]

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Introduction It is common today to view the field of personnel/human resource management (P/HRM) as distinct and largely unrelated to the discipline of economics and the field of industrial relations (IR). In the conventional view, P/HRM deals largely with the acquisition, development, and utilization of labor in the business enterprise – a subject often treated as largely co-terminous with the management of the employment staff function in companies. Organizationally, P/HRM has its home in business schools and management departments and, in terms of intellectual content, draws most heavily from the organizational, administrative, and behavioral sciences. Economics and industrial relations (E/IR), on the other hand, are typically viewed as quite different. Economics is seen as dealing largely with the production and distribution of goods and services in an economy, which in practice involves the study of markets, demand and supply, and the process of price determination, while the primary topics of industrial relations are trade unions and collective bargaining. Both economics and industrial relations are perceived to be a part of the social sciences and, while sometimes administratively located in business schools, are more often considered to have their intellectual and organizational roots in the liberal arts and sciences. That P/ HRM is largely orthogonal to E/IR is reflected in the dearth of economic theory and models in P/HRM textbooks (e.g. a demand/supply treatment of wage determination in the chapter on compensation), the paucity of citations in most P/HRM research articles to the economics and IR literatures, and the fact that a majority of specialized P/HRM The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

graduate programs require no economics course beyond the introductory principles level (Kaufman, 2000; Way, 1996). Personnel/human resource management and economics/industrial relations have not always been worlds apart, however. Although heretofore little recognized or commented upon, the historical record reveals that in earlier decades P/HRM and E/IR were in fact tightly linked both organizationally and intellectually. Indeed, I demonstrate in this paper that at one time: . P/HRM was considered to be a sub-field of economics and industrial relations; . research in P/HRM was seen largely as applied economics; . academics from E/IR were the most influential and nationally recognized authorities on P/HRM; and . the bulk of scholarly research on P/HRM topics was published in economics journals. After reviewing these historical roots of the P/HRM field, I briefly identify in the paper a variety of factors that caused P/HRM to slowly drift apart from E/IR in the post-World War II period. Finally, at the end of the paper I note that a modest rapprochement between P/HRM and E/IR is occurring, fueled by new intellectual developments on each side of the scholarly divide.

E/IR and personnel/HRM in the early years: the prevailing view Historical accounts of the early years of personnel management give almost no mention to the role of academics from either economics or industrial relations. The authoritative text on the history of management thought, for example, is Wren (1994). In chapter 9 on the emergence of the field of personnel management, Wren (1994) devotes five pages to the role of Frederick Taylor and the scientific

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management movement, five pages to the role of Hugo Munsterberg and the emergent field of industrial psychology, and six pages to the role of industrial sociology and human relations and the various writers/ researchers therein (e.g. Whiting Williams, Vilfredo Pareto, Elton Mayo). But he does not once mention the discipline of economics or field of industrial relations nor does he cite any scholar from E/IR as having made a contribution to the founding and early development of the field. The closest he comes is one passing reference to the ‘‘noted labor scholar John R. Commons’’ (Wren, 1994, p. 176) in a short section on employee representation plans. Likewise, in their otherwise well-done history of personnel/HRM, Dulebohn et al. (1995) divide its development into ten stages. Two of these span the years in which the personnel field germinated and was born (roughly 1890-1925). The first is stage 4, entitled ‘‘Scientific management, welfare work, and industrial psychology,’’ the second is stage 5 entitled ‘‘World War I and the emergence of the HRM profession.’’ In five pages of text, the authors never once mention the discipline of economics or field of industrial relations, nor do they acknowledge the personnel/HRM research done by labor economists and IR scholars of that era. This treatment stands in sharp contrast with the extended discussion given to the fields of scientific management and industrial psychology and their principal leaders, Frederick Taylor and Hugo Munsterberg. A third example from the personnel literature is the book The Management of Personnel Relations: History and Origins by Cyrus Ling (1965). Individual chapters are devoted to 14 sources of ‘‘contribution’’ or ‘‘influence’’ in the development of personnel management. While academic disciplines such as psychology, sociology, management, education, and industrial medicine are covered, no chapter on economics or industrial relations is included. I have also reviewed a large number of the most popular modern-day P/HRM textbooks. Several contain in the introductory chapter a section on the historical roots and evolution of the P/HRM field, but none mentions the contribution of economics or industrial relations to the development of the field. Based on these types of evidence, I think it is fair to conclude that the conventional wisdom in the history of management thought gives little or no role to E/IR in the development of the field of personnel/human resource management.

The evolution in terminology and conceptualization of the P/HRM field Before proceeding to document the extensive involvement of economists and IR scholars in the field of personnel/HRM, it is first necessary to define a few key terms and chart the evolution thereof. Doing so helps avoid confusion and controversy relative to the main thesis of the paper. Foremost among these terms is ‘‘personnel management,’’ ‘‘human resource management,’’ and ‘‘industrial relations.’’ It is widely agreed that the field of personnel/human resource management as both a subject area in university curricula and a vocational area of practice in the business world was born in North America in the late 1910s-early 1920s (Eilbert, 1959; Jacoby, 1985; Kaufman, 1993). In the beginning a plethora of names was used to describe this subject area. Names commonly encountered include employment management, labor management, personnel management, personnel administration, labor relations, industrial relations, industrial relations management, and employment relations. The term ‘‘human resource management’’ (HRM) was not used, as far as I can tell, but the more general term ‘‘human resources’’ was already employed to connote the idea that the nation’s labor input was embodied in human beings and represented a form of capital good that could be augmented through various forms of private and public investment, such as education, training, and public health programs (Commons, 1919, p. 129). During the 1920s certain of these terms gained ascendancy and others largely disappeared and, at the same time, a consensus slowly emerged about their meaning and content (Kaufman, 2001a). All of these terms somehow dealt with work, employment, and relations between employers and employees. The umbrella term used to describe the entire area of study and practice relating to employment was industrial relations. Industrial relations was viewed as an interdisciplinary field, and thus included economics but was broader than it. IR subsumed all aspects of work, included problems and issues affecting both employers and employees, dealt with the practices of both employer and worker organizations, and covered all employment relationships regardless of union status (Social Science Research Council, 1928; Hicks, 1941). Industrial relations, in turn, was widely regarded as having two major subdivisions within it. The first dealt with the

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management of labor, the second with collective bargaining and methods of workforce governance (Russell Sage Foundation, 1919). Terminology converged relatively quickly with respect to the former and by the mid-1920s most writers used the labels personnel management or personnel administration (e.g. Tead and Metcalf, 1920; Scott and Clothier, 1923). As the name implies, personnel management approaches the study of work and employment from the employer’s perspective. It focuses on the goals of employers, the practices employers use to attract, retain, motivate, and develop the labor input of workers, tends to see workers as a means to an end (e.g. to achieve greater profit, organizational effectiveness), and emphasizes individual relations and modes of dealing between employers and employees. A consensus term for the latter area of industrial relations took longer to develop, but by the mid-1930s labor relations had become common (e.g. Watkins and Dodd, 1938). As envisioned at the time, labor relations approaches the subject of work and employment from the employee’s perspective. The emphasis is on the goals and needs of workers, examines the problems and issues they face in the work world, explains why individual workers may be at a power disadvantage vis-a`-vis the employer, and tends to emphasize and advocate collective forms of dealing between workers and employers through trade unions. The term ‘‘industrial relations’’ was thus broadly construed and was generally seen as subsuming ‘‘personnel management’’ within it. At the famous non-union Hawthorne plant of the Western-Electric Co. (the site of the Hawthorne experiments by Elton Mayo and colleagues), for example, the title of the person in charge of the corporate employment function was ‘‘Vice president of industrial relations’’ and, likewise, scattered across several dozen cities were local organizations of personnel managers called ‘‘industrial relations associations’’ – e.g. the Industrial Relations Association of Chicago (Personnel, August, 1940). The meanings and boundaries of these terms remained largely unchanged up to the early 1960s. Indicative is the following passage, quoted verbatim from the 1958 edition of the Handbook of Personnel Management and Labor Relations, written by three prominent scholars and one practitioner (Yoder et al., 1958). They state: In current practice, careful usage employs the terms personnel management or personnel administration to refer to the management of manpower within a plant or agency, and the

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terms emphasize employer relations with individual employees, in such activities as selection, rating, promotion, transfer, etc. In contrast, the term labor relations is generally used to describe employer relations with groups of employees, especially collective bargaining – contract negotiation and administration. Industrial relations, or employment relations, in recent years, has come to be used as the broadest of these terms, including the areas of both personnel management and labor relations. ‘‘Industrial relations’’ or ‘‘employment relations’’ thus describes all types of activities designed to secure the efficient cooperation of manpower resources (Yoder et al., 1958, pp. 1-22).

What was standard terminology in 1960 is no longer so today, however. Over the ensuing four decades the labels attached to these various fields and sub-fields have taken on new meanings and new labels have appeared and old ones threaten to disappear. One notable trend is the replacement of the old term ‘‘personnel management’’ with the new one ‘‘human resource management.’’ The terms ‘‘human resources’’ and ‘‘management of human resources’’ can be found scattered in various writings prior to the 1960s (e.g. Drucker, 1954) but they never achieved widespread currency nor were used as a substitute term to describe the field of personnel management (Marciano, 1995). According to Strauss (2001), the human resource term was first used in this substitute sense in the mainstream literature in 1964 when Charles Myers, Paul Pigors, and F. Malm renamed their personnel readings text to Management of Human Resources: Readings in Personnel Administration (Myers et al., 1964) and, in the same year, Wendell French published the first edition of his text The Personnel Management Process: Human Resources Administration (French, 1964). Their inspiration for using the HR term came from two identifiable sources. The first is a published lecture (cited by French, 1964, p. 5) given in 1958 by economist E. Wight Bakke titled ‘‘The human resources function’’ (Bakke, 1958) In it Bakke (1958) clearly defines the HRM function in terms of the management of people in organizations and articulates many of the main themes of contemporary HRM. The second, as noted by Strauss, is that Myers, Frederick Harbison, and other economists/IR scholars were doing research in the late 1950s on the role of labor as a factor in economic growth and in that context used the ‘‘human resource’’ term in various publications (e.g. Human Resources for Egyptian Enterprises, by Harbison and Ibrahim, 1958). For the next ten years or so the ‘‘personnel’’ and ‘‘human resources’’ terms were largely

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used interchangeably (as in this paper). Then, beginning in the early 1980s, sentiment started to shift rapidly in favor of the HR term. In 1989, for example, the major professional association for personnel managers changed its name from the ‘‘American Society for Personnel Administration’’ to ‘‘Society for Human Resource Management.’’ This shift was mirrored in industry where titles such as ‘‘vice president of personnel’’ and ‘‘vice president of industrial relations,’’ the most common titles through most of the 1960s, were replaced by ‘‘vice president of human resources.’’ Likewise, in the world of academe nearly all business schools by the mid-1990s had renamed their majors and courses from ‘‘personnel’’ to ’human resources management‘‘ and almost all textbooks had dropped the ‘‘personnel’’ term in favor of HRM (Strauss, 2001). Accompanying the name change was also a gradual shift in outlook about both the philosophy and the conceptualization of the field. The new outlook is well captured by Dulebohn et al. They state: The connotation of the term HRM is distinct from PM [personnel management] in the following ways. First, whereas PM implies human resources are expenses, HRM indicates an organizational emphasis on human resources as organizational assets. Second, PM signifies a group of discrete human resource administrative subfunctions and maintenance activities that are reactive, passive, and secondary to the other significant business functions. HRM, on the other hand, indicates a proactive approach, an integration of human resource subfunctions, and an enhancement and expansion of the function, position, and strategic importance of HRM within the organization (1995, p. 30).

A second major shift in terminology that occurred post-1960 was in the popular interpretation of the meaning and intellectual boundaries of ‘‘industrial relations.’’ As noted previously, through the 1950s ‘‘industrial relations’’ was typically defined very broadly to subsume ‘‘all aspects of work’’ and both union and non-union employment relationships. Over the next four decades, however, the term increasingly took on a much narrower meaning that equated it (largely) with labor relations – which is to say the study of unions and collective bargaining and the activities/ functions that go with these in the world of industry. This viewpoint was already well developed by the late 1970s, for example, per the observation of Strauss (1978, p. 535) that ‘‘collective bargaining represents industrial relations’ central core’’ and was reaffirmed

two decades later when Strauss and Whitfield observed that: Until recently academic industrial relations in most countries focused primarily (but not exclusively) on union-management relations (1998, p. 5).

To be sure industrial relations, at least in the academic world, never completely lost its broader focus (Wood, 2000) and, indeed, in recent years (per the Strauss and Whitfield (1998) quote; see also Fiorito (1997)) efforts have been made to give more attention to personnel/HRM issues and non-union employment relationships. These broadening efforts notwithstanding, outside a small fraternity of IR academics the popular interpretation of ‘‘industrial relations’’ is now firmly associated with labormanagement relations and, perhaps secondarily, issues associated with national labor policy and various workforce/ employment problems.

The contribution of economics and industrial relations A close examination of the early literature in personnel management reveals that in the academic world labor economists and industrial relations scholars were the first and most prolific group of writers on the subject. In documenting this assertion, it is useful to begin with a brief description of the origins and early years of the personnel management field.

Birth and early development of the field As noted earlier, the field of personnel management was born in the World War I period both as a management specialization in business and as an applied field of study in universities. Before 1915 the term ‘‘personnel management’’ (or ‘‘personnel administration’’ or ‘‘industrial relations management’’) was practically unknown and few firms had any form of centralized, professional personnel department or function (Jacoby, 1985; Kaufman, 1993, 2000). The initial writings on personnel management were by management consultants (then called ‘‘counselors’’) and business practitioners (see Federal Board for Vocational Education, 1920). Prominent names among the former were Robert Valentine, Ordway Tead, Meyer Bloomfield and his brother Daniel. Valentine and Tead were members of the Taylor Society, an association named after Frederick W. Taylor, the father of scientific management, and dedicated to the advancement of progressive methods of

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management, while the Bloomfields helped found the Boston Employment Managers Association in 1912 (Eilbert, 1959) – the first association in the USA dedicated to the new business specialty area of ‘‘employment management’’ (a term that preceded ‘‘personnel management’’) – and were authors of a number of articles on employment management in the business periodicals of that period. In 1918 personnel management suddenly mushroomed in popularity, due to the desperate search of employers for ways to stanch sky-high rates of employee turnover and labor unrest unleashed by the economic and political pressures associated with World War I, and quickly assumed the proportions of a management fad. Personnel also received a boost from the widely publicized success the US army had in using intelligence and aptitude tests to screen new recruits drafted for the war (Baritz, 1960). Practitioner and consultant writings on personnel management proliferated, first in general periodicals catering to business people, such as Industrial Management, and later in specialized periodicals, such as Personnel (started in 1919). Personnel management appeared in university curricula contemporaneously. The first course in personnel management (but using the earlier label of ‘‘employment management’’) was offered at the Tuck School at Dartmouth University in 1915 (Kaufman, 1993). During World War I the federal government recruited a number of universities to teach short courses in personnel management in an effort to stabilize wartime labor conditions in industry. By the early 1920s a dozen or so universities, such as Wisconsin and Columbia, had established new courses in personnel management in the curriculum and the first textbook on personnel, Personnel Administration by Ordway Tead and Henry Metcalf, appeared in 1920 (Tead was a consultant and adjunct professor of business at Columbia, Metcalf held a PhD in political science and became involved in personnel through wartime government work). By the mid-to-late 1920s the number of universities offering personnel courses had tripled and a number of competing textbooks were on the market (Bossard and Dewhurst, 1931; Brissenden, 1926).

Involvement of labor economists and IR scholars In the early years of the field writers on personnel management tended to fall into one of three groups. The first group came from the ranks of consultants and businessmen.

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Their perspective was focused heavily on technique and implementation of personnel practices, although some endeavored to place the practice of personnel in a larger social context (e.g. Lewisohn, 1926; Houser, 1927) and on occasion published articles in academic journals (Tead, 1921). The second group, of relatively modest number, was composed of industrial psychologists, such as Walter Dill Scott and C.S. Yoakum, who held academic positions but also did considerable business consulting and in some cases held executive personnel positions in industry (Ling, 1965). Their work, as elaborated later, often had a relatively narrow focus on specific personnel practices, such as employment tests. The third group of writers were economists with an interest in labor, referred to here as ‘‘labor economists’’, although the term did not come into general usage until the late 1920s (Brissenden, 1926, Kaufman, 1993). Of the three groups, the economists – who also represented by far the largest proportion of academics in industrial relations – were the most prolific writers in scholarly journals in the personnel field and employer personnel practices in the 1915-1930 period and arguably published the most comprehensive, intellectually substantive treatments on these subjects. For example, to the best of my knowledge the first in-depth, evaluative studies of the new practice of personnel management published by academic faculty in scholarly journals were by two labor economists in the year 1919. The first article, ‘‘Plant administration of labor’’ was written by Paul Douglas and published in the July 1919 issue of the Journal of Political Economy and the second, entitled ‘‘The management of labor,’’ was written by Sumner Slichter and published in the December, 1919 issue of the Journal of Political Economy. It should be noted that Douglas (1919) and Slichter (1919a) went on to establish reputations as two of the most distinguished labor economists of the inter-war period, while the journals in which they published were (and remain) among the most pre-eminent in the discipline. In these articles they examine at length the origins of the new personnel management field, the management and administrative practices utilized in personnel management, and the positive impact on profits and employee relations of the new personnel methods. The first book published by an academic devoted to the new philosophy and practice of labor management was Industrial Goodwill in 1919 by noted labor economist John R. Commons (Commons was president of the American Economics Association the previous year). Commons’ (1919) book was

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not a ‘‘how to’’ of personnel management (not much ‘‘how to’’ knowledge yet existed) but rather an extended discussion of a new conceptualization of treating labor in which industrial autocracy and ‘‘drive’’ methods of management are replaced with more participative and cooperative methods. The Bulletin of the Taylor Society (1919, No. 5:5) described Commons’ book as ‘‘in a class of its own’’ on the subject of industrial relations management (Kaufman, 1998). The opening part of the book describes the traditional ‘‘commodity’’ approach then used by most firms to the hiring and utilization of labor, and the waste and inhumanity associated with it. Commons (1919) goes on to describe a new approach to labor management, which he calls a ‘‘goodwill’’ approach where firms use positive management methods, rather than fear tactics and coercion, to obtain labor’s cooperation and commitment. Part of this new approach, according to Commons (1919), involves transferring responsibility for employment policy and practices from foremen to trained personnel professionals. He describes the personnel function in these terms: The personnel function . . . is the department that deals with every human relation within and without the establishment. It is the department of industrial goodwill . . . Raised to its proper place of equality with other departments it is the department that guides the entire establishment in the administration of justice, industrial, welfare, and service to the nation (Commons, 1919, p. 165).

Commons also broaches topics and ideas that years later became staples of writing and research in personnel management. For example, Commons (1919): . explicitly refers to employees as ‘‘human resources’’ (p. 129); . describes how the government and business sectors create these human resources through investments in education and training (p. 130); . describes the existence and importance of informal work groups and notes how these groups regulate social behavior in the shop and restrict output (pp. 18-19); . argues that increased work effort and efficiency must ultimately be obtained, not by use of drive methods and fear tactics but by positive management practices that develop mutual goodwill and a community of interest between employers and employees (pp. 24-8); . notes that employment security and fair dealing are crucial ingredients to creating

.

.

.

high levels of employee motivation (pp. 72-3, 106-7); maintains that providing some form of worker participation in management (he uses the term ‘‘voice’’) is crucial to winning employee loyalty and commitment (pp. 110-12); states that scientific application of psychology to the management and organization of work is fundamental to the success of the enterprise (p. 140); and denies that workers are motivated only by economics incentives (p. 148).

Also of note, Commons (1919) develops in the book a five-fold typology of different human resource management strategies, labeled the ‘‘commodity,’’ ‘‘machine,’’ ‘‘natural resource,’’ ‘‘goodwill,’’ and ‘‘citizenship’’ models, which in many respects anticipates efforts of management writers in the 1980s and 1990s to identify conceptually distinct HRM systems (see Wright and McMahan, 1992). Through the early 1930s economists continued to dominate academic research and writing on personnel management. Wisconsin was the center of labor research during this period and Commons and colleagues were the pre-eminent names in economics-based research on personnel subjects. The three most authoritative articles by academic scholars on the state of personnel management during this period, for example, were by economists trained at Wisconsin: 1 William Leiserson (1929); 2 Sumner Slichter (1929); and 3 Don Lescohier (1935). But a number of other economists at different universities were also active in personnel research, including Joseph Willets and Anna Bezanson at the Wharton School’s Industrial Research Unit (established in 1921), J. Douglas Brown at Princeton’s Industrial Relations Section (established in 1922), and Paul Douglas at the University of Chicago (Industrial Research Unit, 1989; Industrial Relations Section, 1986; Kaufman, 1993). Not only were economists at the forefront of academic research in the personnel management field at this time, economics journals were the major vehicle through which leading personnel research was published – by both economists and noneconomists (e.g. Tead (1921) and Kornhauser (1923) in the list below). In the late 1910s and early 1920s, for example, mainline economics journals (AER, JPE, QJE) carried articles on personnel topics such as the following: . labor turnover (Douglas, 1918; Eberle, 1919; Slichter, 1920a);

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.

. . .

.

.

.

.

.

. .

.

.

securing the initiative of the workmen (Wolf, F., 1919); absenteeism (Frankel, 1921); industrial morale (Slichter, 1920b); constructing psychological employment tests (Kornhauser, 1923); the personnel policies of the A. Nash Company (Atkins, 1922); shop committees (Tead and Valentine, 1917; Douglas, 1921; Seager, 1923); graduate training in personnel administration (Tead, 1921); profit-sharing and bonus plans (Wolf, R., 1919; Ford, 1920); participative management (Hotchkiss, 1920); incentives and output (Marshall, 1920); scientific methods of job analysis (Kitson, 1921); scientific management and labor welfare (Hoxie, 1916); and promotion from without (Bezanson, 1922).

Two pieces of additional evidence on the leading role of economists can be gleaned from the massive 365-page bibliography of literature in personnel management, by Rossi and Rossi (1925). Of all the authors cited there, economist John R. Commons had citations to more separate studies than any other person – in fact, twice as many as the next leading contender (Ordway Tead). Likewise, at the beginning of the book they provide 342 citations to ‘‘general’’ works in personnel management (as opposed to articles and books on specialized personnel subjects, such as training, safety, etc.). Thirty-five of these citations were to articles in academic journals and the greatest number of these were in economics journals (13). The second and third contenders were, respectively, the Annals of the American Academy of Political and Social Science (eight) and the American Journal of Sociology (six). The Journal of Applied Psychology, now a mainstay of theoretical and empirical research in personnel/HRM, had zero articles cited and the Journal of Personnel Research (a publication of the Personnel Research Federation, a non-profit research organization with an orientation toward industrial psychology) had one. Finally, note must be made of two other indices of involvement in personnel management. The first is authorship of textbooks used to teach personnel management. During the 1920s, students could take coursework in personnel management in two different venues – a ‘‘labor problems’’ course offered by an economics department and a personnel administration course offered in a school of business. The large majority of enrollments were in the former (Bossard and

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Dewhurst, 1931, p. 290), where approximately one-fourth to one-third of the course was devoted to personnel management (the remainder being devoted to a description of labor problems and the subjects of trade unionism and labor law and social insurance). The authors of the labor problems textbooks were in nearly all cases academic economists and some, like Gordon Watkins, were specialists in personnel administration (see Watkins (1922)). It is worth noting that persons trained in economics departments continued to author bestselling personnel management texts up until the late-1960s. Examples include Dale Yoder, Charles Myers, and George Strauss. The second index of involvement is participation in personnel professional associations and meetings. Economist Joseph Willets of the Wharton School, for example, was an officer and frequent speaker in the Employment Managers Association (EMA), while John R. Commons gave a number of addresses to national and local meetings of the Industrial Relations Association of America – the successor group to the EMA and a predecessor group to the American Management Association. Indicative of Commons’ stature as a pre-eminent expert on personnel management is the fact that the editors of the journal Personnel (May-June 1921 issue) solicited the opinions of 30 of the nation’s leading figures on the future of personnel work in industry. Of the two academics so asked, Commons was one; L.C. Marshall, dean of the University of Chicago’s business school, was the other.

Reasons for economists’ involvement in personnel management A variety of factors account for the active role played by economists and economic journals in the early years of the personnel management field. The two most important are described in the following subsections.

Personnel management and labor problems The central intellectual concept around which the study of labor was built in the pre-World War II period was labor problems (Kaufman, 1993). According to writers on the subject, labor problems took many forms and adversely affected employers, employees, and the broader society. Examples included: . high employee turnover; . low work effort; . poverty-level wages; . excessive work hours; and . arbitrary and often autocratic management methods.

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Labor problems, it was thought, grow out of various imperfections, shortcomings, and maladjustments in workplace organization, labor markets, management methods, and statute and common law. The purpose of academic research on labor was to identify both the causes of these labor problems and the methods, practices, and policies needed to resolve or ameliorate them. Most often the study of labor problems, and their resolution, was seen at that time as the province of the interdisciplinary field of industrial relations (Leiserson, 1929; Kaufman, 1993). By the early 1920s a consensus had emerged that the solution to labor problems fell into three separate categories. These were typically labeled the employers’, the workers’, and the community’s solutions to labor problems (Estey, 1928; Watkins and Dodd, 1940). The employers’ solution was personnel management and associated practices (e.g. human relations, a non-union form of employee representation or ‘‘industrial democracy’’), the workers’ solution was trade unionism and collective bargaining, and the community’s solution was social insurance and protective labor law. Scholars who specialized in the study of labor at this time were thus expected to be knowledgeable about three distinct specialty areas, one having to do with unions and collective bargaining, a second having to do with personnel management, and a third having to do with government law and regulation of employment conditions – all of which fell within the corpus of industrial relations. And who were these scholars of labor problems/industrial relations? Given the interdisciplinary character of labor problems, they could have come from a variety of fields, including sociology, history, political science, management, and law. But, in actuality, the great majority were economists. Of the three solutions to labor problems, the first one treated in a systematic, thorough-going way was the workers’ solution of trade unionism and collective bargaining (Kaufman, 1998). This line of investigation commenced in earnest with the publication of economist Richard T. Ely’s (1886) book The Labor Movement in America and was carried forward by a large number of other economists, such as Robert Hoxie, George Barnett, and Jacob Hollander, after the turn of the century. But by popular agreement the single most influential academic person in this area of industrial relations scholarship was economist John R. Commons. Commons was Ely’s student, was brought to Wisconsin by Ely in 1904, and

proceeded to turn out two decades of research on trade unionism and collective bargaining that was widely acclaimed then – and remains so acclaimed now – as the leading work on the subject. Examples include his Documentary History of American Industrial Society (Commons, 1910), Labor and Administration (Commons, 1913), and History of Labor in the United States (Commons, 1918). The community’s solution to labor problems was the second in chronological order to receive attention, albeit with recognition that several important ideas had been surfaced earlier in the nineteenth century by Henry Carter Adams and Sidney and Beatrice Webb. But sustained research and debate on labor law per se did not really begin until the founding of the American Association for Labor Legislation (AALL) in 1906. Ely, Commons, John Andrews (also from Wisconsin) and economist Henry Seager from Columbia all took a leading role in the creation of the AALL, and Commons went on to become the nation’s leading academic expert on workmen’s compensation, industrial safety, unemployment insurance, and the administration of labor law. Likewise, Commons and Andrews’ labor law text (1916), Principles of Labor Legislation, revised through four editions, was to remain the leading work of its kind through the mid-1930s. Last in chronological order with respect to sustained scholarly research was the employers’ solution to labor problems. This branch of research did not really begin in earnest until the last half of the 1910s, although important antecedent work was done by Frederick W. Taylor in his early writings on scientific management (e.g. his first published paper was entitled, ‘‘A piecerate system, being a partial solution to the labor problem’’ (Taylor, 1895)). But among academic scholars it was again the economists who first wrote extensively on the employers’ solution of personnel management, and again the leading role was played by Commons and colleagues from Wisconsin. Commons’ interest in personnel management developed during 1913-1915 when he served as a member of the seven-person presidential-appointed Commission on Industrial Relations. Its mission was to identify the causes of labor unrest and other labor problems and recommend remedies and solutions. It was here that Commons was first introduced to new management ideas and methods, such as through visits with Frederick Taylor to

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plants that had recently installed scientific management and through testimony of John D. Rockefeller Jr and William Lyon Mackenzie King on the new employee representation plan (the ‘‘Rockefeller plan’’) at the Colorado Fuel & Iron Co. Commons came to realize that improved methods of management and personnel administration were yet another valuable approach to solving labor problems and improving industrial relations. This insight led to his book Industrial Goodwill (Commons, 1919) and a second book, Industrial Government (Commons, 1921). The latter is a series of case studies of ‘‘best practice’’ employment practices and labor relations policies at over two dozen companies. Not only did the Commission on Industrial Relations stimulate Commons’s interest in personnel management, it also introduced other, younger economists to the subject and kindled their interest in it. The Commission sponsored numerous research reports on aspects of labor problems and Commons enlisted students and colleagues to work on them – a cadre of talent that in the next decade became many of the leading academic experts on personnel management (Kaufman, 1993). Of greatest influence was Robert Hoxie’s report and subsequent book (Hoxie, 1915) on the impact of scientific management on labor. Although Taylor’s theory of scientific management made little reference to personnel management per se (indeed, the term was barely known when Hoxie wrote on Taylor’s system), Taylor’s ideas regarding piece-rate systems of compensation, functional forms of foremanship, and time and motion study nonetheless drew attention to the potential role new methods of management could play in resolving labor problems. The Commission’s work also drew attention to other labor problems that had heretofore gone largely unrecognized among academics. Principal among these was the astoundingly high rate of labor turnover in US industry (often 200-300 per cent annually). Two of Commons’ students – Sumner Slichter and William Leiserson-investigated the causes of and solutions to labor turnover in reports for the Commission, work which was later published (Leiserson, 1915; Slichter, 1919b) and helped launch their careers as experts on personnel management. Labor turnover was also the subject of early works by Don Lescohier and Paul Douglas, the other two stand-out names among economists in the area of personnel management (Lescohier, 1919; Douglas, 1918). The concept of labor problems and the interdisciplinary field of industrial relations thus provided the entre´e for the extensive

involvement of economists in the study of personnel management. In part, these economists were attracted to the study of labor problems because they were repelled by existing conditions of employment in US industry and saw the study of labor (including personnel management) as a way to promote reform (Eisner, 1967; Douglas, 1972). These scholars were also attracted to the study of labor problems for intellectual reasons. Their training was in economics and the subject-matter of economics, as defined by the leading authorities of the period, was the production and distribution of wealth through alternative social institutions (Hadley, 1897; Carver, 1921). Labor problems were thus within the domain of economics since they impact the processes and outcomes of both production and distribution, while personnel management was similarly relevant because it is the method used in one particular economic institution – the business firm – to acquire and utilize the factor input labor for purposes of wealth creation.

Business subjects as applied economics in universities The extensive involvement economists had in the formative years of personnel management arose from a second factor as well. This factor was the undeveloped state of management and the behavioral sciences (psychology, sociology, anthropology) in business school curricula and the predominant role played by economics as the foundational discipline for business subjects. Prior to the mid-1910s, only a handful of universities had established some form of independent, free-standing business school, most often called a school of commerce (Bossard and Dewhurst, 1931). Indeed, at the time there was strong sentiment that it was inappropriate for universities to offer specialized degree programs in business, reflecting both a belief that business subjects were entirely vocational and lacked intellectual content and the inability of proponents of business education to define a coherent body of knowledge and well-ordered curriculum. Illustrative is the caustic comment of one critic (quoted in Daniel, 1998, p. 48) that business programs were little more than ‘‘glorified schools of typing and secretarial science.’’ Many of the same events and pressures that led to the birth and development of personnel management also led to a dramatic expansion in demand for training in all branches of business. The intellectual shortcomings of business administration had not been resolved, but the strong market

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demand for college-educated business professionals overcame the qualms of many university administrators and a host of new programs were established. In 1911, for example, 20 universities had a business program but by 1918 this number had more than tripled to 65 and by 1922 doubled again to 147 (Daniel, 1998, p. 71). Up until the 1930s economics served as the principal intellectual discipline around which business curricula were built. Bossard and Dewhurst, for example, state in their comprehensive review of business education that: The collegiate school of business is an outgrowth largely of the subject of economics. In the building of business curricula, the general assumption has been that economics is, in a peculiar sense, the foundation or basic subject to be studied (1931, p. 325).

Not only was economics the foundational discipline, most business faculty in this time period were trained as economists – per the comment of Winn that: Faculties of schools of business were drawn from a wide variety of academic backgrounds – the classics, mathematics, sociology, psychology, law and economics. The majority, however, held advanced degrees in economics (1964, p. 13).

And, finally, courses in functional areas of business, such as finance, accounting, marketing, and personnel management, were typically viewed as offerings in ‘‘applied economics.’’ Writing in the mid-1920s, for example, Brissenden (1926, p. 443) refers to personnel administration as ‘‘applied labor economics’’ and, looking back on the period, Daniel states that: Business studies had from the first often been referred to as a branch of ‘‘applied economics’’ (1998, p. 97).

This fact helps make sense, for example, of the decision of the editor of the Journal of Political Economy to publish Ordway Tead’s full-length article in the May 1921 issue entitled ‘‘The problem of graduate training in personnel administration.’’ The foundational role economics played in business education during this time period reflected both the expansive definition given to the study of economics and the underdeveloped state of rival disciplines and fields of study. As previously indicated, economics during this period was typically defined as a science concerned with scarcity of material wealth and how man overcomes scarcity through the processes of production and distribution. While markets were portrayed as one institutional device through which production and distribution take place, much greater emphasis than today was

also given to the complementary role of firms – illustrated by the large number of chapters in a standard principles of economics text devoted to the structure, operation, and management of business firms (Carver, 1921). Likewise, economists often treated economics as co-terminous with the study of business – per Arthur Hadley’s (1897, p. iii) opening declaration in his economics text that its purpose is to ‘‘attempt to apply the methods of modern science to the problems of business,’’ while the process of ‘‘economizing’’ was likewise frequently equated to careful management of resources (Carver, 1921, p. 5). It was thus relatively natural at this time to see economics as the foundation discipline for business administration, since wealth creation and ‘‘economizing’’ behavior were viewed as generic processes relevant to all forms of economic organization, a perspective that tended to get lost in the post-World War II period with the ascendancy of neoclassical economics and its emphasis on price, equilibrium, and market exchange. As noted, business subjects such as personnel management were often portrayed as topics in ‘‘applied economics.’’ At the School of Commerce at the University of Wisconsin, for example, students in the late 1920s were required to take the following business courses: business letter writing, elements of accounting, business management, marketing methods, business statistics, commercial law, and transportation and public utilities. All had an ‘‘economics’’ designation (University of Wisconsin, 1928). The intellectual rationale for treating these courses as part of economics is indicated in this comment by economist Ralph Heilman (1928, p. 74), ‘‘economics is to the study of business what biology is to the study of medicine.’’ The idea is that biology and economics identify, respectively, the basic principles underlying the functioning of the human body and the commercial system which provide, in turn, a foundation for the applied tools, techniques, and practical knowledge that make up the large part of the practice of medicine and business. Economist C.O. Ruggles (1928, p. 81) thus identified economics courses in the business curriculum as the place to learn ‘‘general principles’’ and business courses as the place to acquire more vocationally oriented ‘‘tools.’’ Another way writers often made the distinction between economics and business was to identify the former as a ‘‘science’’ and the latter as an ‘‘art’’ (Sidgwick, 1901). What economists brought of unique value to the study of business subjects such as personnel management at this time

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was thus not a body of formal theory as we know it today (microeconomic theory was still in its infancy in the 1920s) but rather a broad perspective and way of thinking about the role of business firms and practices in the production and distribution of wealth. When the subject and vocation of personnel management suddenly rocketed into public view during and shortly after World War I, universities rushed to add this new subject to the curriculum. Indeed, courses in labor, retailing, and international trade were the three fastest growing segments of business education in the early 1920s (Daniel, 1998, pp. 80-1). One issue confronting universities was where to offer courses in labor. Since most had a department of economics (sometimes amalgamated with other liberal arts disciplines, such as sociology or political science), a frequent choice was to have economists teach it. The typical approach was to add a course in ‘‘labor problems’’ and to use a book on that topic, such as by Adams and Sumner (1905 and later editions), Watkins (1922), or Estey (1928). As earlier indicated, the major share of such books were devoted to unions, collective bargaining, and labor legislation and social insurance, but typically several chapters were also included on personnel management and its practice. A second approach was to offer a labor course in a business school, typically in the form of an entire course devoted to personnel management. In the personnel course, a textbook on personnel management, such as that by Tead and Metcalf (1920) or Scott and Clothier (1923), was most often used – the advantage being that they covered both a much greater breadth and depth of information on personnel subjects than the labor problems text. Choice of faculty to teach the personnel course confronted university administrators with a dilemma, however. Typically, the business schools could use either a full-time faculty member – usually a PhD labor economist – or a consultant or personnel practitioner hired on a part-time, adjunct basis. Both had their strong and weak points. The economists were long on theory and the ‘‘social’’ point of view but often only modestly acquainted with the ‘‘how tos’’ of personnel management and often disdainful of the philosophy and practice of commerce. The typical economists’ attitude and set of qualifications elicited this jaundiced comment from Tead (1921, p. 355): No thought is more appalling . . . than that its [personnel administration’s] teaching might

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some day fall into the hands of the routineer or the conventional college professor of economics equipped only with the erudition which his possession of a PhD betokens.

Another writer (Dowrie, 1928, p. 82) implored economists: . . . to come down out of the air of abstract speculation and to tie in their theories with the affairs of the world about them.

The consultants and business practitioners represented the opposite side of the coin – long on the practical and vocational aspects of personnel administration but short on theory and a broader view of the place of business in the nation’s social and political system. Most authors of personnel texts came from the ranks of consultants and practitioners and – to the dismay of the intellectually inclined members of the university faculty – they gave considerable attention to the numerous administrative minutiae of personnel administration (e.g. the proper construction of application blanks, a filing system for time cards). The result was that even in business schools personnel management earned a reputation as a particularly shallow, vocational-oriented subject – per the comment of Gordon and Howell (1959, p. 189) that: Next to the course in production, perhaps more educational sins have been committed in the name of personnel management than in any other required course in the business curriculum.

The opinion of many economists was often even more critical – per the statement of economist Paul Ellsworth (Lampman, 1993, p. 84) that ‘‘many of those courses [in the Commerce School] . . . were intellectual deserts.’’ Universities could, of course, try to finesse this staffing problem by hiring PhD faculty to teach the personnel course but from other disciplines than economics. But the choices in this time period were thin. Doctorates in business administration – and management in particular – were largely unknown prior to World War II. The other major option was to hire a person with a PhD in industrial psychology or sociology. Sociologists, however, did not become interested in employment issues in any significant degree until the 1930s and 1940s, largely as a result of the Hawthorne experiments and the writings of Elton Mayo (Mayo, 1933). Industrial psychologists, on the other hand, had been active in the personnel field since its birth and their mother discipline (psychology) had by then acquired a credible standing in the academic community. For psychologists, personnel management represented ‘‘applied

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psychology’’ for much the same reason as it represented applied economics for the economists (Kingsbury, 1923). But three factors caused the industrial psychologists to have less impact and visibility than the economists in the early years of personnel/HRM. One was that they came from a discipline clearly outside of business administration and thus issues of ‘‘fit’’ and relevance loomed larger than for economists. The second was that the research interests predominant in the 1920s in industrial psychology were, in general, relatively narrow and technique-oriented, a fact that tended to keep psychologists more on the margin of the personnel field and away from the ‘‘big issues’’ in employment (Baritz, 1960). The three big topics in preWorld War II industrial psychology, for example, were employment tests, job evaluation, and work fatigue, a focus that in the words of one participant largely kept the psychologists in a ‘‘peripheral technicians’ role’’ (Leavitt, 1961, p. 25). And, finally, psychology as a discipline was not as well developed as economics in terms of either theory or publishing outlets in well-regarded scholarly journals. Labor economists thus dominated academic-based research and writing on personnel management in the pre-World War II period not only due to their interest in labor problems, labor reform, and industrial relations but also because of the predominant role played by economics and economists in the business schools of that period (Shultz, 1959). Personnel management was, like finance, accounting, and marketing, an area of applied economics and thus one they would be expected to teach (albeit often not as their first choice) and, furthermore, on which to write as a topic of research, should their tastes and interests run in that direction. Some labor economists of the 1920s-1930s, such as Paul Douglas, later abandoned research in personnel in favor of work focused more directly on labor markets and wage determination, but others, such as Sumner Slichter and Dale Yoder, maintained a lifelong interest in personnel and contributed major research works to the field in later years of their lives.

Reasons for the separation of economics and personnel management From the mid-1930s onward a gradual separation developed between economics and personnel management, although the connection between the two remained strong

until the 1970s. Indicative of economics’ pre-eminent role even in the early post-World War II period is the title of this 1960 article by psychologist Mason Haire on the state of business education: ‘‘Business is too important to be left to economists’’ (Haire, 1960). Over the next four decades, however, economics lost its position as the disciplinary foundation for business education, a trend reflected in the sub-field of personnel/human resource management. By the late 1970s little intellectual exchange took place between labor economics and personnel/HRM, few new faculty hired to teach personnel/HRM had doctoral degrees or extensive training in economics, and few personnel topics were featured in labor economics journals. Among the many factors responsible for the separation between economics and personnel/HRM, the following four are particularly important.

Development of alternative theoretical foundations Economics was the initial disciplinary base for business education and personnel management partly because of a lack of good substitutes. But over the years substitutes appeared and chipped away at the dominant position held by economics. The first influence was engineering, under the impetus of the scientific management movement. The second was the development of the administrative and organization sciences in the 1930s and 1940s, a body of knowledge originating in the work of Henri Fayol and Max Weber and seeking to identify principles for the design and administration of the efficient hierarchical organization (see Wren, 1994). The third and most influential development was the importation of the various behavioral sciences – most particularly psychology and sociology – into management studies. The latter occurred principally through the human relations movement of the 1940s and 1950s and, in later years, through the development of organizational behavior (OB). Both subject areas stress the importance of motivation, leadership, and interpersonal and group relations to successful management (Wren, 1994). Human relations and organizational behavior provided an alternative body of theoretical constructs and research methods for teaching and research in personnel/HRM. As a result, personnel/human resource management gradually evolved from ‘‘applied economics’’ to ‘‘applied OB’’ and psychology, not economics, provided the lingua franca for scholars in the field (Strauss, 1970; Kaufman, 1999a). As this

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evolution proceeded, research and writing in personnel management became, increasingly, terra incognita to economists, while the behavioral science-trained faculty who came to dominate personnel/HRM had little familiarity with or interest in economic theory.

used in its 1920s context of ‘‘art,’’ ‘‘practice,’’ and ‘‘problem solving’’, the new economics of personnel is largely non-applied in that it remains an effort first and foremost at science-building and only secondarily intends to inform and advance the practice of personnel/HRM.

The decline of institutional economics and ascendancy of neoclassical economics

Functionalization and specialization of business education

Theoretical trends in economics also played a role in the growing split between the two fields. In the years prior to World War II, labor economists came primarily from the institutional school and the institutional perspective made these economists far more interested in, and conversant with, the literature and concerns of personnel management (Kaufman, 1993). Not only did institutional economics attempt to integrate psychology and sociology into economic theory – thus providing an intellectual bridge to the study of personnel management – but it also sought to incorporate in its theoretical corpus non-market mechanisms of resource allocation, such as management decision making in business firms. Institutional labor economists were thus interdisciplinary in training and outlook and interested in management processes and methods. Beginning in the 1940s, and accelerating in the 1960s and beyond, the institutional paradigm in labor economics was supplanted by the neoclassical paradigm. Neoclassical economics, particularly the version popularized by George Stigler and Gary Becker at the University of Chicago, largely purged psychology and sociology from economic theory, focused primarily on the operation of competitive markets, and tended to treat firms and management processes as a ‘‘black box’’ (Kaufman, 1993, 1999b). As a result, the theoretical orientation of labor economists became increasingly divorced and even antagonistic to the concerns of personnel management. The emergence and popularization of the new ‘‘economics of personnel’’ sub-field in labor economics have, in the 1990s, partially brought personnel/HRM issues back to the attention of economists, albeit with much greater emphasis in the modern-day literature on theoretical model building and econometric hypothesis testing. The modern economics of personnel literature can also be thought of as ‘‘applied economics,’’ except that ‘‘applied’’ in this case means an application of neoclassical microeconomic theory to an activity outside the core of standard economics analysis (e.g. the market determination of prices and levels of output, business fluctuations, etc.). If ‘‘applied’’ is

A third development that promoted a split between economics and personnel management was several evolutionary trends in business school education. The ‘‘problems’’ perspective on the study of labor was gradually replaced, for example, by one that emphasized labor as a functional area of management practice (Daniel, 1998) – an approach that tended to exclude economists. A second trend was a growing specialization in business school departments, curricula, and courses. In the 1920s an economics department was often the organizational home for courses in personnel, finance, and marketing, but over time these subjects were transferred to their own separate departments in business schools. Likewise, while a ‘‘generalist’’ labor economist could adequately staff and teach a single course offering in personnel in the 1920s, over time the course offerings in personnel and related subjects (e.g. human relations) expanded and became more specialized. Increasingly, therefore, business schools found it advantageous to hire faculty who had formal training and research interests in these more specialized subjects, which again tended to exclude economists. Finally, a certain tension or ‘‘ill-fit’’ had always existed between economists and business schools, due in part to the liberal arts training and social science perspective of the former and the more commercial and vocational focus of the latter, and hence both sides breathed a certain sigh of relief when they could pursue their separate interests (Mears, 1923).

Decline of the field of industrial relations A final factor of importance that contributed to the widening split between economics and personnel management was the gradual decline in the intellectual vitality of and faculty participation in the field of industrial relations (Kaufman, 1993, 1999a). As economics and management pulled apart in the postworld War II period, the interdisciplinary field of industrial relations served as an important bridge between the two for several decades (roughly 1945-1975). After World War II, several dozen universities established interdisciplinary schools and institutes of industrial relations. These programs brought

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together faculty from a diverse range of disciplines and fields related to the study of labor and the employment relationship, but labor economists tended to dominate in terms of both numbers and influence. Although economics was beginning to become more analytical and narrowly focused on markets, up through the 1950s a person could still obtain a PhD in economics and nevertheless specialize in ‘‘institutional’’ aspects of the subject related to business administration. A number of labor economists pursued this route and naturally gravitated towards teaching and research in industrial relations. Part of IR, in turn, was personnel management and through this circuitous process a number of labor economists developed a teaching and research interest in personnel. Illustrative is the fact that three of the most prominent names in personnel management in the 1950s had economics PhDs – Charles Myers, Dale Yoder, and Herbert Heneman, while several other economists (Slichter, E. Wight Bakke, Neil Chamberlain) were noted authorities on the practice of management. Perhaps the last prominent economist/IR scholar of this genre was George Strauss, who with fellow economist Leonard Sayles published a popular personnel management text in the 1960s (Strauss and Sayles, 1960) and went on to develop a noted reputation for research on human relations and organizational behavior. The interdisciplinary nature of IR provided an opportunity for labor economists not only to teach personnel courses but also to stay in contact with the latest theories and empirical research in personnel. PhD programs in industrial relations also helped provide a pool of faculty for business schools who were trained in both economics and the behavioral/organizational sciences. Beginning in the 1960s, and accelerating after the mid-1970s, however, the IR field went into a marked decline – due partly to a narrowing in IR’s intellectual boundaries from ‘‘all aspects of employment’’ to primarily trade unionism and collective bargaining and partly to the growing gap that separated the economists who dominated IR and the behavioral science-trained faculty who increasingly dominated personnel/HRM. Thus, as IR declined the two groups had even less opportunity and incentive to interact, leaving economics and personnel/HRM largely as non-competing groups in the 1980s.

Recent developments The growing estrangement between P/HRM and E/IR that developed in the 1970s and

1980s reached its peak at the end of that decade and has since shown signs of reversing course. Developments in both camps contributed to the rapprochement. In P/HRM, the most important trend was the rise and popularization of the strategic approach to human resource management. Although the importance of fitting a firm’s personnel/HRM policies and practices to the firm’s overall business strategy has been recognized since the dawn of the field (Kaufman, 2001b), this idea only gained widespread currency among academics and practitioners in the last two decades (Wright and McMahan, 1992). Various conceptualizations of strategic HRM exist in the literature, but a common denominator is that firms should structure and operate the HRM function in a manner to attain competitive advantage. The theme of competitive advantage, in turn, has helped shift the focus of P/HRM research away from (in my opinion) an excessively ‘‘micro,’’ psychological-oriented approach that had come to dominate the field (exemplified by articles in journals such as Journal of Applied Psychology on work motivation, realistic job previews, employee commitment, etc.) toward one that gives greater weight to the external economic environment and, in particular, the congruence between a firm’s human resource capabilities and organizational survival and growth. Illustrative of this interaction between strategic HRM research and the discipline of economics at the level of theory is the resource-based view of the firm (Barney, 1991), while research on HR practices and firm performance (e.g. Huselid, 1995) demonstrates the same synergy at an empirical level. Trends in economics and industrial relations have also brought about greater interest and a closer relationship with the field of P/HRM. As previously mentioned, there is now a burgeoning literature on the ‘‘economics of personnel,’’ defined broadly to be ‘‘the use of economics to understand the internal workings of the firm’’ (Lazear, 1999, p. 200). This literature has delved into many P/HRM topics to which economists formerly gave scant attention, such as intra-firm compensation practices, promotion policies, employee turnover, and work teams. In a number of cases aspects of P/HRM practice and behavior have been explained that are novel, counter-intuitive, or at odds with the conclusions in the management literature (Gunderson, 2001). Also of growing importance in economics is a new sub-field called the ‘‘economics of organization.’’ Based on concepts such as transaction cost,

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principal-agent theory, and asymmetric information, this literature delves into a variety of organizational issues that impact the study of P/HRM, such as the use of incentive compensation to align corporate and employee interests, the benefits and costs of outsourcing (‘‘make versus buy’’), and the efficiency gains from employee teams (Gibbs and Levenson, 2000). Lastly, a closer integration between industrial relations and HRM is being fostered by the growing body of research on ‘‘high performance’’ work systems and, more generally, the impact of HR/IR practices on firm performance (Delaney and Godard, 2001). Despite the proliferation of economicsbased research in recent years on personnel/ HRM topics, there remain only modest interchange and cross-fertilization of ideas between economics-trained and management-trained scholars. Most P/HRM textbooks remain heavily descriptive and largely omit reference to economic concepts and the economics-based literature. Two recent additions by E/IR scholars (Mitchell and Lewin, 1997; Baron and Kreps, 1999), however, may herald a more integrative, theoretically rigorous approach. In the research literature, pockets of interaction are visible, most notably in the area of organization theory where a substantial minority of articles in management journals now reference the work of economists (Pfeffer, 1998) and economists, on their part, cite classic and contemporary works in management (e.g. Williamson, 1985). When it comes to more functional and ‘‘micro’’ aspects of the P/HRM field, however, the economics-based and management-based research communities still continue to largely go their separate ways. The economists’ reluctance to go beyond a very simplistic psychological ‘‘model of man ’’ in their models, and the tendency of behavioralscience-trained P/HRM scholars to neglect external market forces and rationalistic comparisons of benefits and costs, are certainly one of the major stumbling-blocks in the way of closer integration (Kaufman, 1999b).

Conclusions For the first two decades of its existence economics was the major intellectual influence in personnel management, labor economists were the most important and influential participants, and the subject was typically viewed as an element of ‘‘applied economics’’ in business school curricula. The presence of economics in personnel/HRM

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remained strong until the early-1960s, partly through the bridge field of industrial relations, but then declined sharply. For roughly 30 years economics and P/HRM had only peripheral contact with each other either intellectually or organizationally in most universities. In the last decade, however, E/IR scholars have become more interested in P/HRM topics and a burgeoning economics-based literature has emerged, bringing with it greater opportunities and potential for collaboration and integration across the disparate disciplines and fields of study related to the employment relationship. Although prediction is hazardous, I conjecture that this trend will continue and economics will further contribute to the development of the personnel/HRM field.

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Chester Barnard’s ‘‘executive’’ and the knowledge-based firm

R. Ray Gehani College of Business Administration Management, The University of Akron, Akron, Ohio, USA

Keywords Knowledge management, Leadership, Resources

Abstract Chester Barnard’s 1938 book The Functions of the Executive is re-examined in the context of the emerging knowledge-based dynamic theory of the firm. The key constructs and the underlying principles for Barnard’s functions of the ‘‘executive’’ and organization as a cooperative open-system are reassessed for the evolving knowledge-driven firm competing in the twenty-first century global economy. Surprisingly, after more than six decades, Barnard’s cooperative ‘‘executive,’’ well-versed in the logical-rational and the non-logical-intuitive decisionmaking processes, still seems quite competent to effectively lead the knowledge-driven e-business enterprise evolving in the twenty-first century. The Barnardian ‘‘executive,’’ however, must evolve by acquiring and integrating the newly available knowledge-related technologies and other adaptive competencies to help develop new drivers of global competitiveness.

Management Decision 40/10 [2002] 980–991 # MCB UP Limited [ISSN 0025-1747] [DOI 10.1108/00251740210452845]

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New millennium: time to revisit Barnard’s ‘‘executive’’ Until the study of the principles and processes of an organization approximately 60 years ago by Chester Irving Barnard (18861961), management of a business organization was primarily described qualitatively without much empirical basis. Barnard relied on his hands-on leadership style to describe the functioning of a business organization. He changed the way a business organization is viewed with his business classic The Functions of the Executive (Barnard, 1938). Barnard’s ‘‘executive’’ carried out his functions in a cooperative and democratic manner rather than in a unilateral autocratic way (Barnard, 1938). Six decades later, at the start of the twenty-first century, can Barnard’s ‘‘executive’’ evolve his/her style to lead a much larger, dynamic, complex (Perrow, 1986), and more distributed knowledgedriven enterprise? One may expect that ‘‘the functions of the executive’’ need to be completely overhauled for the emerging highly inter-connected global firm (Gehani, 1992, 1998). Surprisingly, on the contrary, most of the founding principles and constructs behind Barnard’s classical text still retain their validity decades later for the technology-intensive global enterprises. Other principles proposed by Barnard can be easily adapted by using the emerging technological competencies and capabilities to develop new drivers of global competitiveness. The knowledge-based dynamic theory of the firm conceptualizes the enterprise as a body of tacit and explicit knowledge embedded throughout the organization (Nelson and Winter, 1982; Grant, 1995, 1996). The enterprise is treated as an institution driven by coordination, integration, and The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

application of the distributed (explicit and tacit) knowledge residing in the different expert members of a global enterprise (Gehani, 1992, 1998). Can Barnard’s ‘‘executive’’ function effectively in the new knowledge-intensive organizational context?

Focus of this paper In this paper, the founding principles of Chester Barnard’s (1938) classic The Functions of the Executive are reassessed in the context of the emerging knowledge management view of the firm. The underlying assumptions behind Barnard’s key constructs for leading a highly efficient cooperative organization system are revalidated within the context of knowledge management and its view that a flatter inter-connected enterprise is essential. The competitive advantage of Barnard’s cooperative ‘‘executive’’ is re-examined for the twenty-first century enterprise. There are multiple approaches to the knowledge management view of the firm. Some researchers view knowledge as the explicit information processed in a firm. Other researchers view knowledge beyond just the explicit knowledge, and include tacit information embedded in the employees of an enterprise (discussed in detail later). Significant contributions of Chester Barnard are positioned in the evolution of the organization theories of the firm. Each of the key functions of Barnard’s ‘‘executive’’ will be reviewed in the context of the disruptive effects of the Internet networking technology, globalization, and the emergence of the knowledge-based view of the firm. Finally, weaknesses of some of Barnard’s constructs and the implications for practitioners and future researchers will be discussed. Table I summarizes these governance issues, and guides the road-map for this paper.

R. Ray Gehani Chester Barnard’s ‘‘executive’’ and the knowledge-based firm

Table I Barnard and evolution of organizational theories

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The classical industrial organization

Barnard’s functions of the executive

Barnardian executive for the knowledge-based firm

Economic system Transactional cost economics

Improving spiral of performance

Evolutionary economic theory

Position of executive Bureaucratic managers with high overheads

Senior executives with negotiated authority

Value-creating ‘‘global core’’

Be interactive; create open system

Embrace change; create new knowledge in innovations

Executive’s resources Primarily physical

Physical and relational

Knowledge-based competitive advantage

Type of knowledge Mostly explicit information

Explicit and tacit

Explicit and tacit knowledge in distributed experts

To develop ‘‘live’’ interactive system

Develop knowledge-based strategic core competencies

Negotiated – authority; organic

Facilitate horizontal relationships

Primary functions of executive Control and coordinate to maintain status quo

Use of knowledge For tactical control of operations Organization configuration Top-down hierarchical

Types of knowledge and management of knowledge Many researchers have attempted to define the scope and boundaries of knowledge. For example, Davenport and Prusak (1997) defined data as simple and unstructured factual observations, information as data with relevance and purpose, and knowledge as applied information including its context, synthesis, and reflection to solve problems. Wisdom fuses knowledge with the relevant values and experiences. Defining knowledge resources of a firm is still elusive, though efforts to do so have been attempted repeatedly since Plato. The management literature makes an epistemological distinction between knowing how (generally classified as subjective, implicit or tacit, personal, and procedural knowledge) and knowing what (about facts and theories classified as objective, explicit, prepositional, and declarative knowledge) (Grant, 1996, p. 111). Collins (1993), in his sociological analysis of artificial intelligence, distinguished between the explicit codified knowledge and the tacit non-codified knowledge. He classified codification of knowledge in five categories: 1 ‘‘Symbolic-type knowledge’’ is codified in books, floppy disks, and other media. 2 ‘‘Embodied knowledge’’ is internalized and held within the body of a human

being – such as in one’s ability to ride a bike, swim, or play tennis. 3 ‘‘Embrained knowledge’’ resides in the cognitive abilities of a brain. 4 ‘‘Encultured knowledge’’ is tied to social groups and society. 5 ‘‘Embedded knowledge’’ resides in systemic routines, procedures, or technology. Fleck (1997) re-categorized knowledge by encompassing its source, acquisition, linkages, and storage. These categories help guide the ‘‘executive.’’ Formal knowledge is codified in text theories, formulae and diagrams. Informal knowledge is embodied in verbal and written interactions, and is learned by interactions. Contingent knowledge is embodied in specific context, and acquired by on-the-spot learning. Tacit knowledge is embedded in people and their practices. It is transferred by training and apprenticeship. Meta-knowledge is embodied in an organization, and its culture. It is acquired and transferred through socialization. An ‘‘executive’’ must recognize that the two broad types of knowledge in an enterprise, explicit and tacit knowledge, differ in the modes of their most effective transfer. Explicit knowledge, once codified, is best transferred by conventional communication and information-processing technologies such as computers. Tacit knowledge, on the other hand, is not easy to transfer or codify

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explicitly. This type of knowledge is best transferred from one person to another through its application and demonstration via experiences. Kogut and Zander (1992) believe that transfer of tacit knowledge is uncertain, slow, and therefore costly. For example, an expatriate transfers his/her knowledge about top management philosophy in the head office through cultural socialization of host country nationals in a foreign subsidiary. In a study of knowledge management in consulting companies, Hansen et al. (1999, p. 106) found two very different knowledge management practices. In some consulting companies, knowledge is managed by codifying, storing, and reusing it in computer databases. For example, Ernst & Young’s Center for Business Knowledge uses a person-to-document approach, converting knowledge embedded in the individuals who develop knowledge, to the specific documents to be used by others. In other consulting companies, knowledge is primarily embedded in the individuals who develop it. In companies like Bain, Boston Consulting, and McKinsey, knowledge is transferred by person-to-person interactions or brainstorming sessions. Their consultants collectively arrive at their shared insights. These companies invest heavily in building their networks of knowledgeable people. Computers are used extensively for e-mail, expert directories, and videophones to help persons communicate their embedded knowledge with others.

The knowledge-based view of the firm The knowledge-based view of the firm is a sharp departure from the transaction cost-based view of the firm. The transaction view is focused on the relative efficiency of authority-based organizational hierarchies and the contract-based external markets (Williamson, 1975, 1985, 1990). The knowledge-based view of the firm is an outgrowth of the resource-based view (Barney, 1991; Wernerfelt, 1984), whereby knowledge resources and capabilities of a firm are considered the most significant strategic resources of an enterprise. The knowledge-based view of the firm has significant implications for an organization’s sources of competitive advantage, its architecture for decision making, and the boundaries of its configuration (Grant, 1996; Spender, 1996). Sixty years ago, Barnard’s ‘‘executive’’ primarily managed physical resources of an

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industrial firm. In the twenty-first century global firm, many executives manage primarily knowledge-related resources of the firm. Many researchers (including Levitt and March, 1988; Huber, 1991; Spender, 1989, 1996; Nonaka, 1991, 1994) consider an organization as the seat and depository of embedded knowledge about its environmental circumstances, critical resources, strategic goals, and business procedures. Barnard’s view of the ‘‘executive’’ is closer towards the perspectives of Simon (1991) and Grant (1996, p. 112) who postulated that knowledge in an enterprise is primarily created and learned by an individual and that the firm is primarily involved in the application of this knowledge embedded in its individuals. In dynamic global markets of the twenty-first century, firms imperatively face the dual role of effectively applying their existing (explicit and tacit) knowledge, as well as regularly creating and sharing more appropriate newer knowledge (Spender, 1993, 1996). An organization learns by accessing the knowledge embedded in its expert human members, or by acquiring new expert members who specialize in the knowledge that the firm did not possess earlier. Historical inferences and processed knowledge are encoded into the firm’s routines, rules, and conventional procedures that help guide human behavior in the organization. For the ‘‘executive,’’ the embedded tacit knowledge is as important as the tacit explicit knowledge. Mintzberg (1990) made a clear distinction between transferring explicit knowledge in tactical operations of a firm, and integrating the explicit and tacit knowledge for the strategic planning of the firm. Therefore, the strategic scope of knowledge in a knowledge-driven firm is much larger than the tactical use of explicit knowledge in the fields of management of information systems (MIS), management of technology (MOT), operations management, and the organizational learning theory (Polanyi, 1966; Spender, 1993; Grant, 1995, 1996, Nonaka, 1990, 1991, 1994; Nonaka and Takeuchi, 1995). There are significant strategic implications of the knowledge management view of the firm for an ‘‘executive.’’ In this new view of the firm, the principal challenge for the ‘‘executive’’ leveraging knowledge is to simultaneously facilitate learning, bring about organizational change, and create business value to sustain competitive advantage (Pasternak and Viscio, 1998, p. 99). This is a dynamic process that focuses on embracing change, creating knowledge by

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learning, and deploying this new knowledge to add value to the process and product innovations of the firm. As we examine the utility of Barnard’s cooperative ‘‘executive functions’’ in the new context of the knowledge-based view of the firm, we must also integrate the idiosyncrasies of the knowledge resource, and the distinctive elements of the knowledge-based theory compared with the other conventional organizational theories.

Knowledge-based view versus other views of the firm The economic and organizational approaches for an enterprise are integrated in the behavioral theory of the firm (Cyert and March, 1963), and in the evolutionary theory of the firm (Nelson and Winter, 1982). In 1938, Barnard pioneered the vision that organizational learning occurs best with some form of collaboration between employees (with embedded knowledge). In the context of the knowledge management of the firm, the Barnardian ‘‘executive’’ must not act as a corporate center with high overhead cost and low value addition. Instead, he must evolve as a catalytic value-creating ‘‘global-core’’ (Pasternak and Viscio, 1998, p. 148). As a ‘‘global-core,’’ the Barnardian ‘‘executive’’ is expected to create the context for the firm’s purpose and growth. He/she must emerge as the key player that can make the value of the modern networked enterprise worth more than the sum of the values of its parts. In this context, the classical view of Barnard’s ‘‘executive’’ acting as ‘‘a middleman or broker’’ of information (Barnard, 1938) is no longer useful. With the knowledge management view of the firm, information should be made available to all the relevant decision-makers in the upper as well as the lower echelons of the firm. The ‘‘executive’’ must also facilitate the creation of a more competitive network enterprise based on frequent collaborations between all their employees.

Relevance of Barnard’s ‘‘cooperative executive’’ in 1938 and in 2001 Chester Irving Barnard was writing The Functions of the Executive in 1936 and 1937 while the US enterprises were coping and recovering from the Great Depression of the 1930s. At that time, a growing number of citizens were questioning the role of big businesses in society. Many Americans were looking into AT&T’s role during the Great Depression, and whether its investors were

sacrificing its workers for more profits. Throughout the depression years, AT&T managed to maintain its $9 dividend for each share of stock held by its investors (Perrow, 1986). Even though AT&T was doing more business in 1937 compared with its business in 1929, AT&T had approximately 30 per cent fewer employees in 1937 compared with the employees it had in 1929. The AT&T executives attributed their downsizing to the adoption of new telephone exchange technology for speeding up their production. At the start of the twenty-first century, global enterprises like AT&T are once again facing a similar critical inquiry by people. The world is struggling with the potentially adverse impact of the Internet technology and corporate-led globalization of financial markets on the downsizing of employees and workers (Economist, 2000, p. 85). In November 1999, there were non-violent civil protests against the World Trade Organization’s ministerial meeting in Seattle. Masses of environmentalists, feminists, and other protesters gathered to demonstrate against the Spring 2000 meetings of the World Bank and the IMF (Economist, 2000, p. 85; Bernstein, 2000). When Barnard worked at AT&T in the 1930s, the company was using the new switchboard technology to integrate the different parts of their national markets. At the start of the twenty-first century, AT&T and other firms in the telecommunications industry are busy integrating their global markets. Their executives are excited about the potential and pervasive benefits of another transformational technology – the Internet. In the 1930s, the workers were embroiled in a struggle against executive managers. In the twenty-first century, the citizens are participating in demonstrations against multinational corporations and international institutions, such as the World Bank, International Monetary Fund, and the World Trade Organization (Economist, 2000, p. 85; Bernstein, 2000). Therefore, it is possible to infer that the functions of Barnard’s ‘‘executive’’ are as relevant in the twenty-first century as they were in the 1930s.

Positioning Barnard’s contribution in the evolution of organizational theories The postmodern knowledge-driven firm of the twenty-first century is evolving from the industrial enterprise of the twentieth century. Now, as before, modern organizations require ‘‘an authoritative

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source of communication’’ to inspire faith in cooperation, to create a belief in a common cause, to secure coordination, and to issue commands (Barnard, 1938). Barnard’s vision was an ideological ‘‘managerial order’’ animated by cooperation, rationality, and functional morality (Scott, 1992, p. 187). Will this vision of the firm, and its ‘‘executive,’’ survive in the twenty-first century? Many of Barnard’s constructs for governance of an organization, and the functions of its ‘‘executive,’’ have weathered six decades of evolution of organizational theory (Perrow, 1986). Barnard’s contribution emerged as the seminal ‘‘fork in the road’’ for three subsequent paths of the field of organization theory (OT). First, Barnard’s institutional view of an organization as a community, and the role of the ‘‘executive’’ driving it, was promoted by the contributions of Philip Selznick (1957) in his book Leadership in Administration. Next, Talcott Parsons (1951) in his book The Social System took up the sociological and behavioral views of Barnard that called people to pursue higher ‘‘fulfillments’’ (Perrow, 1986, p. 97; Parsons, 1956, 1960). This, along with Elton Mayo, gave birth to the human relations school of the organization theory. However, this stream of research has yet to address the negative effects of the informal groups acting in an organization. These groups are counter-productive to the dominant formal view of their top management. Third, Herbert Simon (1976) developed Barnard’s equilibrium views on decision making in an organization, and presented these first in his Administrative Behavior, and then in March and Simon’s (1958) Organizations. Their psychological view of organizations emphasized rational cognition and bounded rationality (Simon, 1969, 1981, 1991). In this paper, Barnard’s key constructs are taken a step beyond these classical studies, to assess whether the key managerial competencies of Barnard’s ‘‘executive’’ still fit well in the context of the knowledge management view of the twenty-first century firm.

Reassessing functions of Barnard’s ‘‘executive’’ Barnard urged ‘‘executives’’ to help develop an open cooperative organizational system for their firms (Scott, 1992). In this section, Barnard’s major constructs (see Table II), proposed in The Functions of the Executive, are reassessed in the context of a knowledge-

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driven global firm (Cusumano and Yofie, 1998; Civin, 1999).

Significance of knowledge and skills for Barnard’s ‘‘executive’’ In The Functions of the Executive, Chester Barnard did not directly discuss either knowledge of a firm or knowledge management. He defined and discussed at length the significance of skill, knowledge, and judgment in a commencement address he presented to the graduates at the Massachusetts Institute of Technology (Barnard, 1950; Wolf and Iino, 1986, p. 129). He urged the graduating MIT students (heading towards becoming the future executives): . . . to derive a real advantage (by combining) knowledge and training received during (their) academic career with certain more intangible abilities not as a rule acquired in student life.

Barnard (1950) posed the MIT students the question: In what kinds of situations is it rational to be irrational; when is it irrational to rely upon rational methods?

He considered this knowledge-based paradox as ‘‘one of the most persistent problems of responsible behavior’’ of the future ‘‘executives’’. In the MIT commencement, Barnard identified ‘‘at least three kinds of abilities . . . skill, knowledge, and judgment,’’ that an executive needs to develop in himself/herself, and to recognize in others (see Figure 1). He urged the graduating MIT students that: If we were to liken human competence to a single structure composed of a number of elements, I think that the pyramid would be a helpful representation. At the base there would be the ordinary and the specialized bodily skills, and then would come the particularized personal knowledge essential to responsible behavior. Still higher we could place the professional know-how and intellectual techniques acquired in school. But intellectual equipment is by no means the apex of the pyramid. That supreme position, I believe, must be reserved for judgment (Barnard, 1950).

By skills Barnard meant bodily skills. This is ‘‘the ability of the individual to control and direct the movements of his body.’’ He considered these capabilities critical to complete great engineering projects (such as building the Panama Canal in the 1880s). Barnard (1950) described three additional specialized skills needed widely by an ‘‘executive’’: 1 skill in getting along with people; 2 ability to persuade others; and

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3 intuitive familiarity (Barnard, 1950; Wolf and Iino, 1986, p. 132). Knowledge, to Barnard (1950), was divided into two broad categories. First, there is the large body of organized and formal theoretical knowledge (explicit rational knowledge) that is acquired by education and training. On the other hand, Barnard considered the unrecorded personal and local knowledge of individuals (tacit and intuitive knowledge) as indispensable for ‘‘the discharge of responsibility for all and any actions’’ (Barnard, 1950). Judgment, to Barnard (1950), was acting by:

Figure 1 The human competence model for Barnard’s ‘‘executive’’

. . . making the best of whatever facts are available . . . concerned with decisions or solutions of problems when there is not sufficient factual evidence to warrant a conclusion or where the facts are subject to more than one interpretation.

Barnard reminded the MIT graduates that: The greatest need for judgment relates to the formulating of aims and goals because they involve determination of purpose and establishment of values. And hence it is precisely that our skills and our knowledge are hardest to put to use . . . The answers are . . . judgments coming from the heart or from the deepest depths of our experience . . . (Barnard, 1950).

Amazingly, for the knowledge-based business enterprise of the twenty-first century, the pressing need to build the skills of ‘‘executives,’’ their knowledge-base, their ability to judge, and more, seem as critical as

in Barnard’s industrial firm in the 1930s. Particularly timely is Barnard’s prophetic advice to the ‘‘executives’’ to build their emotional inter-personal skills, intuitiveness, and the ability to judge and act in the face of ambiguous or insufficient information (Barnard, 1950). Barnard (1950) preceded many other modern researchers of knowledge management by multiple decades.

Responsibilities of a leader of individuals In many ways, Barnard’s need for analytical definition of the ‘‘executive’’ as an individual

Table II Barnard’s constructs for ‘‘executive’’ functions Barnard’s comments

The executive’s functions and constructs

Barnard (1950): MIT commencement

Develop pyramid of competence

Barnard (1938, pp. 3-7, 23-31, 40-5, 232-53)

Executive promotes cooperation over control of individuals

Barnard (1938, p. 42; Ch. 6,7, 8)

Theory of formal organization: open system and organic ‘‘live’’ structure

Barnard (1938, Ch. 9)

Balancing informal organization

Barnard (1938, Ch. 11, 13, 14)

Dual decision theory; executive as individual and as organizational decision-maker; exchange theory Consent theory of executive authority over employees Limited choice; restriction of action; logical and non-logical mental processes Executive’s authority, personal responsibility; moral codes

Barnard (1938, pp. 163-5, pp. 171-4, 182-3) Barnard (1938, Ch. 3, 4, 5, pp. 301-22) Barnard (1938, Ch. 17)

Adapted to the twenty-first century knowledge-driven organization Develop skills, acquire knowledge, and intuitive judgment Executive and employees share embedded knowledge to gain and sustain competitive advantage Hierarchical formal organization part of a larger organic center-less network of cooperative alliances with other enterprises High-tech, high-touch organization (Naisbitt, 1999) Evolutionary theory of economic change (Nelson and Winter, 1982) Participatory team management and mid-up and mid-down innovation Use intuitive judgment in highly turbulent environments Ethical global corporation

Source: Adapted from Scott (1992, Table 5.1, pp. 92-3) [ 985 ]

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in an organization has become even more significant in the knowledge-driven, highly distributed, and networked firm of the twenty-first century. Barnard (1938, p. 10) was quite radical in considering an individual ‘‘executive’’ either as a discrete physical entity, or ‘‘as a mere phase or functional presentation of physical factors.’’ This fits well with the emerging knowledgebased view of the firm, where individuals embody the specialized tacit knowledge, and contribute to the organizational pool of common knowledge needed to gain their sustainable competitive advantage (Grant, 1996; Huber, 1991; Nonaka and Takeuchi, 1995). Barnard pointed out that human organisms function in mutual conjunction with other organisms, with their interdependence evolving over time (Barnard, 1938, p. 11). Over many interactions, ‘‘executives’’ become more unique and distinct individuals by embodying innumerable forces and cumulative materials (and by obtaining related knowledge). Activity and manifest behavior are important characteristics describing individual ‘‘executives’’. Activities of an individual ‘‘executive’’ in an organization are limited by his constrained power of choice (Wolf, 1973, 1974). This is driven by motives and attainment of ends. When a specific goal is attained, the ‘‘executive’’ is considered effective. When the unsought consequences of the actions of an ‘‘executive’’ are more significant than the ends attained, that ‘‘executive’’ action is deemed inefficient. Barnard considered responsibility as what controls the conduct of an individual in the presence of strong contrary desires or impulses. This involves individual integrity and moral code of the ‘‘executive’’ transacting with other individuals or with another organization (Barnard, 1938, Ch. 17). Knowledge and ethics drive the activities and manifest behaviors of ‘‘executives’’ and other individuals in an organization. This indicates that the Barnardian ‘‘executive’’ is well rounded enough to be competitive under a hyper-competitive environment in the twenty-first century firm (D’Aveni, 1994; Gehani, 1995).

The ‘‘executive’’ promotes cooperation over control To Barnard, cooperation constituted the most desirable attribute of the activities of an ‘‘executive’’ (Barnard, 1938, pp. 3-7, 23-31, 40-5, 232-53). Cooperation helps an ‘‘executive’’ achieve a surplus outcome far greater than that attainable by an individual alone and is even greater than the sum of efforts of all the

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individuals involved. Distribution of such surpluses produces the psychological satisfaction and material incentives necessary to motivate people to contribute to the competitive performance of their organizations. Though Barnard was in favor of cooperation, he warned that most initiatives at cooperation fail early in their attempt, or die in infancy. Thus, Barnard was a pioneer with his focus on cooperation and accumulation of tacit or personal knowledge. Successful cooperative organizations continue to be effective by constantly adapting their internal processes to the changing external environments (Barnard, 1938, p. 6; Miles and Snow, 1978). Cooperation in organizations, however, is determined by the distribution and alignment of incentives and social factors with the organization’s competitive strategy. To Barnard, organizations are cooperative systems wherein people join voluntarily to cooperate towards the shared goals of their organization. Such shared goals have to be moral to gain many people’s cooperation. For the twenty-first century knowledge-driven enterprise, the Barnardian ‘‘executive’’ cannot afford to use only top-down hierarchical control of the employees. These employees embody tacit knowledge that is critically required to gain sustainable competitive advantage. To a certain extent Barnard’s far-sightedness in training the ‘‘executives’’ to cope with the Great Depression can be adapted to the intensive global competition and the rapid consolidation that are taking place in the twenty-first century firm.

Barnard’s theory of formal organization: open system, organic structure and rules To Barnard (1938, p. 42), a formal organization corresponds to its people’s ‘‘reasoned and calculated actions and policies.’’ A formal organization is a conscious structure designed to reconcile the opposing forces of specialization and coordination. The organization does so by using rules, policies, record keeping, and standardized personnel practices (Barnard, 1938, Ch. 6, 7, 8). Barnard conceptualized a formal organization as a part of a much larger organic network of cooperative relationships in the open system (Barnard, 1938, pp. 46-50, 77-80, 240-4). Barnard’s conceptualization of the organization in the 1930s fits very well with the emerging ‘‘centerless’’ organization enmeshed in a network of alliances with other enterprises (Pasternak and Viscio, 1998).

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Chester Barnard was influenced by the systems view of Vilfredo Pareto (1935), and by the early thoughts of Talcott Parsons (1951). Barnard therefore viewed the notion of organization from the general systems theory framework. He pointed out that: A cooperative system is a complex of physical, biological, personal, and social components which are in a specific systematic relationship by reason of the cooperation of two or more persons for at least one definite end. Such a system is evidently a subordinate unit of larger systems from one point of view; and itself embraces subsidiary systems . . . (Barnard, 1938, p. 65).

To Chester Barnard (and later to Herbert Simon) a major strength of the General Systems Theory was its ability to help understand the complexities of ‘‘live’’ organizations. In both science and engineering, Barnard noted that the use of systems theory was due more to ‘‘the pressing need for synthesizing and analyzing complexity than it is to any large development of a body of knowledge and technique for dealing with complexity’’ (Simon, 1969, p. 114). To Barnard, cooperation in organizations was ‘‘alive.’’ Drawing from his extensive industrial experience, Barnard noted that the ‘‘living’’ organizations had the right to grow and be self-sufficient by acquiring resources at the expense of other comparatively weaker organizations.

Informal organization – including the human behavioral attributes Barnard’s discussion of informal organizations is quite insightful (Barnard, 1938: Ch. 9). Barnard not only described the formal organization but also explained the significance of the informal side of an organization. Barnard’s informal organization constituted the aggregation of spontaneous personal contacts, the interactions among the associated groupings of people, and ‘‘the unconscious or nonintellectual actions and habits of individuals’’ (Barnard, 1938, p. 116). Barnard believed that the formal organizations are vitalized and conditioned by their informal organizations promoting cohesiveness and facilitating communication. As a product of the painful Great Depression, Barnard noted that the informal organization helps employees protect their personal integrity and self-respect in the face of a demanding assault from the rules, regulations, and the structures of their formal organization (Barnard, 1938, p. 122). Barnard considered the informal organization necessary and inevitable for a formal organization. He recognized that, to

influence attitudes of other individuals, the ‘‘executives’’ had to gain access to their employees’ psyche. Barnard noted that the formal organizations often overlooked the role of ‘‘conscious, deliberate, purposeful’’ cooperation among people (Barnard, 1938, p. 34). ‘‘Mores, folkways, political structures, institutions, attitudes, motives, propensities, and instincts’’ drove the informal organizations. In the twenty-first century knowledgedriven firm, an increasingly intensive use of computer technology drives many business processes (see Table II). The executives in these high-tech firms are therefore recognizing the growing significance of ‘‘high-touch’’ management (Naisbitt, 1999). John Naisbitt, the author of bestsellers Megatrends, Reinventing the Corporation and others, has extensively researched the relative roles of individuals and technology in a modern enterprise. In High-Tech High-Touch, Naisbitt notes that high-tech or high-touch perspective is: A human lens . . . embracing technology that preserves our humanness . . . [to] add values to human lives (Naisbitt, 1999, p. 26).

Dual decision theory – individual vs. organizational decisions: exchange theory, and theory of opportunism Barnard astutely observed that the ‘‘executive’’ faces a duality (Barnard, 1938, Ch. 11, 13, 14) in his/her two-fold decision making at an individual level and at the organizational level (Scott, 1992). Within an organization, an ‘‘executive’’ acts as an individual as well as a collective decisionmaker. He participates in different phases of the firm’s cooperative processes, while recognizing the limitations of human choices. He promotes spontaneous activity by nurturing other individuals’ goals, and by providing equitable distribution of system resources. The organization’s goals are pursued, achieved, and celebrated collectively. On the other hand, outside the organization, the ‘‘executive’’ acts as a distinct physical, biological, and social entity with limited choices. For Barnard, the underlying driver of this duality, and the primary unit of economic decision making, was the firm’s transactional efficiency (see Table II). An individual’s decision to participate in the processes of his organization is based on the incentives offered by the ‘‘executives.’’ This process is covered under Barnard’s exchange theory. Barnard’s theory of opportunism is based on the strategic factors that are subjectively decided by an individual ‘‘executive,’’ as opposed to the limiting

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factors that are objectively and unanimously agreed by all the decision-makers (Williamson, 1975, 1985, 1990). This transactional orientation of executives fits well with the executive governance of a knowledge-driven firm competing in the twenty-first century (Nelson and Winter, 1982).

Executive-employee equilibrium and consent theory of authority Barnard believed that different individuals accepted their authority voluntarily in a democratic way, and that the authority of an ‘‘executive’’ was based on the consent received from his subordinates (Barnard, 1938, pp. 163-5, 171-4, 182-3). From his experience at AT&T, Barnard knew that individual workers did not always accept all the orders of their ‘‘executives’’ with equal enthusiasm. Barnard therefore proposed that employees had zones of acceptability, indifference, neutrality, and unacceptability with varying degrees of employees’ consent to the authority of their ‘‘executives’’ (see Table II). Barnard pointed out the ‘‘fiction of the superior authority’’ of ‘‘executives.’’ His cooperative system denies that the ‘‘executives’’ at the top have a lot of autonomous power and authority, from hiring to firing, over the middle managers or the shopfloor operators. Barnard believed that the authority of an ‘‘executive’’ flows up from the bottom when an operator accepts the legitimacy of an order from the top (Perrow, 1986, p. 71). Barnard defined equilibrium as the capacity of a cooperative system to preserve a balance. This is the balance between the demands an ‘‘executive’’ places when seeking full contributions from other individuals, and the satisfaction that this ‘‘executive’’ provides the individuals for their participation. This two-way balance was the keystone for a highly competitive Barnardian organization. Barnard’s ‘‘executive’’ sought a balanced equilibrium between achieving the goals of the organization, and achieving the goals of the individuals working in the organization. Barnard believed that the equilibrium between the two sets of goals helped a cooperative organization evolve in an upward spiral of improving performance of the organization, while facilitating the employees’ satisfaction as well. In passing, Barnard noted the significance of a fluctuating environment on the functions of the executive. He wrote: The survival of an organization depends upon the maintenance of an equilibrium of

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complex character in a commonly fluctuating environment of physical, biological, and social materials, elements, and forces which calls for readjustment of processes internal to the organization (Barnard, 1938, p. 6).

This bottom-up view of an open-system organization is particularly suited to the knowledge management view of the networked organization competing under ‘‘hyper-competitive’’ market conditions (Civin, 1999; Cusumano and Yofie, 1998; D’Aveni, 1994). Nonaka (1990), for example, noted that the Japanese knowledge-driven organizations are driven by their middle-up and middle-down led innovations instead of just the top-down hierarchical orders. In high-performing self-directed teams, the operations level employees are empowered to share and deploy the critical resources of their organizations (see Table II).

Limited choice and restriction of action (bounded rationality) Barnard (1938, Ch. 3, 4, 5) invented the term ‘‘limited choice,’’ and later Simon (1957) proposed the construct of bounded rationality, to represent the human limitations imposed by physical, psychological, social, environmental, and informational circumstances on individuals’ activities and behaviors (see Table II). Barnard then noted that cooperation in an organization extends the capacity of its individuals beyond what they can accomplish single-handedly. Unlike the economists’ rational view of business decision making, Barnard stressed that intended rationality was bounded by biological, social, and physical factors driving each individual. This is the behavioral know-how or common sense (hard for the individuals to describe in words) that ‘‘executives’’ must use in the practice of their day-to-day business activities.

Logical and non-logical ‘‘executive’’ mental processes Barnard was also aware that the human feelings, attitudes, sentiments, and other non-logical mental processes play as significant roles in an executive’s individual decision making as the logical and conscious reasoning used for organizational decision making (Barnard, 1938, pp. 301-22). This view of Barnard was inspired to a great extent by Pareto’s work that the culturally derived non-logical ‘‘residues’’, derived from norms, beliefs, and myths, were often disguised as logical ideas by elaborate ‘‘derivations’’ and rationalizations (Pareto, 1935). In the knowledge-based view of the firm, the time-compressed executives (Gehani,

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1995) competing in hyper-competitive markets (D’Aveni, 1994) are forced to rely on their tacit knowledge and intuitive judgments. In this regard, Barnard was way ahead of other organization theorists (such as Simon (1976, 1991) and others) in urging his ‘‘executives’’ to develop their intuitive judgment. He advised them not only to be aware of their explicit rational and logical knowledge, but also to use their embedded tacit knowledge. In summary, Barnard’s major constructs of The Functions of the Executive form an integrated management system of governance. Together these constructs have the potential to produce high-performing executives and competitive organizations. Since the 1930s, when Barnard wrote and published his text, the competitive environment for a modern organization has evolved significantly with new drivers of competitiveness. As discussed in the previous sections, Barnard’s observations, amazingly, still seem well suited to meet the new challenges of managing a more dynamic knowledge-driven global organization in the twenty-first century.

Limitations of the Barnardian ‘‘executive’’ Authority, responsibility and delegation Chester Barnard admitted that: The great weakness of my book is that it doesn’t deal adequately with the question of responsibility and its delegation. The [book’s] emphasis is too much on authority, which is the subordinate subject (Wolf, 1973, p. 15).

Barnard believed that all the teaching in business circles, and most of the training in military and academic circles, have wrongly emphasized authority. Many organizations and their ‘‘executives’’ were obsessed with authority and control. He felt that authority ‘‘is a secondary derivative set-up.’’ In the knowledge management view of the firm, delegation of authority to the subject-knowledge experts in the firms is the preferred mode of operation. In highly turbulent market conditions, authority-driven executives in the upper echelons of an organization are not likely to help sustain the competitiveness of their knowledge-driven organizations. Barnard emphasized the cooperative and collective morals of an organization. He often overlooked the individuals that constitute this collectivity. According to Perrow (1986, p. 76), Barnard glorified the organization, and minimized the individuals. It seems that, to Barnard, individuals were merely parts of

the environment of an organization. He defined formal organizations as ‘‘non-personal,’’ and ‘‘social situations.’’ Organizations were clearly treated as superior to individuals, yet individuals contributed the energy that cumulated into the collective activities and essence of an organization. To his credit, Barnard’s biased views about individuals were consistent throughout his book, and prevailed across his entire thesis. According to Barnard, the main goal of a business enterprise is its service, not profit, or power, or political ideology, or personal gain. This is the toughest aspect of carrying forward Barnard’s functions of ‘‘executives’’ to the twenty-first century knowledge-driven organization. Globalization during the past few years has disenchanted the individuals’ faith in the ethical standards of a typical profit-maximizing business and its executives. Crises associated with tobacco companies, Exxon’s Alaskan oil-spill, Union Carbide’s Bhopal Gas accident, drastic downsizing by Sunbeam’s Al ‘‘Chainsaw’’ Dunlap, Enron’s financial collapse, and many more, have produced new expectations from the twenty-first century firm. New templates based on a balanced performance score-card are needed for the knowledge-driven firm and its executives. Another major weakness of Barnard’s pioneering work is his hard to understand writing style. In the introduction to the 30th printing of The Functions of the Executive, Kenneth Andrews apologizes for Barnard’s awkward non-academic style and his attempts to write a scholarly treatise (Scott, 1992, p. 6). William Wolf, on the other hand, argued that Barnard was trying hard to develop a specialized language and precise thinking for the still emerging field of business management, begging for recognition from the larger community (Wolf, 1973, 1974). Barnard contributed significantly by creating the phrases with shared meanings for the management community. His common knowledge for ‘‘executives’’ included phrases such as cooperation, efficiency and effectiveness, zone of indifference, discretionary power, mutuality of interests, integration and stability, consent to authority, and many more.

Future research and managerial implications While writing The Functions of the Executive Chester Barnard was often intrigued by the design of a human brain. In a similar

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manner, while developing the knowledge management view of the global firm in the twenty-first century, we must continue to revisit the structure of a human brain. This can help develop a more robust understanding of the explicit knowledge (domain of the left hemisphere of the brain), and tacit knowledge (domain of the right hemisphere of the brain). Modern executives need both these types of knowledge to develop a high level of enterprise intellect. The Barnardian ‘‘executives’’ use both the logical rational and the non-logical intuitive decision-making processes. They are also able to integrate the intuitive knowledge embedded in their expert employees. Much higher access to vast volumes of information, and fast Internet speeds of information processing, may be the necessary but not the sufficient conditions to usher in the new knowledge-based management of the firm (Cusumano and Yofie, 1998). For the computing and tele-communicating technologies to make major improvements in the productivities of enterprises, the Barnardian ‘‘executive’’ will have to continue to play an active hands-on catalytic role at the core of a technologyintensive global enterprise (such as Microsoft, Cisco, eBay, Oracle, and more). We must also continue to reinvent Barnard’s functions of the ‘‘executive’’ in terms of cooperation and creation of new knowledge to gain competitive advantage for a dynamic knowledge-driven firm of the twenty-first century.

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An earlier version of this paper was presented at the Annual Meeting of the Academy of Management, Toronto, in August 2000. The author appreciates the feedback received from the Special Issues Editor Kenneth E. Aupperle, William Wolf, and anonymous reviewers, but takes responsibility for the opinions expressed in this paper.

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‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Milorad M. Novicevic University of Wisconsin, La Crosse, Wisconsin, USA Thomas J. Hench University of Wisconsin, La Crosse, Wisconsin, USA Daniel A. Wren University of Oklahoma, Norman, Oklahoma, USA

Keywords Intuition, Management, History, Tacit knowledge

Abstract In the closing decades of the twentieth, and at the start of the twenty-first, centuries, attention has again turned to the critical role of intuition in effective managerial decision making. This paper examines the history of intuition in management thought by tracing its origins to Chester I. Barnard. This paper reveals not only the intellectual roots linking Barnard’s conceptualization of intuition in management thought to, among others, the influential works of the economist and sociologist, Vilfredo Pareto; Lawrence Henderson’s influence on Barnard through Henderson’s leadership and direction of the Harvard Pareto Circle; the works of the early pragmatist John Dewey; Humphrey’s The Nature of Learning; and Koffka’s Principles of Gestalt Psychology. Further, Barnard’s conceptualization of intuition foreshadowed by nearly two decades nearly all of Polanyi’s thinking and elaboration of tacit knowledge. This paper also examines Barnard’s and Simon’s differing views on intuition and provides a brief overview of contemporary research on intuition in managerial decision making.

Management Decision 40/10 [2002] 992–1002 # MCB UP Limited [ISSN 0025-1747] [DOI 10.1108/00251740210452854]

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It is a rare old dog that can learn new tricks, and the art of management and dealing with affairs is no exception. Almost exclusively the management talent in this country, both in business and in politics, ‘‘plays by ear’’ and I am sure it would be true in this field as it is in music, for example, that there are many who can do very well by ear whose art would be ruined if they attempted to learn at a late stage to play by note. This is something, of course, that I could hardly say to anyone who had not taken the interest which your letter shows. . . . Management is an art, will always be one, can never be completely understood, and the greatest artists, with possibly very rare exceptions, will be unable to understand what they are doing in a scientific sense, or to explain it to others (Chester I. Barnard, in a letter to A.A. Lowman, President, Northwestern Bell Telephone Company, March 23, 1939).

Introduction Chester I. Barnard penned the above words in a March 23, 1939 letter to A.A. Lowman, President of the Northwestern Bell Telephone Company (Wolf, 1995a, pp. 1866-7). What he was describing, at least in part, was the critical role unconscious, intuitive processes play in the everyday affairs of executives. As the author of the seminal work, The Functions of the Executive (Barnard, 1968), as one of the founding fathers of decision-making analysis in management theory, and as an experienced executive in his own right, Barnard knew of what he spoke. He had observed first-hand and had thought deeply about the role of intuition in business decisions. He knew the critical role intuition played in nearly all decisive behavior. The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

Barnard’s first recorded mention of intuition in managerial contexts was in the Cyrus Fogg Brackett Lecture he presented to the engineering faculty and students of Princeton University on March 10, 1936. His talk was titled ‘‘Mind in everyday affairs: an examination into logical and non-logical thought processes’’ and is currently included as an appendix to his master-work, The Functions of the Executive. It was also included as part of a special issue on ‘‘Decision processes as analyzed by Chester I. Barnard’’ in the Journal of Management History (Wolf, 1995b). Remarkably, given Barnard’s many contributions to strategic management theory (McMahon and Carr, 1999), Barnard’s ideas on intuition have received only scant attention since 1936 when he originally proposed them – remarkable because, at their center, Barnard’s views on intuition and non-logical decision making represent Ground Zero for some of today’s most important debates framing management theory. At the minimum, one sees in Barnard’s views of intuition the earliest stirrings of: . tacit knowledge and organizational learning; . system dynamics and the knowledge-based view of the firm; and . problem-framing, pattern recognition and emergent self-organization. What is more, the list of people with whom Barnard came in contact, the people he influenced, and the people who influenced him, reads like a ‘‘who’s who’’ list of many of the twentieth-century’s most influential social thinkers: Lawrence Henderson, Joseph Schumpeter, Alfred North Whithead, Michael Polanyi, Herbert Simon, Frederick Hayek, Kenneth Boulding, Crane Brinton, Talcott Parsons, Elton Mayo, and more. What follows, then, is a brief history of an idea: the role of ‘‘intuition’’ in managerial decision-making processes. In it we look at

Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Management Decision 40/10 [2002] 992–1002

the people, the events and the circumstances surrounding the idea of intuition in the management discourse and explore where the idea came from, who introduced it, and what it means. We also examine why it was introduced, what happened to the notion of intuition in managerial decision making since Barnard’s initial introduction of the idea into the management debate, and why it is once again emerging as a pivotal issue in management thought (Pondy, 1983; Simon, 1987; Mitchell and Beach, 1990; Lank and Lank, 1995; Shirley and Langan-Fox, 1996; Crossan et al., 1999; Burke and Miller, 1999; Osbeck, 1999; Sparrow, 2000; Lieberman, 2000).

Barnard and intuition In presenting ‘‘Mind in everyday affairs’’, Barnard was attempting to make sense of the ‘‘mental aspects of human beings’’ (Barnard, 1968, p. 301) in the everyday world of work. He was interested in the subject because of two problems in particular, problems he had observed in himself and others within different work settings. One was the challenge of adjusting to changing circumstances or new kinds of work, while the other concerned attaining common understanding among people and groups. Barnard (1968, p. 302) believed ‘‘differences in mental processes quite independent of knowledge or experience’’ were the cause for the above two difficulties and suggested that these mental processes, themselves, could be classed into two categories: logical and non-logical. Barnard defined logical processes as ‘‘conscious thinking which could be expressed in words, or . . . reasoning,’’ while non-logical processes – presaging today’s interest in tacit knowledge (Polanyi, 1958, 1966) – were considered to be those mental processes ‘‘not capable of being expressed in words . . .’’ They could only be made known or explicit through ‘‘judgment, decision, or action’’ (Barnard, 1968, p. 302). Barnard acknowledged the essential role of logic in everyday affairs as well as its usefulness ‘‘as a screen against errors in non-logical mental processes.’’ Yet, Barnard also warned of over-emphasizing logic and reasoning at the expense of the non-logical – that is, at the expense of ‘‘intuition’’. In fact, intuition was so important to the world of work and decisive behavior in the eyes of Barnard that he argued: We could not do any work without this kind of mental process. Some of it is so unexplainable that we call it ‘‘intuition’’. A great deal of it passes under the name of ‘‘good judgment’’. Some of it is called ‘‘inspiration’’ and

occasionally it is the ‘‘stroke of genius’’. But most of it is called ‘‘sense’’, ‘‘good sense’’ or ‘‘common sense’’, ‘‘judgment’’ or the ‘‘bright idea’’ (1968, p. 305).

Regardless of what one called it, the message for Barnard remained the same. Intuition was fundamental to decision making and underlay nearly every aspect of it, even if decision makers frequently rationalized their decisions after-the-fact (Barnard, 1968, pp. 303-5). Citing Pareto’s Trattato di Sociologia Generale (1935) – of whom more will be said below – Barnard explained how institutions from ancient times to the present have been based upon non-logical motives ‘‘accompanied by an incessant din of reasons’’ (Barnard, 1968, p. 305). ‘‘Much of the error of historians, economists and all of us in daily affairs,’’ he says, ‘‘arises from imputing logical reasons to men who could not or cannot base their actions on reason’’ (Barnard, 1968, p. 305). Of course, Barnard was not the first to observe the role of intuition in decisive behavior. As evidence of the critical role intuition played in ‘‘even the most rigorous scientific work,’’ Barnard (1968, p. 306) quoted from the 1930 edition of the Encyclopaedia Britannica and its definition of the ‘‘scientific method’’: In every inductive investigation, common sense, accumulated experience and knowledge, some originality, and a spirit of adventure are indispensable. Nothing, not even a study of scientific method, can serve as a substitute for these things. One can only indicate briefly how investigators are commonly guided in discriminating between what is likely to be relevant and what is likely to be irrelevant . . . . Another clue [as to what is relevant in scientific inquiries] is almost too vague for precise description, yet its influence is very real. It just consists of a vague feeling, or intuition, that certain things are relevant and others are not. This feeling ‘‘in our marrow’’ is probably an outcome of previous experience that has not yet emerged into articulate thought. Its very vagueness shields it from critical scrutiny (emphasis in Barnard’s original, but not in the Encyclopaedia Britannica).

Pareto, Barnard, and Henderson: non-logical decision making In a retrospective look at the first 100 years of sociology, Mitchell (1968, p. 115) proposed that it was not possible to write the history of sociology without referring to Vilfredo Pareto. The same also may be said in making sense of Barnard’s views of ‘‘intuition’’ and ‘‘non-logical’’ decision making. Yet Barnard’s

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Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Management Decision 40/10 [2002] 992–1002

debt to Pareto runs much deeper than even this implies. Without the influence of Pareto’s ideas and the unusual chain of events Barnard’s link to Pareto’s thinking set in motion, it seems highly unlikely that Barnard would ever have written The Functions of the Executive. And, failing that, it seems equally unlikely that management scholars today would even have heard of Barnard, let alone be concerned about his ideas on ‘‘intuition’’ and ‘‘non-logical’’ decision making. Vilfredo Federico Damaso Pareto was born in Paris in 1848, of mixed Italian-French ancestry, the only son of the Marquis Raffaele Pareto – an Italian exile expelled from Italy for his political views. Vilfredo Pareto was initially trained and worked as a civil engineer before turning later in life to the pursuit of both economics and sociology – the two fields in which he made his most enduring contributions. Importantly, Pareto stood opposed to nearly all things ‘‘enlightened’’. That is, he rejected the exclusive role of reason in decision making, favoring instead the underlying interplay of people’s sentiments, emotions, and instincts. Equally important, at least for this recounting, Pareto also stood opposed to liberalism, egalitarianism, and Marxism. Pareto died in 1923, but his influence in sociological circles persisted for decades thereafter and continues to influence economic thinking to this day. Pareto’s influence on social thought in the 1930s was especially strong – not only for Barnard, but also for those involved in Harvard’s ‘‘Pareto Circle’’ (Heyl, 1968; Keller, 1984), who invited Barnard to participate in their meetings and who, ultimately, figured so prominently in the ultimate publication of The Functions of the Executive[1]. In today’s age of ‘‘capitalism triumphant’’, it is easy to forget the allure Marxism held for many in the early part of the twentieth century – certainly throughout the world, but also no less so in many liberal US universities. This was especially so in the 1930s, when large-scale historical frameworks to explain socio-political phenomena, of the sort proposed by Marx, enjoyed widespread support on many US university campuses (Heyl, 1968, p. 316). It was in this context that Pareto’s own framework provided something of a refuge and antidote. As Loperato (1965, p. 30) put it in hindsight: According to Pareto, a social order inevitably deteriorates – for one set of reasons or another – to the point where its value system is torn apart, as it were, and then put back together by acts of violence which express the growing need of value integration or

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uniformity in the society. Thus Pareto shared much of Marxist theory, at least with the role of conflict as an endogenous cause of social change and social integration. What he did not share, as a skeptic and realistic observer of history and human nature, was Marx’s excessively rationalistic prediction of a definitive resolution of conflict through victory by the masses. For Pareto, it is always an oligarchy that governs, and history is a graveyard of aristocracies.

The famous sociologist, George C. Homans, was also a member of Harvard’s ‘‘Pareto Circle’’ and explained at least some of Pareto’s appeal as a defense against the very real challenges posed by Marxism’s growing popularity: As a Republican Bostonian who had not rejected his comparatively wealthy family, I felt during the thirties that I was under personal attack, above all from the Marxists. I was ready to believe Pareto because he provided me with a defense (Homans, 1962, p. 4).

The ‘‘Pareto Circle’’ at Harvard that formed under the influential leadership of Lawrence J. Henderson – and which included Barnard as a periodic guest lecturer – was known to its detractors as ‘‘the Pareto cult’’, while Pareto was coined the ‘‘Karl Marx of the bourgeoisie’’ (Heyl, 1968, p. 317). Still, the Circle’s influence was not a function of its size; rather, the power of its ideas. According to Pareto Circle-member Crane Brinton, the historian and social scientist: The Pareto cult was never one that influenced a majority of the faculty, but it had fairly wide repercussions (Heyl, 1968, p. 317; Keller, 1984, p. 195).

Indeed, years later researchers would look back on the Pareto Circle and credit it with significantly influencing the development of the organizational and behavioral sciences for decades to come (Levy, 1973; Keller, 1984). Members of the Pareto Circle included, at various times, George C. Homans, Talcott Parsons, Crane Brinton, Charles P. Curtis, Joseph Schumpeter, Elton Mayo, Clyde Kluckhohn, Robert Merton, and its organizer and acknowledged leader, Lawrence J. Henderson (Heyl, 1968; Keller, 1984). And, of course, periodically, as a visiting presenter, Chester Barnard. Central to Pareto’s view of decision making, and also the most direct link to Barnard’s notion of ‘‘non-logical’’ and ‘‘intuitive’’ mental processes, are Pareto’s ideas of ‘‘sentiments’’, ‘‘residues’’, and ‘‘derivations’’. Departing substantially from the prevailing notions of his day – and indeed, to the present day – Pareto maintained that humans, for the most part,

Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Management Decision 40/10 [2002] 992–1002

were not ruled so much by logic and reason as by sentiments (the non-logical, unpremeditated, self-acting, underlying moral forces of human behavior/conduct). In Barnard’s own words in ‘‘Notes on the nature of decision’’, Barnard explains that Pareto (1935), in his Traite´ de Sociologie Ge´ne´rale, lays the groundwork for the analysis of social action and the synthesis of his social system by his demonstration that the behavior of men in society is largely neither logical nor illogical but non-logical. He found behavior to be largely governed by ‘‘sentiments’’, and not by ‘‘logico-experimental reasoning’’ (see Wolf, 1995c, p. 39). Henderson (1967, p. 21) argued that ‘‘no sentiment is more troublesome than that which leads ‘ideologists’, the ‘intelligentsia’ or ‘intellectuals’, and in fact all of us, to mistake as rational what is non-rational in human behavior’’. Further, the manifestations of these sentiments (i.e. residues) could be classed into six major groups, which Pareto believed were not only common to all humanity, but also immutable across time (see Table I). Another key dimension in Pareto’s social theorizing was his notion of ‘‘derivations’’ – that is to say, of rationalizations. Preceding by nearly two decades Barnard’s own warning of the deep desire on the part of executives ‘‘to argue and to justify [their actions] by rationalization’’ (Barnard, 1968, p. 303), Pareto described ‘‘derivations’’ as the ostensibly logical justifications people used to ‘‘rationalize’’ their essentially non-logical, sentiment-driven actions (Loperato, 1965). Therefore, ‘‘a derivation is a non-logical argument, explanation, assertion, appeal to authority, or association of ideas or sentiments in words’’ (Henderson, 1967, p. 23). It is not clear from the evidence which of the two discovered Pareto first, Barnard or Henderson. What is clear, though, is the critical role Pareto’s thinking played in the

thoughts and actions of both men – especially with regard to intuition and non-logical decision making in the case of Barnard – and the ‘‘bond of interest’’ Pareto’s work created between the two men (Wolf, 1973, p. 2). Barnard explains Henderson’s introduction to Pareto’s writings, as well as Henderson’s view of the role of intuition in clinical work, in the following manner: Henderson was utterly convinced that there was no possibility of any science, strictly, in social relations. He held to that view until 1925, along in there, when he wrote a book on the physical characteristics of blood. . . . As a result (of writing this book and his contact with the staff at the Massachusetts General Hospital), Henderson became convinced for the first time, I think, in his life that men with clinical experience acquired an intuitive knowledge that was not available in any other way and that while it might not be called science it couldn’t be called nonscience either . . . There was an entomologist at Harvard whose name I cannot at the moment recall . . . He was not a scientist, but was really a very learned and a very capable fellow . . . He said to Henderson one day ‘‘You ought to read this book by Pareto!’’ Henderson said, ‘‘I’m not interested in reading what Pareto or anybody else has to say about the social system’’ . . . This man said, ‘‘But Pareto’s different. I think you will find that it is very much worth your while to read Pareto’s Sociology’’. Henderson did and became captivated right away because Pareto’s got a lot of physics and mechanics and chemistry and that kind of an approach, much of which is obsolete today. That’s what got Henderson excited about it (Wolf, 1973, p. 16).

Barnard, for his part, also had read Pareto in the French and was already very familiar with Pareto’s thought before meeting Henderson in January 1937 (Wolf, 1995d, p. 7). In 1936, after the Brackett Lecture, Barnard sent some of his personal papers to Wallace Donham, the Dean of the Harvard Business

Table I Classification scheme of Pareto’s residues Residues Description Class I Class II Class III Class IV Class V Class VI

‘‘Instinct for combinations’’: those sentiments in individuals and society that tend toward progressiveness, inventiveness, and the desire for adventure ‘‘Preservation of aggregates’’: the conservative side of human nature including loyalty to such enduring institutions as family, church, community and nation ‘‘Religious and patriotic ceremonies’’: such symbolic traditions as saluting the flag, participating in religious communion services, participating in a military parade, and the like ‘‘Embracing individual and societal discipline’’: these would include such acts or phenomena as self-sacrifice for family and community, and country ‘‘Those aspects of society stressing individual integrity’’: these residues contribute to social stability and systems of criminal and civil law ‘‘Sexual instinct’’: these residues embody the instinct or tendency to see social events in sexual terms [ 995 ]

Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Management Decision 40/10 [2002] 992–1002

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School. These papers included Barnard’s recent presentation at Princeton. Donham was especially impressed with ‘‘Mind in everyday affairs’’ and asked Barnard to send him 200 additional copies to circulate to others. Readers should recall at this point that Barnard’s ‘‘Mind in everyday affairs’’ incorporated not only Pareto’s notion of nonlogical mental processes as an explanation of human behavior in work, but also the explicit mention of Pareto’s Traite´ de Sociologie Ge´ne´rale (Barnard, 1968, p. 305). In January 1937, Donham invited Barnard to his house to discuss in part Barnard’s Princeton address. While there, Donham introduced Barnard to Henderson (Wolf, 1995d, p. 7), a former college classmate of Donham and a personal friend (Horvath and Horvath, 1973, p. 21). A short time later, Henderson invited Barnard to participate in a new course he was offering called ‘‘Concrete sociology’’ (Wolf, 1995c, p. 7) – a course designed around Pareto’s concepts of sociology. By this time, Henderson (1967) had published his own book on Pareto, Pareto’s General Sociology[2], and was looking for concrete cases to which Pareto’s general theory of social systems would apply. Between May 6, 1938 and November 21, 1941, Barnard presented to Henderson’s Concrete Sociology seminar Barnard’s now famous case on ‘‘The riot of the unemployed at Trenton, New Jersey, 1935’’ (Wolf, 1995e, p. 28; Scott and Mitchell, 1989, p. 308). According to Scott and Mitchell (1989, p. 308), Barnard frequently stressed on these occasions the importance of the intuitive, non-logical and non-intellectual dimensions of behavior in this case – and indeed, in all practical management situations – and felt that he had achieved his greatest success in applying Pareto’s concepts and derivations in the retelling of the Trenton riot case. Shortly after Henderson had met Barnard in early 1937, Henderson gave Barnard’s name to Harvard president, A. Lawrence Lowell, a close and long-time friend and confidant of Henderson. As Barnard relates, in addition to being President of Harvard University, Lowell was also the sole trustee of the Lowell Foundation. For a long time, this Foundation had sponsored the popular Lowell Institute lectures (Wolf, 1973, p. 14), which Barnard had attended as a boy in Boston in the early 1900s. But by November and December 1937, they had long since ceased to be popular. In fact, Barnard doubted there were ever more than 50 people in the audience for his lectures on the functions of the executive; and half of those were friends and relatives. Still, this series of eight lectures was published less than a year

later, after about 18 to 20 rewrites (Barnard, in Wolf, 1973, p. 15), as The Functions of the Executive. Included as an appendix to this work was ‘‘Mind in everyday affairs’’. Together, these two seminal works provide the first systematic discussion of the role of rationality and intuition in a management context.

Barnard’s conceptualization of tacit/organic, personal, and formal forms of knowledge By 1940, and after continued discussions with Henderson, Barnard became intrigued by the notion that: . . . a sense or emotional belief in teleology is indispensable to the operation of the process of decision, and, therefore of reasoning . . . (In fact, such) behavior so far as we can now see requires intuitions and intellectually held fictions which definitely conflict with scientific facts and conclusions; that this state of affairs is an important subject for scientific consideration in psychology and sociology; and that it presents an extremely important problem in the application of social science (Barnard, in a letter to Henderson, February 26, 1940, in Wolf, 1995e, p. 29) [bold emphasis added].

Over the course of the next two months, Barnard put his ideas on the ‘‘nature of decision’’ into a series of ‘‘Notes’’ – 11 in all. Though they were never formally completed, nor published during his lifetime, his ‘‘Notes on the nature of decision’’ were finally published in 1995 in The Journal of Management History (Vol. 1 No. 4) as part of a special issue on ‘‘Barnard’s decision processes’’. Between his earlier ideas on intuition in ‘‘Mind’’, and his further elaboration of intuition in ‘‘Notes’’, Barnard’s view of the centrality of intuition in decision making had taken firm hold. He remained convinced, as he had at the end of ‘‘Mind’’, that ‘‘‘Brains’ without ‘minds’ remain a futile imbalance’’ (Barnard, 1968, p. 322). Indeed, he cautioned that, while ‘‘Respect for the importance of what is ‘not reason’ has certainly increased, . . . its respectability has not’’ (in Wolf, 1995f, p. 33). Barnard observed that behavior defined as ‘‘observable acts’’ divided into two kinds: responsive and decisive. Yet, he went on to say that: . . . it can be shown that all or nearly all decisions in inquiry involve elements of responsive behavior, and that, for this and other reasons, most decisions even in scientific inquiry are non-logical, or rather that description as logical or non-logical is irrelevant (Barnard, 1968, p. 42).

Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Management Decision 40/10 [2002] 992–1002

Barnard did not stop here. He identified seven stages in the decision process: 1 the apprehension and acceptance of the end-in-view; 2 the organization of the situation; 3 the discrimination of the factors of the situation; 4 the discrimination of alternatives; 5 the integration of alternatives and end; 6 the translation of the strategic factors into terms of acts; and 7 finally, the fixing of choice. But then he added, echoing Pareto: Rarely . . . will all stages of a decision be resolved logically. Usually each stage or phase will be resolved by intuitive processes (Barnard, 1968, p. 46).

Earlier in his ‘‘Notes’’, Barnard had described ‘‘intuition’’ as ‘‘uniformities distilled from experience’’. Consistent with this, he argues that discerning the strategic factors in a situation is ‘‘almost completely non-logical or intuitive’’, in the same manner that discriminating between alternatives is ‘‘chiefly discerned by habit’’. Similarly: . . . the process of integration is not one of logical consequences but of intuitive sense of situations as wholes (Barnard, 1995, pp. 41, 53-4, 56).

Foreshadowing concerns with tacit knowledge decades later, Barnard also explains the critical difference between decision processes and processes of valid thinking. He suggests that, while contradiction is not permitted in valid thinking, it is not only permitted in decision making, but sometimes even required. ‘‘Appropriateness of decision . . . is not a matter of consistency’’, claims Barnard, ‘‘but of adaptation to a complex concrete situation, most of which is not susceptible to verbal statement’’ (Barnard, 1995, p. 67). In the end, Barnard held that the fundamental knowledge for both responsive and decisive behavior is organic knowledge (i.e. tacit knowledge), which he described as ‘‘experience acquired without consciousness of the experience’’. And most important: . . . decision does not occur without most of its processes lying permanently below the level of consciousness, i.e. except as these processes are responsive or intuitive in character. ‘‘Intuitive’’ may now be defined as organic, but not conscious, recognition, recall, imagination and conception (Barnard, 1995, pp. 79, 80).

In his last-completed, 11th Note, Barnard developed a detailed conceptualization of the various forms of knowledge (tacit/organic, personal, and formal knowledge), arguing that intuition plays an important role in the

knowledge discovery (i.e. innovation) process. In his view, the decision process in knowledge discovery incorporates the assumptions and actions of the decision maker. In general, knowledge discovery is judged less by the discovery process itself than by the possible uses of the knowledge so discovered. Accordingly, Barnard claims that ‘‘knowledge depends on constructive processes’’ (Barnard, 1995, p. 71). An important variable in this construction is the individual’s capacity to decide, because, as Barnard (1995, p. 76) explains, ‘‘the capacity of decision enlarges the range of experience’’. He further argued: . . . the enlarged experience from acts of decision is one of the important factors in the differences between decisive adaptation and purely intellectual processes; for it is evident that rapidity or quantity of action is an important element in the acquiring of subjective experience, as well as of objective knowledge which cannot be deduced from previous knowledge (Barnard, 1995, p. 77).

In other words, Barnard is convinced that: . . . contemplation and indecisiveness are often serious detriments both to behavioral capacity and to experiential knowledge.

An individual’s capacity to behave decisively in a knowledge discovery process is most often constrained by the socially established institutions, conventions and norms of conduct that are otherwise functional for decision making. In particular: . . . [a]rapid change in social conditions, increasing complexity of institutional equipment and excessive thinking break down the inner capacity to decide (Barnard, 1995, pp. 77, 79).

Drawing his inspiration from the rich tradition of pragmatism – which grounded value in human experience (Snider, 2000, p. 129) – Barnard found support in the work of John Dewey (1938) for his conviction that the ability of the individual to function in making decisions depends both on his/her experience and on the relevance of that experience for the social environment in which the decision is made. For Barnard: . . . ‘‘to experience’’ or ‘‘to acquire experience’’ is ‘‘to learn’’.

Specifically, experience becomes valuable for decision making when it is accumulated from learning in situations of marginal difference. These situations provide: . . . conditions for activity and behavior in such a way that this behavior is different than it would otherwise be.

Thus, pragmatism’s integration of theory and practice, and its nod to experience and consequences as means of verification, lay

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Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Management Decision 40/10 [2002] 992–1002

the foundation for Barnard’s argument that innovation-conducive intuition plays a critical role in knowledge discovery. (Barnard, 1995, pp. 78-9) In Barnard’s interpretation of pragmatism, individual experiential knowledge can be acquired in two modes: 1 without awareness or consciousness (i.e. through implicit learning); and 2 with awareness or consciousness (i.e. through explicit learning). Barnard (1995, p. 79) claims that explicit learning is superimposed on implicit learning because ‘‘there is no experience which is not, in part, below the level of consciousness.’’ In his view, the unconscious experience of implicit learning engenders tacit knowledge (i.e. which Barnard calls ‘‘organic knowledge’’), whereas the conscious experience of explicit learning engenders ‘‘personal knowledge’’ and ‘‘formal knowledge’’ (Barnard, 1995, p. 79). Personal knowledge is acquired by conscious experience through doing, perceiving and feeling, while formal knowledge is acquired through contemplation of intellectual inputs. Possession of formal and/or personal knowledge permits conscious recognition and recollection of previously represented experiences, as well as projection (i.e. in the form of imagination or another conception) of these experiences that can be articulated and explained logically. In contrast, in case of the possession of tacit knowledge, these processes of recognition, recollection and projection are intuitive (i.e. unconscious), and ‘‘may be inferred from behavior though not consciously verbalized’’ (Barnard, 1995, p. 80). Barnard (1995, p. 79) gives credit to both Humphrey’s (1933) The Nature of Learning and to Koffka’s (1935) Principles of Gestalt Psychology as influential sources forming his understanding of the relationships among tacit knowledge, experiential learning, and decisive behavior. These sources revealed to him that learning at any given time depends on the individual’s mental capacity, occasions of experience, and the length and nature of that experience. It requires ability to face unknown environments without fear and with self-discipline, while maintaining stability. These qualities arise from tacit knowledge acquired intuitively. Specifically, Barnard (1995, p. 84) posits, ‘‘the emphasis on ‘experience’ as a prerequisite to effective behavior is undoubtedly on organic knowledge’’ (i.e. tacit knowledge). The effective behavior grounded on tacit knowledge is diagnostic as individuals ‘‘behaviorally recognize ‘types’ of situations,

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and differences of types, without being able to describe them effectively and, when they attempt to do so, usually it is apparent that they are giving rationalizations’’ (Barnard, 1995, p. 85). Foreshadowing Polanyi’s (1958) post-critical philosophy of the 1950s, Barnard distinguished between tacit, personal, and formal forms of knowledge. He argued that, in contrast with tacit knowledge that is acquired unconsciously, personal knowledge is acquired consciously, and can be articulated, although it is seldom articulated voluntarily. Formal knowledge differs from personal knowledge in Barnard’s view ‘‘in that it is consciously received through symbolism and intellectual judgment’’ (Barnard, 1995, p. 85). An illustration given by Barnard is that a specific form of formal knowledge is knowledge of particular intellectual procedures. All these forms of knowledge, which Barnard (1995, p. 86) labels as ‘‘social material of experience’’, are assumed as intimately interconnected in time and space. Even intensive study, which: . . . quickly passes beyond the state of recognition or recall . . . alters the form of experience I called personal knowledge through its effect on observation and conception of relations between purely ‘‘local’’ objects (Barnard, 1995, p. 86).

In summary, in Barnard’s view, intuition is the invisible organic glue that bonds the various forms of knowledge together (i.e. thus integrating thought and action) in the knowledge discovery process (i.e. thus facilitating innovation). In other words, intuition is the e´lan vital of socially productive decisive behavior.

Barnard, Simon, and intuition: agreeing to disagree Barnard wrote his Notes on intuition before the Second World War. In April 1945, a young Herbert Simon wrote Barnard and asked him to review his manuscript on decision-making processes in administrative organizations. Barnard agreed and in the correspondence that ensued it is possible to see the differences in their respective views of the role of intuition in decision making. Some of the sharpest differences are articulated in Barnard’s May 11, 1945 letter to Simon, outlining his ‘‘general comments’’ on Simon’s manuscript. Barnard takes issue with Simon’s distinction between the value and the factual elements of decision. He suggests that: Your treatment suppresses from view the enormous extent to which assumptions are

Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Management Decision 40/10 [2002] 992–1002

elements of decision and the extent to which the selection of assumptions is itself the occasion for decision (Wolf, 1995g. p. 91).

A few paragraphs later he adds: A general review of the problem . . . reinforces what I said above about the degree to which decisions are inevitably based not on facts so much as on assumptions.

Here, one cannot help but again hear the echoes of Barnard’s (1995) earlier thoughts where, in ‘‘Notes’’, he says that discerning the ‘‘strategic’’ factors in a situation is ‘‘almost completely non-logical or intuitive’’ (p. 53); and that ‘‘the process of integration is not one of logical consequences but of intuitive sense of situations as wholes’’ (p. 56). Later he adds: Here I think I should add as relevant in a very fundamental way that in an extremely high proportion of decisions it is impossible ever to determine which alternative was or would have been the better. The situation is like that of the explorer who sets a distant mountain peak as his immediate goal; of the various alternative routes by which he guesses that he might reach it, he can, in fact, traverse only one and he never can know whether the one he selected was the better, although under some conditions he may be able to make a fair guess . . . The great mass of decisions are private, rarely expressed, frequently cannot be made articulate, and are decisions of choice between assumptions and between speculation as to the consequences of concrete action (Wolf, 1995g, p. 92).

More than two years later, Simon’s book was finally published, along with Barnard’s foreword. In a letter dated September 5, 1947, Barnard congratulates Simon on the publication of his book while also graciously taking issue with Simon over: . . . a couple of gentle pokes at me on account of the references to intuitive behavior in ‘‘Mind in everyday affairs’’ (Wolfe, 1995e, p. 95).

Simon had noted: Even Barnard, whose critical insight usually saves him from the ‘‘practical man’’ fallacy, credits the intuitional faculties with considerably more validity than seems to be due to them (Simon, 1947, p. 90).

In a response to Barnard postmarked three days later, September 8, 1947, Simon responded to Barnard: I am glad you found the book an improvement over the original version. If there is any improvement, your suggestions had a great deal to do with it (1947, p. 97). I am not prepared to debate, without further thought, the ‘‘intuition’’ issue. The trait of intuition appears to have two elements: (1) the willingness to make decisions when all the facts are not in, and (2) the ability to make

such decisions with a fairly high batting average. Item (1) is, I suppose, the antithesis of what you call ‘‘over-intellectualization’’. About that we would give no quarrel. It seems to me, however, that there should be some word or words in the English language less ambiguous than ‘‘intuition’’ to describe how different individuals have varying capacities to make correct decisions under such circumstances. If you mean that some people make more accurate judgments than others where probabilistic considerations are involved, I would agree. If you mean, in addition, that the reasoning process is not necessarily conscious, systematic, and deductive (as implied by your term ‘‘aesthetic judgment’’), I would agree with that too. But this is no more true of everyday affairs than it is of the way mathematicians arrive at new theorems. At all events, I would argue that when we say of a man, ‘‘His judgment is good,’’ we often mean, ‘‘He is confident of the correctness of his judgments.’’ I am still not satisfied that this is the whole story, and probably will have further comments to send you later.

So far as is known, he never did pursue the matter further with Barnard. But 40 years later, Simon (1987) returned to the topic of intuition in managerial decision making – and provided an answer of sorts to Barnard’s enduring challenge. ‘‘At the time I wrote Administrative Behavior (1941-1942)’’, Simon (1987) explained, ‘‘I was troubled by Barnard’s account of intuitive judgment . . . , largely, I think, because he left no clues as to what subconscious processes go on while judgments are being made’’. Simon also indicated that: . . . some students of management, especially those whose goal is to improve managementdecision processes, have felt less comfortable with (Barnard’s account of decision processes). It appears to vindicate snap judgments and to cast doubt on the relevance of management-science tools, which almost all involve deliberation and calculation in decision making (Simon, 1987, p. 58).

In the end, Simon eliminated the problem by declaring intuition and analysis as ‘‘essential complementary components of effective decision-making systems’’. ‘‘It is a fallacy’’, claims Simon, ‘‘to contrast ‘analytic’ and ‘intuitive’ styles of management. Intuition and judgment – at least good judgment – are simply analyses frozen into habit and into the capacity for rapid response through recognition . . . The effective manager does not have the luxury of choosing between ‘analytic’ and ‘intuitive’ approaches to problems. Behaving like a manager means having command of the whole range of management skills and applying them as

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they become appropriate’’ (Simon, 1987, pp. 61, 63). To have such a command, however, as noted by Simon and others – as well as by Barnard, required long periods of learning and experience (Isenberg, 1984; Simon, 1987; Prietula and Simon, 1989; Khatri and Ng, 2000). Intuition is a sophisticated form of reasoning based on ‘‘chunking’’, argued Simon (1987, p. 61), whereby those involved hone their ‘‘intuitions’’ through years of job-specific experience developing a masterly grasp of the details of the task and business at hand (Isenberg, 1984; Seebo, 1993; Khatri and Ng, 2000, p. 59).

Intuition today Increasing numbers of researchers have recognized, as Barnard did, the pivotal role of non-logical and intuitive decision making in management contexts. Fredrickson (1985, p. 839) compared decision-making processes of second-year MBA students with those of experienced executives and found less comprehensive actions recommended by the students, while the ‘‘decision processes preferred by executives exhibit[ed] both rational analysis and intuitive synthesis’’. Pondy, two years prior to Fredrickson’s research, concluded much the same: Organizational research literature has tended to reject rationality as a concept in favor of random enactment, garbage-can models, symbolism, and qualitative methods . . . But such approaches are as incomplete in their own ways as the prior rational approaches were . . . [We] should attempt an integration of rational and intuitive approaches to organization (1983, p. 189).

Weick proposed that intuition would be better viewed as parallel processing than as serial processing. ‘‘Thinking’’, Weick (1983, p. 223) argued, ‘‘is not sandwiched between activities; rather it exists in the form of circumspection present when activities are executed’’. Harper (1989) suggested that intuition was what separated executives from managers, while Agor (1989) counseled practitioners to lead and manage productively through intuition. In 1990, Terence Mitchell, who has written extensively about Barnard, wrote an article with Lee Roy Beach titled ‘‘‘ . . . Do I love thee? Let me count . . . ’: toward an understanding of intuitive and automatic decision making’’. Curiously, despite the subject-matter, and Mitchell’s familiarity with Barnard, nowhere is Barnard’s contribution to intuitive decision making mentioned. Still, the ideas articulated in Mitchell and Beach’s image theory are highly

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consistent with Barnard’s own ideas on intuition. Parikh et al. (1994) identified intuition as the new frontier of management, while Shirley and Langan-Fox (1996, p. 563) argued that today’s crush of events left little time for decision making and placed a premium on intuitive judgment. Burke and Miller acknowledged intuition’s bad reputation as a means of decision making (1999, p. 95), but argued that intuition is increasingly viewed as a viable approach to decision making in today’s fast-paced business environment. Similarly, Osbeck (1999, p. 230) concluded that until recently intuition has been avoided within the field of psychology because of earlier beliefs that it operated ‘‘on a lower plane of intellectuality’’ or, in Jungian psychoanalysis, as an ‘‘irrational mental function’’. Yet, in arguing for a historical analysis of the foundations of intuition in cognitive theory – in the hope of understanding intuition in ways not otherwise attainable through empirical inquiry alone – Osbeck (1999, pp. 233-4) further observed that studies integrating intuition and expert judgment seem to support the notion that experience improves performance in many subtle ways; even if also leaving one vulnerable to the counter-intuitive in life.

Conclusion During the last two decades of the twentieth century, the processes of globalization, technological sophistication, and deregulation have brought about the salience of consciousness as an important explanatory variable of managerial decision making. This is especially the case in unfamiliar situations characterized by new country markets, frequent technological innovations, and new rules of competition and cooperation. This salience has engendered a growing recognition among management scholars that both explicit behavior and implicit experience are critical for successful managerial actions in an increasingly complex and deregulated global context. As Jonas Salk, the discoverer of polio vaccine, observed, ‘‘If we can combine our intuition and our reason, we can respond in an evolutionary sound way to our problems’’ (Kharti and Ng, 2000, p. 58; Ray and Myers, 1990, p. 249). Moreover, the extensive evidence for unconscious (unreported, automatic, unaware, and unattended) mental processing has revived the interest in the importance of

Milorad M. Novicevic, Thomas J. Hench and Daniel A. Wren ‘‘Playing by ear’’ . . . ‘‘in an incessant din of reasons’’: Chester Barnard and the history of intuition in management thought Management Decision 40/10 [2002] 992–1002

intuition in the evolution of managerial tacit knowledge, habits, and routines[3]. The contemporary management research on (un)consciousness has, however, tended to overlook the seminal contributions of Chester Barnard to our understanding of the role of intuition in managerial thinking and decision making. Building on the established philosophical tradition of Dewey’s pragmatism, and integrated with the teachings of Pareto, Barnard was the first management researcher to question the exclusivity of logical reductionism inherent to dispositional behaviorism. Barnard convincingly argued that behavioral reductionism missed the importance of the unconscious, non-logical, intuitive processes and their contribution to the executive decisive behavior (Barnard, 1995). In summary, this paper reveals the intellectual roots (i.e. in the works of Pareto and Dewey) of Barnard’s conceptualization of intuition. This conceptualization can help us gain insight ‘‘into the complementary roles of serial (conscious) and parallel (unconscious) processes’’ arising from ‘‘the demands the environment places on the organism and the probable evolutionary responses to these demands’’ (Simon, 1956, p. 519). The evergreen appeal of Barnard’s conceptualization of intuition is reflected in the historical and current dialogs between the old and new institutionalists (whether habits explain rationality or vice versa) and between the evolutionary and neoclassical economists (whether cognitive or evolutionary psychology should be used to make assumptions about human nature). As we enter the knowledge-rich economy of the twenty-first century, we will focus increasingly on fine-grained research that embraces the role knowledge plays as a renewable resource in management. If, as we believe, history illuminates the evolutionary pathway of management thought (Wren, 1972), then Chester Barnard’s wisdom will endure as a lasting beacon.

Notes 1 See later, in this same section, for a more detailed account outlining the connection among Pareto’s social philosophy and Chester Barnard, Wallace Donham, the Dean of Harvard Business School, and Lawrence Henderson, the de facto head of Harvard’s ‘‘Pareto Circle’’. 2 For a comprehensive review of Henderson’s role in the evolution and functioning of Harvard’s ‘‘Pareto Circle’’, see Keller (1984). 3 See Lieberman (2000) for a comprehensive review of a social cognitive neuroscience approach to intuition.

References Agor, W.H. (Ed.) (1989), Intuition in Organizations: Leading and Managing Productively, Sage, Newbury Park, CA. Barnard, C.I. (1968), The Functions of the Executive, 30th anniversary ed., Harvard University Press, Cambridge, MA (originally published 1938). Barnard, C.I. (1995), ‘‘The significance of decisive behaviour in social action: notes on the nature of decision’’, Journal of Management History, Vol. 1 No. 4, pp. 28-87. Burke, L.A. and Miller, M.K. (1999), ‘‘Taking the mystery out of intuitive decision making’’, Academy of Management Executive, Vol. 13 No. 4, November, pp. 91-9. Crossan, M., Lane, H. and White, R. (1999), ‘‘An organizational learning framework: from intuition to institution’’, Academy of Management Review, Vol. 24 No. 3, pp. 522-37. Dewey, J. (1938), Logic: The Theory of Inquiry, H. Holt and Co., New York, NY. Fredrickson, J.W. (1985), ‘‘Effects of decision motive and organizational performance level on strategic decision processes’’, Academy of Management Journal, Vol. 28 No. 4, pp. 821-43. Harper, S.C. (1989), ‘‘Intuition: what separates executives from managers’’, Business Horizons, Vol. 31, pp. 13-19. Henderson, L.J. (1967), Pareto’s General Sociology, Russell & Russell, New York, NY (originally published 1935). Heyl, B.S. (1968), ‘‘The Harvard ‘Pareto Circle’’’, Journal of the History of the Behavioral Sciences, Vol. 4 No. 4, pp. 316-34. Homans, G.C. (1962), Sentiments and Activities: Essays in Social Science, Free Press, New York, NY. Horvath, S. and Horvath, E. (1973), The Harvard Fatigue Laboratory: Its History and Contributions, Prentice-Hall, Englewood Cliffs, NJ. Humphrey, G. (1933), The Nature of Learning in Its Relation to the Living System, Harcourt, Brace & Co., New York, NY. Isenberg, D.J. (1984), ‘‘How senior managers think’’, Harvard Business Review, November-December, pp. 81-90. Keller, R.T. (1984), ‘‘The Harvard ‘Pareto Circle’ and the historical development of organization theory’’, Journal of Management, Vol. 10 No. 2, pp. 193-203. Khatri, N. and Ng, A. (2000), ‘‘The role of intuition in strategic decision making’’, Human Relations, Vol. 53 No. 1, pp. 57-86. Koffka, K. (1935), Principles of Gestalt Psychology, Harcourt, Brace & Co., New York, NY. Lank, A. and Lank, E. (1995), ‘‘Legitimizing the gut feel: the role of intuition in business’’, Journal of Managerial Psychology, Vol. 10 No. 5, pp. 18-23. Levy, M.J.J. (1973), ‘‘A sociologist who knew science’’, Social Science Quarterly, Vol. 54, pp. 469-79.

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Lieberman, M.D. (2000), ‘‘Intuition: a social cognitive neuroscience approach’’, Psychological Bulletin, Vol. 126 No. 1, pp. 109-37. Loperato, J. (1965), ‘‘A functionalist reappraisal of Pareto’s sociology’’, The American Journal of Sociology, Vol. LXIX, May, pp. 639-46. McMahon, D. and Carr, J.C. (1999), ‘‘The contributions of Chester Barnard to strategic management theory’’, Journal of Management History, Vol. 5 No. 5, pp. 228-40. Mitchell, G. (1968), A Hundred Years of Sociology, Aldine Publishing Company, Chicago, IL. Mitchell, T. and Beach, L.R. (1990), ‘‘‘ . . . Do I love thee? Let me count . . . ’: toward an understanding of intuitive and automatic decision making’’, Organizational Behavior and Human Decision Processes, Vol. 47, pp. 1-20. Osbeck, L.M. (1999), ‘‘Conceptual problems in the development of a psychological notion of ‘intuition’’’, Journal of the Theory of Social Behavior, Vol. 29 No. 3, pp. 229-49. Pareto, V. (1935), Trattato di Sociologia Generale/General Sociology Treatise (The Mind and Society), (Livingston, A.B. and Livingston, A. trans.), Harcourt, Brace, Javanovich, New York, NY (originally published 1916). Parikh, J., Neubauer, F. and Lank, A. (1994), Intuition: The New Frontier of Management, Blackwell Business, Santa Cruz, CA. Polanyi, M. (1958), Personal Knowledge, University of Chicago Press, Chicago, IL. Polanyi, M. (1966), The Tacit Dimension, Anchor Books, New York, NY. Pondy, L. (1983), ‘‘The union of rationality and intuition management action’’, in Srivastva, S. (Ed.), The Executive Mind, Jossey-Bass, San Francisco, CA. Prietula, M.J. and Simon, H.A. (1989), ‘‘The experts in your midst’’, Harvard Business Review, Vol. 67 No. 1, pp. 120-4. Ray, M. and Myers, R. (1990). ‘‘Practical intuition’’, in Agor, W.H. (Ed.), Intuition in Organizations, Sage Publications, Newbury Park, CA, pp. 247-62. Scott, W. and Mitchell, T. (1989), ‘‘The universal Barnard: his meta-concepts of leadership in the administrative state’’, Public Administration Quarterly, Vol. 13, Fall, pp. 295-320. Seebo, T.C. (1993), ‘‘The value of experience and intuition’’, Financial Management, Vol. 22 No. 1, p. 27. Shirley, D. and Langan-Fox, J. (1996), ‘‘Intuition: a review of the literature’’, Psychological Reports, Vol. 79, pp. 563-84. Simon, H.A. (1947), Administrative Behavior, Macmillan, New York, NY. .

Simon, H.A. (1956), ‘‘Rational choice and the structure of the environment’’, Psychological Review, Vol. 63, pp. 129-38. Simon, H.A. (1987), ‘‘Making management decisions: the role of intuition and emotion’’, Academy of Management Executive, Vol. 1, pp. 57-64. Snider, K. (2000), ‘‘Rethinking public administration’s roots in pragmatism’’, American Review of Public Administration, Vol. 30 No. 2, pp. 123-45. Sparrow, P. (2000), ‘‘Strategic management in a world turned upside-down: the role of cognition, intuition and emotional intelligence’’, in Flood, P., Dromgoole, T. and Carroll, S. (Eds), Managing Strategy Implementation, Blackwell Publishers Inc., Malden, MA, pp. 15-30. Weick, K. (1983), ‘‘Managerial thought in the context of action’’, in Srivastva, S. (Ed.), The Executive Mind, Jossey-Bass, San Francisco, CA. Wolf, W.B. (1973), Conversations with Chester I. Barnard, Cornell University, Ithaca, NY. Wolf, W.B. (1995a), ‘‘Facts and fictions regarding Chester I. Barnard: a review of William G. Scott’s ‘Chester I. Barnard and the guardians of the managerial state’’’, International Journal of Public Administration, Vol. 18 No. 12, pp. 1859-904. Wolf, W.B. (1995b), ‘‘‘Introduction’ to decision processes as analyzed by Chester I. Barnard’’, Journal of Management History, Vol. 1 No. 4, pp. 4-6. Wolf, W.B. (1995c), ‘‘Chester Barnard: ‘The significance of decisive behaviour in social action. Note II: approaches to the fundamental position’’’, Journal of Management History, Vol. 1 No. 4, pp. 88-99. Wolf, W.B. (1995d), ‘‘‘Introduction’ to C.I. Barnard’s ‘Mind in everyday affairs: an examination into logical and non-logical thought processes’’’, Journal of Management History, Vol. 1 No. 4, pp. 7-8. Wolf, W.B. (1995e), ‘‘‘Introduction’ to C.I. Barnard’s unpublished ‘Notes on the significance of decisive behavior in social action: notes on the nature of decision’’’, Journal of Management History, Vol. 1 No. 4, pp. 28-32. Wolf, W.B. (1995f), ‘‘Chester I. Barnard: ‘The significance of decisive behaviour in social action: notes on the nature of decision’’’, Journal of Management History, Vol. 1 No. 4, pp. 28-87. Wolf, W.B. (1995g), ‘‘The Barnard-Simon connection’’, Journal of Management History, Vol. 1 No. 4, pp. 88-99. Wren, D. (1972), The Evolution of Management Thought, Ronald Press, New York, NY.

Juxtaposition of Chester I. Barnard and Frederick W. Taylor: forerunners of management Satyanarayana Parayitam Department of Management, Oklahoma State University, Stillwater, Oklahoma, USA Margaret A. White Department of Management, Oklahoma State University, Stillwater, Oklahoma, USA Jill R. Hough Department of Management and Marketing, University of Tulsa, Tulsa, Oklahoma, USA Keywords Management, History, Management theory

Abstract Much has been written about the works of Chester I. Barnard and Frederick W. Taylor but little attempt has been made by scholars to compare Barnard and Taylor. Barnard is a successor of Taylor and this may be one of the reasons why there has been a reluctance to place them side-byside. The purpose of this paper is to capture the similarities and differences that existed in the thinking of these two individuals who greatly influenced management thinking during the twentieth century.

Frederick W. Taylor and Chester I. Barnard represent two heavyweights in management scholarship and intellectualism. It is a difficult task to compare them. A cursory look at the works and lives of Taylor (1903, 1911) and Barnard (1938) reveal some interesting common points: . both had an interest in music; . both were practicing managers (non-academicians) while influencing the academic community; . both learned more from experience than from formal education; . both delivered lectures (though Taylor showed some reluctance in the beginning); . both had similar perspectives on ‘‘workplace cooperation’’; and . both had respect for the ‘‘worth of each human being’’.

Further, both emphasized a systems-based approach to organization. Yet there are significant conceptual differences between the two. Taylor most often looked at making the individual resources (e.g. people) more productive to make society better at large. On the other hand, Barnard tended to show more personal concern for the individuals and their welfare. Other notable differences pertain to: The authors would like to thank Kenneth Aupperle and . level of organization; Avis Johnson for their useful . system boundaries; and comments on an earlier . incentives. draft of this paper. Taylor concentrated on shopfloor level, whereas Barnard concentrated on the ‘‘whole organization’’. With respect to system boundaries, Taylor focused on the micro approach of ‘‘productivity’’, whereas Barnard emphasized the more macro ‘‘social system’’. As far as process is concerned, Taylor’s causal path was ‘‘work first and incentives Management Decision 40/10 [2002] 1003–1012 # MCB UP Limited [ISSN 0025-1747] [DOI 10.1108/00251740210452863]

The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

next’’, whereas Barnard’s path was ‘‘incentives first and work next’’. Both were early leaders of management practice and thought. Taylor was known as ‘‘the father of scientific management’’, whereas Barnard was identified as ‘‘the philosopher-king of American management’’ (Gabor, 2000, p. ix). For instance, Taylor paved the way for industrial psychology, industrial engineering, and some areas of personnel/human resources management. Indeed, the three main parts of Munsterberg’s (1913) Psychology and Industrial Efficiency – ‘‘The best possible man’’; ‘‘The best possible work’’; and ‘‘The best possible effort’’ – were borrowed from Taylor’s proposals (Wren, 1994, p. 166). Scientific management has clearly influenced academia and industry, and has resulted in the growth of management and management science. While living and working in the scientific management era, Chester Barnard put forth an analysis of the formal organization and postulated three functions of the executive, which reverberated within the management discipline. Barnard influenced scholars such as Fritz Roethlisberger, Elton Mayo, and Herbert Simon (Wren, 1994). Barnard’s acceptance theory of authority, his zone of indifference, his call for moral leadership, and his identification and integration of formal and informal organizations have been significant hallmarks that continue to be recognized by and to influence management practitioners and theorists today: Barnard engineered the intellectual bridge connecting the old world of the personal power to the modern world of organizational control (Stewart, 1989, p. 421).

This paper identifies similarities and differences between the approaches of Taylor and Barnard. First, a brief summary of their respective contributions to the field of management is provided.

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Overview of Barnard’s contributions Barnard’s (1938) book, The Functions of the Executive, is monumental in its impact on contemporary management and organizations. According to the literature Barnard’s book is the second most cited book in public administration[1] (McCurdy, 1986) and the second most influential management book of the twentieth century (Bedeian and Wren, 2001). Barnard’s concepts and theories have influenced both managerial thought and practice in both the public and the private sectors (Wolf, 1994). One of the hallmarks of the contributions of Barnard is that he not only stated the functions of the executive, but also explained the process of executing these functions. Before stating the functions, he created a platform to explain the importance of the formal and informal organizations. The platform depended upon cooperation as well as the concepts of acceptance theory of authority and the zone of indifference. Though some critics and some supporters have objected to his ‘‘impenetrable prose’’, they have grudgingly accepted the superiority of Barnard’s concepts. For example, Scott criticized Barnard on several counts, but acknowledged Barnard’s contributions: Chester I. Barnard’s The Functions of the Executive (1938) contains an integrated system of concepts that constitute the core of his management philosophy. Barnard was a pivotal figure in management, linking classical organization theory, Fayol’s functional approach, and technical rationality to modern complex organizations, emphasizing the need for the people who work in them to cooperate . . . Today, since management is in flux, fundamental value reform is needed in the form of another philosopher of Barnard’s stature (1982, p. 197).

Barnard opined that an individual’s willingness to cooperate and function within an organization is related to his/her zone of indifference and the amount of authority the individual is willing to grant to his/her superior (known as the acceptance theory of authority). Some scholars contend that his concept of zone of indifference is closely related to Lawrence Kohelberg’s stages of moral development. Indeed, empirical studies have confirmed the relationship between the zone of indifference and the individual’s code of morals (Rabin, 1994). For Barnard, moral commitment and persuasion are more important than authority. Barnard strongly believed that some organizations, like the United Services Organization, run well on these alone. Further, the concept of responsibility is superior to authority

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because authority represents a general level of respect that the organization may or may not have for the supervisors (Smith, 1994). Some critics argue that Barnard represented the interest group in power – the US establishment of upper class, white, male, Anglo-Saxon protestants (Scott, 1994). While president of the United Services Organization, Inc. (USO) during 1942-1945, Barnard noticed that the USO was staffed by people characterized by social skills and welfare work, but not business acumen. To reshape the organization, Barnard used the general management principles espoused in his writings to enhance morale and promote voluntarism (Biles and Bolton, 1994). Contrary to the popular belief that executives should possess a high order of mental ability to be successful, Barnard believed that less gifted executives could be successful if they have positive characteristics such as courage, the capacity for inspiring loyalty, frankness, and complete dedication to their job (Wolf, 1996). ‘‘Barnard’s work embraces a breadth and depth of conceptual thought that remains influential in the literature’’ and ‘‘Barnard did not construct boundaries between concepts, but integrated opposites’’ (Pye, 1994, p. 1125).

The functions of the executive Barnard’s elaboration on the executive function had a significant impact on management thought. His emphasis on maintaining communication, securing essential services from individuals, and formulating purpose and objectives is briefly summarized in this section.

Maintenance of organizational communication Perhaps taking cue from his experience at Bell, Barnard believed that all organizational activity involves communication. Hence channels of communication must be clearly defined and the line of communication should be as direct as possible. Barnard contended that: . . . since the communication will be accomplished only through the agency of persons, the selection of persons for executive functions is the concrete method of establishing means of communication, though it must be immediately followed by the creation of positions, i.e. a system of communication (1938, p. 218).

This system of communication was based on three major components: 1 the scheme of organization (i.e. creating the organizational chart, specification of duties, and division of labor); 2 personnel (i.e. selection, promotion, and other staffing services); and

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3 informal executive organizations (i.e. communication of intangible facts, opinions, suggestions, and suspicions that cannot pass through formal channels). Barnard summarized this function in the following words: . . . the first executive function is to develop and maintain a system of communication. This involves jointly a scheme of organization and executive personnel. The process by which the latter is accomplished includes chiefly the selection of men and the offering of incentives; techniques of control permitting effectiveness in promoting, demoting, and dismissing men; and finally securing of an informal organization in which the essential property is compatibility of personnel. The chief functions of this informal organization are expansion of the means of communication with the reduction in the necessity of formal decisions, the minimizing of undesirable influences, and the promotion of desirable influences concordant with the scheme of formal responsibilities (1938, p. 227).

Securing essential services from individuals Barnard’s second function is concerned with securing the ‘‘willingness to cooperate’’ from employees. This is not an easy task. To secure willingness to cooperate, Barnard suggested that executives offer objective incentives such as material (e.g. money), non-material (e.g. prestige and power), and associational (e.g. participation in decision making) incentives. Barnard did not prescribe a particular incentive that works best because he felt that different individuals are motivated by different incentives. Since individual motives are highly subjective, Barnard recommended that executives should try to elicit what influences the employees’ behavior. In his words, Barnard contended: The second function of the executive organization is to promote the securing of the personal services that constitute the material of organizations. The work divides into two main divisions (i) bringing of personal into cooperative relationship with the organization (ii) the eliciting of the services after such persons have been brought into that relationship (1938, p. 227).

Formulation of purpose and objectives To secure willingness to cooperate, all employees should be aware of the purpose of the firm, their unit, and their own task. More often than not, individuals contribute to the organization not with the motive of meeting organizational goals, but rather to meet their own goals. However, they perceive that personal rewards will come from achieving the organizational objectives. Barnard elaborates on this by saying:

The third executive function is to formulate and define the purposes, objectives, and ends of the organization . . . The critical aspect of this function is the assignment of responsibility – the delegation of objective authority. Thus, in one sense this function is that of the scheme of positions, the system of communication (Barnard, 1938, p. 231).

Barnard also acknowledged that cooperative systems depend on how executive authority is perceived by individuals. The central keys are the concept of authority and the zone of indifference. Individuals accept the authority of a supervisor unquestionably only when they understand what needs to be done and when what needs to be done is compatible with the purpose of the organization as well as their personal interests. This assumes that the individuals are mentally and physically able to comply. Further, Barnard introduced the zone of indifference concept – for each individual there is a zone within which orders are accepted without questioning the authority of the superior. To briefly sum up, Barnard was emphatic about defining the common purpose of the enterprise and recognized that executives in organizations should use their communication and leadership skills to elicit cooperation from employees and meet organizational objectives.

Overview of Taylor’s contributions Taylor’s (1911) Principles of Scientific Management was the most influential book in organization science during the twentieth century (Bedeian and Wren, 2001). Taylor’s production methods helped create the foundation for improved manufacturing efficiency, greater profits, and higher wages. Paradoxically, Taylor’s personality and innovative work methods have provoked differences among the workers on the factory floor. Despite the differences among workers, Taylor’s view of workers as cogs in a much larger machine led to greater productivity and greater potential for workers to improve their lot (Gabor, 2000, p. 7). Scientific management, in its essence, consists of a philosophy circumscribed by four underlying principles of management (Taylor, 1911, p. 130): 1 the development of true science; 2 the scientific selection of workmen; 3 scientific education and development of the workmen; and 4 cooperation between management and workmen. Taylor states: Scientific management is not any efficiency device, not a device of any kind for securing efficiency; nor is it any bunch or group of

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efficiency devices. It is not a new system of figuring costs; it is not a new scheme of paying men; it is not a piecework system; it is not a bonus system; it is not a premium system . . . these devices in whole or in part are not scientific management; they are useful adjuncts to scientific management, so are they also useful adjuncts of other systems of management. Now, in its essence, scientific management involves a complete mental revolution on the part of the working man engaged in any particular establishment or industry – a complete mental revolution on the part of these men as to their duties toward their work, toward their fellow men, and toward their employers. And it involves an equally strong revolution on the part of those on the management’s side – the foreman, the superintendent, the owner of the business, the board of directors – a complete mental revolution on their part as to their duties toward their fellow workers in the management, toward their workmen, and toward all of their daily problems. And without this complete mental revolution on both sides scientific management does not exist (Taylor, 1911, p. 26).

Taylor’s most influential works, including Shop Management (1903) and Principles of Scientific Management (1911), have been lauded (Drucker, 1989; Hough and White, forthcoming; Locke, 1982) and criticized by management scholars throughout the twentieth century (Wolf, 1974; Simon, 1976; Scott, 1992; Wrege and Perroni, 1974). Most management textbooks include references to Taylor’s work. The approach Taylor emphasized included: . . . science, not rule of thumb; harmony, not discord; cooperation, not individualism; and maximum output, in place of restricted output; The development of each man to his greatest efficiency and prosperity (1911, p. 140).

Taylor and Barnard compared Table I, which compares Taylor’s Principles of Scientific Management with Barnard’s The Functions of the Executive, reveals some interesting commonalities between Taylor and Barnard with regard to the following thematic areas: . organizational perspective; . group perspective; . individual perspective; . management techniques; . classification of workers; and . the process of management. The most common threads between these two management thinkers can be seen in terms of their similar views with regard to identifying tasks, the importance of incentives, respect for workers, and the need for training.

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Though at the outset, Table I appears to reveal more differences than commonalities, the following discussion attempts to unravel the inherent linkages in the approaches.

Organizational perspective This is one major thematic area in which both Taylor and Barnard agree that the interests of the organization are superior to the interests of individuals. When Taylor emphasized a ‘‘depersonalized’’ (i.e. scientific) approach and when Barnard viewed ‘‘depersonalization of personal action’’, the emphasis was the superiority of the organization over the individual. Barnard contended that: . . . willingness . . . means self-abnegation, the surrender of control of personal conduct, the depersonalization of personal action (1938, p. 84).

The basic theme is that, in the grand scheme of the organization, activities can be coordinated only when individuals make their acts as contribution to an impersonal system, ‘‘one in which the individuals gives up personal control of what he does’’ (Barnard, 1938, p. 84). Taylor believed that the focus of management should be on increasing performance by using scientific method, whereas Barnard attempted to increase performance through the system of communication and by securing essential personal efforts on the part of individuals. One very interesting common point in both Barnard and Taylor is with regard to task definition and the division of work. Taylor advocated the identification of elements, careful division of work into segregated parts, and the development of better methods to accomplish the task. Through this process overall performance would be improved (Taylor, 1911, pp. 36-7). According to Barnard, however, task division begins with the selection of appropriate technology associated with each task: In this view the breaking-up of general purpose into detailed tasks involves the selection of a technology appropriate to each task, which may be treated by itself, independently of other technologies of the same cooperative system. What is then required for general effectiveness is only that the detailed technologies shall each be effective . . . At a given time, for given end, under given conditions, which specific technology is to be selected is the variable factor. We select which is the ‘‘better’’ method under the conditions, which are granted. However, what must be emphasized here is that treating the total situation as a constant does not eliminate it, and that in fact there is a dependence of each technical process on all others used in the same cooperative system. The breaking-up of general purpose into detailed objectives implies this (1938, p. 237).

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Examination reveals that Taylor’s version is not very different from what Barnard thought about task division. Taylor determined what had to be done and then proceeded to analyze the ‘‘what’’ into the ‘‘how’’. In other words, he advocated breaking up the master task into the detailed tasks that were necessary for goal accomplishment. Taylor believed that no task or problem can be grasped until it is known and studied in detail (Copley, 1923, Vol. 1, p. 206). Thus, Taylor found that the master task of getting work done in the quickest time required dealing with two principal technologies – the shop’s equipment and the workers’ operation of that equipment. It is interesting to note that Barnard suggests the organization will not be able to know all the facts and detail everything out. This is a sharp contrast of difference between Barnard and Taylor.

Again, this seems somewhat in conflict with the stated objective of this section. From an organizational perspective, yet another common point between Taylor and Barnard concerns their emphasis on a systems approach to organization and scientific inquiry. Barnard explained: Thus, the executive process, even when narrowed to the aspect of effectiveness of organization and the technologies of organization activity, is one of the integration of the whole, of finding the effective balance between the local and the broad considerations, between the general and the specific requirements (1938, p. 238).

Thus, Barnard emphasized that the integration of activities is essential for the successful functioning of an organization. Taylor applied scientific inquiry not only to management but also to almost every field. He did not spare any area from this scientific

Table I The comparison of Taylor and Barnard Thematic areas

Taylor’s scientific management

Organizational perspective Focus on increasing performance rather than dividing profits (Taylor, 1911, p. 136) Strive to find better methods of doing work so that both individual and organization are benefited (Taylor, 1903, p. 148) Study the work to identify which elements contribute to overall performance (Taylor, 1911, pp 36-7) Focus on power and authority (at the shopfloor level) (Copley, 1923, Vol. 2, p. 292) Group perspective

Individual perspective

Management techniques

Classification of workers

Process

Workers should cooperate with one another (US Government, 1912, pp. 1387, 1451) Cooperation between labor and management (Taylor, 1911, p. 26) Train, help, and develop each individual (Taylor, 1911, p. 47) Encourage people to come out with better methods (US Government, 1912, p. 199)

Manage both work and workers scientifically (Taylor, 1911, p. 21) Principles of scientific management (Taylor, 1911, p. 140) First-class workers Second-class workers (who can do but who do not do) Second-class workers (who cannot do) (Taylor, 1903, pp. 28-9, 56) Incentives: by following the prescribed methods, workers were able to earn above average wages Both financial and non-financial incentives Ex-post in nature

Barnard’s functions of executive Provide a system of communication (Barnard, 1938, p. 217) To promote the securing of essential personal efforts (Barnard, 1938, p. 227) Formulate and define purpose (Barnard, 1938, p. 231) Existence of both ‘‘formal’’ and ‘‘informal organizations’’ (Barnard, 1938, p. 115) Importance of ‘‘informal organization’’ in securing cooperation and achieving ‘‘equilibrium’’ (Barnard, 1938, p. 123) Willingness to cooperate Common purpose of group members Communication (Barnard, 1938, p. 82) Status of individuals and the properties of persons The method of treating individuals Characteristics of personal behavior Meaning of effectiveness and efficiency in personal behavior (Barnard, 1938, p. 9) Channels of communication should be directly known Objective authority requires a definite formal channel of communication to every member of an organization Lines of communication should be as direct and short as possible (Barnard, 1938, pp. 175-9) Executive functions (Barnard, 1938, p. 215)

Executives Managers Workers (Godfrey, 1994, p. 1071) Incentives: specific inducements; general incentives (Barnard, 1938, p. 142) Ex-ante in nature

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inquiry. From childhood, Taylor loved mechanical inventions and tried to find better ways of doing things. For him, even games were serious matters, and as a boy he saw croquet as an opportunity to work out the angles of the various strokes, the force of the impact, and the advantages and disadvantages of the under-stroke and over-stroke (Wren and Greenwood, 1998, p. 135). Through scientific inquiry, Taylor tried to find how long a job should take when done with proper methods, motions, and tools, while others were satisfied with the total time a job took. Taylor dissected the job into its component parts, analyzed each part carefully, and reconstructed the job as it ought to be done such that a worker would be able to perform the job efficiently and with less fatigue. A close examination of Barnard’s and Taylor’s view on organizational perspective represent holistic thinking on the part of Barnard (i.e. right brain in focus) and examination of each and every part carefully before integration by Taylor (i.e. left brain focus)[2], thus revealing two different approaches. Similarities apart, Taylor and Barnard differed on several issues including the starting-point of their analysis. Taylor concentrated on the ‘‘shopfloor’’ level and carried it to the organizational level. Taylor’s version can be represented as moving from ‘‘micro’’ to ‘‘macro’’ as he conceived that organizational efficiency could be achieved only when efficiency is achieved in every individual worker. Taylor puts it: . . . the greatest prosperity can exist only as a result of the greatest possible productivity of the men and machines of the establishment – i.e. when each man and each machine are turning out the largest possible output (Taylor, 1911, p. 12).

On the other hand, Barnard emphasized the ‘‘macro’’ view of effective organizations and their systems of communication, definite purpose, and informal organization. A close examination reveals that the driving motivations of these two scholars differ sharply. It appears that Taylor chose to improve performance by being autocratic, while Barnard chose to reach the same goal by resorting to cooperation and empowerment.

Group perspective Yet another thematic area represents the group perspective. Taylor and Barnard had similar views at this level because both emphasized ‘‘cooperation’’. Taylor’s view can be summed up as follows:

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Under the old type of management success depends almost entirely upon getting the ‘‘initiative’’ of the workmen, and it is indeed a rare case in which this initiative is really attained. Under scientific management the ‘‘initiative’’ of the workmen (that is, their hard work, their goodwill, and their ingenuity) is obtained with absolute uniformity and to a greater extent than is possible under the older system; and in addition to this improvement on the part of the men, the managers assume new burdens, new duties, and new responsibilities . . . These new duties are grouped under four heads: First. They develop a science for each element of a man’s work, which replaces the old ruleof-thumb method. Second. They scientifically select and train, teach, and develop the workman, whereas in the past he chose his own work and trained himself as best he could. Third. They heartily cooperate with the men so as to insure all of the work is being done in accordance with the principles of the sciences, which has been developed . . . (Taylor, 1911, p. 36).

Taylor further emphasized cooperation between labor and management. Taylor believed that: . . . all the particular tasks which contribute to the accomplishment of general task are equally worthy of respect; that one man is indeed as good as another as he plays his part as well as the other man plays his (Copley, 1923, Vol. 1, p. 291).

Taylor also reiterated that scientific management: . . . requires the hearty cooperation of the management at all points with the workmen (Taylor, 1911, p. 76).

Though by definition no organization can exist without people, Barnard argues that people alone do not constitute the organization. The services, acts, and actions of individuals are the core of any organization. Thus, the willingness of the people to contribute to the cooperative system is indispensable for the success of the organization. Barnard summarized this by stating: Organization, simple or complex, is always an impersonal system of coordinated human efforts; always there is purpose as the coordinating and unifying principle; always there is the indispensable ability to communicate, always the necessity for personal willingness, and for effectiveness and efficiency in maintaining the integrity of purpose and the continuity of contributions (1938, pp. 94-5).

Individual perspective Taylor contended that management should train, help and develop each individual. Further, management should encourage

Satyanarayana Parayitam, Margaret A. White and Jill R. Hough Juxtaposition of Chester I. Barnard and Frederick W. Taylor: forerunners of management Management Decision 40/10 [2002] 1003–1012

people to develop better work methods. To secure cooperation between workers and management, Taylor believed that the workers must be provided with training. Supervisors should help the workers in this process. Taylor narrated the tale of shoveling to a congressional committee, wherein the teacher comes to help a worker who had received a yellow piece of paper signifying that the workman had earned less than the standard for the previous day: The teacher comes, in every case, not to bulldoze the man, not to drive him to harder work than he can do, but try in a friendly brotherly way to help him, so he says: ‘‘. . . something has gone wrong with you. You know, no workman who is not a high-priced workman can stay on this gang, and you will have to get off it if we cannot find out what is the matter with you. I believe you have forgotten how to shovel right. I think that’s all there is the matter with you. Go ahead and let me watch you a while. I want to see if you know how to do the damn thing, anyway (Copley, 1923, Vol. 2, p. 63).

It is not uncommon to find that Taylor was criticized for his attitude towards labor. The reality is that he showed respect for workers and their burden. Workers, misunderstanding him and his approach, viewed scientific management as a disfranchising and dehumanizing influence that reduced the average worker to little more than an appendage of the machine at which he labored. One of the most vocal critics of scientific management, Samuel Gompers, went so far as to say that Taylorism had to be fought at all costs. Training, helping and developing each individual were a necessary component of scientific management. Additionally, Taylor advocated better methods of doing work and always encouraged employees to come out with better methods. Contrary to the popular belief that Taylor used to insist that there is a ‘‘best way’’ of performing, he confessed that ‘‘best way’’ today need not be the ‘‘best way’’ tomorrow. Taylor expressed this belief when he said: We do not know the best; we are sure that within two or three years better methods will be developed than we know of; but what we know is the result of a long series of experiments and careful study of every element connected with shop practice; these standards that lie before you are the results of these studies. We ask you to learn how to use these standards as they are, and after that, the moment any man sees an improved standard, a better way of doing anything than we are doing, come to us with it; your suggestion will not only be welcome but we will join you in making a carefully tried experiment, which will satisfy both you and us and any other

man that your improvement is or is not better than anything before. If that experiment shows that your method is better than ours, your method will become our method and everyone of us will adopt that method until somebody gets a better one (1st Conference at Amos Tuck School, 1912, p. 54).

On the other hand, Barnard’s perspective on individuals goes beyond Taylor’s ‘‘workers’’ to include ‘‘employees’’, ‘‘members’’, ‘‘contributors’’, and ‘‘executives’’. Barnard shows concern about the: . . . activities or behavior of individuals arising from psychological factors, to which are added the limited power of choice, which results in purpose (Barnard, 1938, p. 13).

Barnard’s conceptualization of the individual is radically different from that of Taylor in at least one sense. Taylor’s approach was basically mechanistic in the sense that workers should be trained and polished just like machines, whereas the ‘‘psychological component’’ was the primary concern of Barnard. Barnard contended: . . . no construction of theory of cooperative systems or of organizations, nor any significant interpretation of the behavior of organizations, executives, or others whose efforts are organized, can be made that is not based on some position as to the psychological forces of human behavior. There is scarcely a chapter in which those given are not exemplified (1938, p. 14).

Taylor, in sharp contrast, contended: . . . the workmen are studied; it may seem preposterous, but they are studied just as machines have been studied in the past and are being more than ever studied. In the past we have given a great deal of study to machines and little to workmen, but under Scientific Management the workman becomes the subject of far more careful and accurate study than was ever given to machines . . . This is the second of the principles of scientific management (1st Conference at the Amos Tuck School, 1912, p. 33).

Management techniques The techniques of management for Taylor began at the shopfloor level, whereas Barnard emphasized the whole organization. Taylor employed the technique of scientific management; Barnard employed executive functions. These were summarized in the overview of Taylor’s and Barnard’s contributions. It should be observed that the techniques employed by these individuals are essentially different, though the objectives are the same, i.e. achieving organizational efficiency and effectiveness. In other words, their goals were parallel but the means to achieve the goals were different.

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Classification of workers There are some differences in how Taylor and Barnard classified the workers. Taylor always tried to identify the workers who were inefficient and then tried to separate them from efficient workers. In his terminology, those suited for a particular task were the ‘‘first-class workers’’ and others were called ‘‘second-class workers’’. Taylor identified two types of second-class workers: 1 second-class workers who can do but who do not; and 2 second-class workers who cannot do. Taylor’s concern was about the first category of the second-class workers. Before a congressional committee he said, ‘‘I do not want the workers who can but do not work’’ (US Government, 1912, p. 155). Barnard, on the other hand, identified three types of employees: 1 executives; 2 managers; and 3 workers. Their fundamental difference is obvious. Taylor’s concept of worker was restricted to ‘‘blue-collar workers’’ (though Taylor emphasized the role of functional foremanship, his concentration was on controlling and improving the output of factory workers), whereas Barnard extended the concept beyond the blue-collar workers and included the middle-level and white-collar workers also. Thus, he provided an overall classification scheme of employees in an organization and pointed out that cooperation among different classes of employees is very important to improve efficiency. This reiterates the conception of micro versus macro views of Taylor and Barnard.

Process In the process of securing cooperation and contribution from workers, both Taylor and Barnard emphasized the role of incentives but with one important yet subtle difference. Barnard used incentives in an ‘‘ex ante’’ sense whereas Taylor used them in an ‘‘ex post’’ sense. In other words, for Taylor producing more than ‘‘standard output’’ was the antecedent and ‘‘increased pay’’ was the incentive (consequence). For Barnard, incentives are antecedents and the increased cooperation and performance are the consequences. Both, however, proposed that financial as well as non-financial incentives are indispensable to meeting organizational goals. Taylor’s concept of setting ‘‘difficult goals’’ was taken as a cue by Locke and Latham (1990) in their goal-setting theory of motivation. Taylor advocated daily feedback

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about the individual’s progress towards meeting the targets and offered money (along with other non-monetary incentives such as fast promotion) as reward for task accomplishment. On the other hand, Barnard propagated two types of incentives – specific inducements (e.g. incentives that can be specifically offered to an individual) and general incentives. Specific inducements could include material inducements (money, things, or physical conditions), personal non-material opportunities, desirable physical conditions, or ideal benefactions. General incentives include associational attractiveness, adaptation of conditions to habitual methods and attitudes, the opportunity of enlarged participation, the condition of communion (Barnard, 1938, p. 142). Barnard recommended using persuasion to get employees to do what needed to be done because he believed it was virtually impossible to provide adequate incentives to the employees. As Barnard stated: . . . organizations are probably never able to offer all the incentives that move men to cooperative effort, and are usually unable to offer adequate incentives (1938, p. 149).

Barnard was of the opinion that: . . . if an organization is unable to afford incentives adequate to the personal contributions it requires it will perish unless it can by persuasion so change the desires of enough men that the incentives it can offer will be adequate (1938, p. 149).

One of the methods of persuasion is creation of coercive conditions. Sometimes forced exclusion is also employed as a means of persuasion by example: . . . to create fear among those not directly affected, so that they will be disposed to render to an organization certain contributions (Barnard, 1938, p. 149).

Barnard maintained that: Coercion is employed both to exclude and to secure the contribution of individuals to organization. Exclusion is an aspect of competition or hostility between organizations or between organizations and individual with which we shall not further be concerned, except to note that exclusion of undesirables is a necessary method of maintaining organizational efficiency (1938, p. 149).

If we seriously examine Taylor’s idea of enhancing organizational efficiency, it matches that of Barnard: Scientific management has no place for a bird that can sing and won’t sing (US Government, 1912, pp. 155-6).

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Conclusions In this short essay, a comparison of both Taylor and Barnard was made with special reference to their contributions and differences in the approaches, as well as similarities. On the one hand: If American management became a global standard, it was due in large part to the foundations laid by Taylor. Without Taylorism, large-scale mass production would have been impossible (Gabor, 2000, p.43).

In sharp contrast with the mechanistic conceptions of Taylor, Barnard concentrated on the complexities of the human element in the organization. Further, he addressed the ‘‘psychological forces of human behavior’’ and emphasized the need for pursuing psychological approaches to managing complexities of human behavior and coping with its limitations (Barnard, 1938, p. 14). Summarizing his contributions Gabor aptly remarks: . . . seen in the context of uncertain global economy on the cusp of a new millennium, Barnard’s philosophy seems eerily prophetic (2000, p. 82).

Unquestionably, Barnard is still ‘‘The philosopher-king of American management’’ (Gabor, 2000, p. 67), and Taylor is the ‘‘Father of scientific management’’. Optimistically, the image created by the contributions of Barnard and Taylor continues to catch the attention of academicians and practitioners in the new millennium. Finally, one last question that remains to be answered, i.e. what do, each have to offer in the new millennium? In the contemporary scheme of business organizations some might argue that: . Barnard has more to offer than Taylor; or . Taylor has more to offer than Barnard; or . both are important in the new millennium; or even . neither is any longer relevant. Academicians and practitioners, instead of leaving the temple of the past in the past, must understand the concepts advocated by Barnard and Taylor to understand the foundations of management thought. The contributions of Barnard and Taylor are relevant in the new millennium because they laid the foundations of understanding the psychology of work behavior in organizations, the foundations of task design, the foundations of labor/management relations, the foundations of securing cooperation with the use of incentives, as well as the foundations of many other areas of management thought. The organizational,

group, individual perspectives of organizations and the process of securing cooperation in terms of incentives are essentially the same as these thinkers iterated. To the extent that their paradigms are still valid the contributions of both Barnard and Taylor remain applicable and need to be studied and understood in the new millennium.

Notes 1 The first one was Wildavsky, Politics of the Budgetary Process, cited 21 times, whereas The Functions of the Executive was cited 17 times. 2 We are thankful to Professor Kenneth Aupperle for bringing up this point of ‘‘right brain vs. left brain focus’’ of the approaches by Barnard and Taylor.

References 1st Conference at the Amos Tuck School (1912), Dartmouth College, Hanover, NH. Barnard, C.I. (1938), The Functions of the Executive, Harvard University Press, Cambridge, MA. Bedeian, A.G. and Wren, D.A. (2001), ‘‘Most influential management books of the 20th century’’, Organizational Dynamics, Vol. 29 No. 3, pp. 221-5. Biles, G.E. and Bolton, A.A. (1994), ‘‘Chester I. Barnard: President of USO, 1942-1945’’, International Journal of Public Administration, New York, NY, Vol. 17 No. 6. Copley, F.B. (1923), Frederick W. Taylor: Father of Scientific Management, 2 vols., Harper & Row, New York, NY. Drucker, P.F. (1989), The New Realities, Harper & Row, New York, NY. Gabor, A. (2000), The Capitalist Philosophers: The Geniuses of Modern Business – Their Lives, Times and Ideas, Times Business, New York, NY. Godfrey, P. (1994), ‘‘The Functions of the Executive & The Republic: exploring the Platonic roots of Chester I. Barnard’’, International Journal of Public Administration, New York, NY, Vol. 17 No. 6, pp. 1071-92. Hough, J.R. and White, M.A. (forthcoming), ‘‘Using stories to create change: object lessons from Frederick Taylor’s ‘pig tale’’’, Journal of Management. Locke, E.A. (1982), ‘‘The ideas of Frederick W. Taylor: an evaluation’’, Academy of Management Review, Vol. 7, pp. 14-24. Locke, E.A. and Latham, G.P. (1990), A Theory of Goal Setting and Task Performance, Prentice-Hall, Englewood Cliffs, NJ. McCurdy, H.E. (1986), Public Administration: A Bibliographic Guide to the Literature, Marcel Dekker, New York, NY. Munsterberg, H. (1913), Psychology and Industrial Efficiency, Houghton-Miffin Co., Boston, MA. Pye, A. (1994), ‘‘Walking and talking Chester I. Barnard’’, International Journal of Public

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Administration, New York, NY, Vol. 17 No. 6, pp. 1125-56. Rabin, J. (1994), ‘‘Barnard and morality in organizations’’, International Journal of Public Administration, New York, NY, Vol. 17 No. 6, pp. 1239-98. Scott, W.G. (1982), ‘‘Barnard on the nature of e´litist responsibility’’, Public Administration Review, Vol. 42 No. 3. Scott, W.G. (1992), Chester I. Barnard and The Guardians of the Managerial Stage, University Press of Kansas, Lawrence, KS. Scott, W.G. (1994), ‘‘Chester I. Barnard and other antecedents of the present management order’’, International Journal of Public Administration, New York, NY, Vol. 17 No. 6, pp. 1093-106. Simon, H.A. (1976), Administrative Behavior: A Study of Decision Processes in Administrative Organization, 3rd ed., Free Press, New York, NY. Smith, E.B. (1994), ‘‘Chester Barnard’s concept of responsibility’’, International Journal of Public Administration, New York, NY, Vol. 17 No. 6, pp. 1157-75. Stewart, D.W. (1989), ‘‘Barnard as a framework for authority and control’’, Public Productivity Review, Vol. 13 No. 4. Taylor, F.W. (1903), Shop Management, Harper & Row, New York, NY. Taylor, F.W. (1911), The Principles of Scientific Management, Harper & Row, New York, NY.

US Government (1912), ‘‘Hearings before a special committee of the House of Representatives to investigate the Taylor and other systems of shop management under an authority of House Resolution 90’’, US Government Printing Press, Washington DC. Wolf, W.B. (1974), The Basic Barnard: An Introduction to Chester I. Barnard and His Theories of Organization and Management, Ithaca, NY, New York State School of Industry and Labor Relations, Cornell University, Ithaca, NY. Wolf, W.B. (1994), ‘‘Understanding Chester I. Barnard’’, International Journal of Public Administration, New York, NY, Vol. 17 No. 4, pp. 1035-70. Wolf, W.B. (1996), ‘‘Chester I. Barnard’s reflections on his nine weeks in the United States Treasury Department’’, International Journal of Public Administration, New York, NY, Vol. 19 No. 4, pp. 449-591. Wrege, C.D. and Perroni, A.G. (1974), ‘‘Taylor’s pig tale: a historical analysis of Frederick W. Taylor’s pig-iron experiments’’, Academy of Management Journal, Vol. 17, pp. 6-27. Wren, D.A. (1994), Evolution of Management Thought, John Wiley & Sons, New York, NY. Wren, D.A. and Greenwood, R.G. (1998), Management Innovators: The People and Ideas That Have Shaped Modern Business, Oxford University Press, New York, NY.

Managing a riot: Chester Barnard and social unrest

James Hoopes Division of History and Society, Babson College, Wellesley, Massachusetts, USA

Keywords Management theory, Human relations, Motivation, Leadership

Abstract This paper examines a key event in the life of Chester Barnard, a ‘‘riot of the unemployed’’ in Trenton, New Jersey in 1935 when Barnard was director of the state Emergency Relief Administration. In a later influential lecture at Harvard, Barnard used the incident to support the ideas of the Harvard human relations group that recognition and dignity were more powerful motivators than money and fear. Contemporary newspaper accounts show that the rioters were motivated more strongly by monetary concerns than Barnard admitted. Barnard was misled by the ideology of the Harvard human relations group to underestimate the importance of power and money, an underestimation that may still be important today, given his continuing influence. That a man of Barnard’s integrity was misled by his ideology is grounds for us in our time to maintain some humility as to the extent of our managerial knowledge.

Management Decision 40/10 [2002] 1013–1023 # MCB UP Limited [ISSN 0025-1747] [DOI 10.1108/00251740210452872]

Barnard and the Harvard human relations group Relating Chester Barnard to his own era may help in assessing his relevance to a new millennium. By examining a dramatic incident in Barnard’s career – a ‘‘riot of the unemployed’’ as he called it – this paper suggests that Barnard inaccurately underestimated the usefulness of power and money as management tools. By understanding what was inaccurate in Barnard’s ideas as a response to his own historical circumstances we may better apply to our own times his still influential and important insights as to the usefulness of recognizing employees’ dignity and power. In the late 1930s Barnard did for senior management what Elton Mayo and the Harvard human relations group a little earlier had begun to do for shopfloor supervision. Abandoning the conventional, Taylorist idea of the executive as a giver of order, Barnard, more than anyone else, created the modern idea of the manager as a ‘‘leader.’’ Rather than autocratically running the business from the top down, the leader, according to Barnard, creates a harmonious environment for human cooperation so that the organization can profit from the combined skills of able people working together. The essence of leadership lies in recognizing that real power and control in an organization flow from the bottom up. By recognizing the power and dignity of those who follow ‘‘orders,’’ the leader wins their cooperation and harnesses their energies to organizational purpose. Although Barnard’s ideas on leadership are known mainly to us now through his The Functions of the Executive (Barnard, 1938), he won his initial influence not through writing but speaking. By delivering a once famous lecture on a ‘‘riot of the unemployed’’ at The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

Harvard in the spring of 1938 he confirmed the conviction of key Business School faculty such as Elton Mayo, Lawrence Henderson, and the school’s dean, Wallace Donham, that he had important new insights into leadership, ideas that drew on and developed the emphasis that they were already placing on human relations. Had the spread of Barnard’s ideas depended on his writing they might well have languished unnoticed in his book where, with his unusual passion for precision, he explained leadership in abstract and rarefied language. His ‘‘riot’’ lecture conveyed his ideas most vividly and authoritatively to the Harvard human relations group, who asked for half a dozen encore performances in the late 1930s. They rewarded his renditions of the ‘‘riot’’ lecture by disseminating his ideas throughout the academic and business worlds. Barnard formed his ideas on leadership and recognition at least partly under the influence of the Harvard human relations group. As a distinguished former Harvard student (but not a graduate) he served on some of the University’s visiting committees and in the middle 1930s came into touch with the human relations group. Barnard, though president of New Jersey Bell, had not heard of the Hawthorne experiment at Western Electric, the Bell system’s manufacturing subsidiary. Only through contact with the Harvard group did Barnard acquire the intellectual framework in human relations that in turn enabled him to contribute important ideas on leadership to management theory. Although the human relations group enjoys a reputation as a liberating force in management, it had quite conservative political and social objectives, aiming not merely to humanize capitalism but to correct excesses in the democratic political system that, in their view, exposed society to dangerous divisiveness. The Harvard group wanted to downplay the role of monetary incentives in favor of psychological factors

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and especially the satisfactions of community at work. Fearing the breakdown of social order during the Great Depression and in the aftermath of the First World War, they distrusted the ability of the democratic political process to handle the social stresses of industrialism and the radical political ideologies of Bolshevism and Fascism spawned by those stresses. Accordingly, they hoped to develop at the Harvard Business School a managerial e´lite who would restore in the workplace the unifying human relations that industrialism had destroyed in society at large. The Harvard group was scarcely alone in their worries about democracy. The early twentieth century was a time of profound questioning of traditional democratic theory with its emphasis on protection of the individual against established power. As political theorists of the time strove to come to terms with new forms of institutionalized power in giant corporations, labor unions, professional organizations, and government agencies, they recognized that much of the good from these new organizations could only be accomplished at the expense of giving up democracy’s traditional, Jeffersonian idea of protecting individual freedom by minimizing institutional power (Kloppenberg, 1986; Purcell, 1973). New Deal technocrats, corporate public relations counsel, leaders of scientific and professional organizations all engaged in the difficult transition from traditional democratic values to an accommodation with a modern society of managerially intense organizations. The Harvard group, generally more fearful for social stability than many of these other thinkers, tilted toward a conservative accommodation between older notions of democracy and new forms of administrative power. Workplace humanism would conserve, not challenge, the established order. The three key members of the Harvard group who most directly influenced Barnard were Elton Mayo, Wallace Donham, and Lawrence Henderson. Mayo, the dominant voice among them, was the well-known interpreter of the Hawthorne experiment, which provided the empirical basis for the human relations movement. Less widely understood is the fact that Mayo interpreted the Hawthorne results in the light of a longstanding skepticism toward democracy that he had developed in his youth, when he lived in Australia with its bitter class divisions and labor strife. Mayo looked to the business corporation to restore in the workplace some of the social harmony that he believed modern democratic societies had

inadvertently destroyed. As society grew more complex and reliant on technical and managerial expertise it was ever more threatened by what Mayo saw as the ‘‘outstanding failure of democracy’’ (Mayo, 1919, p. 59), the ‘‘failure to appreciate the social importance of knowledge and skill’’ (Mayo, 1919, p. 59). Psychologically astute management would create at work a ‘‘common social purpose’’ (Mayo, 1919, p. 72) that would defeat what Mayo saw as the typical democratic politician’s ‘‘immoral endeavour’’ (Mayo, 1919, p. 28) of encouraging neurotic fears ‘‘in order to attach them to the social and industrial conditions his own quack remedies profess to cure’’ (Mayo, 1919, p. 32). Wallace Donham, Dean of the Harvard Business School, offered institutional protection to the human relations group, but he was also a vitally interested participant in its intellectual life. Looking for a way to raise the then low status of the Harvard Business School by giving it a professional mission higher than the training of mere moneygrubbers, Donham aimed to create an administrative e´lite for US business that would serve a broader social role as well. Like many establishment leaders in the 1930s, he feared that the Depression and, before that, the First World War signaled the onset of a new age of darkness. Taking as his touch-stone text Oswald Spengler’s Decline of the West (Spengler, 1980), Donham aspired to educate at the Harvard Business School a class of leaders skilled not in the use of hierarchical corporate power but in the insightful practice of human relations on which he believed the future of civilization depended (Cruikshank, 1987). Donham wrote: Either we must succeed in providing a rational coordination of impulses and thoughts . . . or . . . see the collapse of the upward striving of our race (Donham, 1931, p. xxix).

Finally, and most importantly to Barnard, Lawrence J. Henderson, director of the Fatigue Laboratory at the Business School, supported the need for e´litist leadership in all social groups. A distinguished scientist who made discoveries in blood plasma and human salt retention that saved the lives of countless wounded soldiers, automobile crash victims, summer athletes, and steel workers laboring in extreme heat, Henderson also exerted enormous influence in the development of US sociology through his advocacy of the ideas of the Swiss-Italian sociologist, Vilfredo Pareto and his idea that justice and ethical concerns were rationalizations for the role of dominant social e´lites in maintaining social

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order. A passionate political conservative whose beard was red, as one Harvard wag put it, but ‘‘not his politics’’ (Henderson, 1968, p. 7), Henderson taught a famous Harvard seminar in ‘‘concrete sociology.’’ He invited a number of visitors to the seminar to offer unblinkered interpretation of their own social experiences by analyzing them in the light of Pareto (Henderson, 1968; Horvath and Horvath, 1973; Keller, 1984). Barnard, one of the seminar’s guest speakers, offered the students his analysis of the ‘‘riot’’ along lines suggested by Pareto.

The riot The second floor of the Old Post Office Building, Trenton, New Jersey, Tuesday, April 23, 1935. In the bleak sixth year of the Great Depression, 18 representatives of Trenton’s unemployed citizens are meeting with Chester Barnard, director of New Jersey’s Emergency Relief Administration, on which 15 per cent of the state’s population depends for food, clothing, and shelter. Outside, a large crowd sings that year’s popular hits. A total of 2,000 boisterous relief recipients have accompanied their leaders to the meeting with Barnard to demonstrate their anger at the state’s treatment of the unemployed. The crowd’s presence and noise signal what Barnard will later describe as ‘‘revolutionary conditions’’ (Barnard, 1948, p. 62). Police reinforcements have just arrived. Only days earlier Barnard, President of New Jersey Bell Telephone Company, has accepted the governor’s request that he take the job of state relief director in order to correct mismanagement of the program. One of Barnard’s first steps has been to agree to the request of leaders of relief recipients for this meeting to discuss their grievances. But the noisy crowd singing in the street below is a surprise element. He has nevertheless shaken hands with each of the 18 leaders of the unemployed who have trooped into his conference room. ‘‘Large and powerful’’ but ‘‘badly dressed,’’ these men suffer so obviously from ‘‘worry, malnutrition, and desperation’’ that Barnard, as he will later admit, underestimates ‘‘their intelligence, experience, and previous social status’’ (Barnard, 1948, p. 64). Suddenly the crowd’s singing turns to shouts. Rushing to the windows, Barnard and the leaders of Trenton’s unemployed look down into a street full of mayhem. The police, night-sticks flying, are attacking the crowd. The retreating demonstrators knock down and trample some of their comrades, then

scatter and run. Five of the protestors are arrested, one of them needing hospitalization because of the police beating. Inside, the demonstrators’ spokesmen lament the violence and urge Barnard to postpone the meeting. He sets the next Tuesday to reconvene and suggests that eight representatives of the unemployed will be enough. Departing soon after the men, Barnard declines the police offer of a motorcycle escort. From his chauffeur who has been waiting in the street he gets an explanation of how the violence began. An accidental shove and a few harsh words, the driver reports, brought a violent overreaction from the police (Barnard, 1948, p. 58). Barnard will nevertheless later describe the incident as a ‘‘riot of the unemployed’’ (Barnard, 1948, p. 58), not a police riot, in a famous lecture that he delivered half a dozen times at Harvard a few years later. But in 1935, in Depression-era New Jersey, dealing with dissatisfied relief recipients, Barnard draws not only on abstract theory but also on his considerable practical experience as President of New Jersey Bell, an operating company of the American Telephone & Telegraph Company, the national telephone monopoly that also owns Bell Labs and the Hawthorne Plant. Barnard will resolve the crisis by putting to work knowledge gained from 26 years’ experience in practicing human relations within the AT&T bureaucracy. An ardent advocate of public assistance to the unemployed, Barnard had served the state relief program once before. In 1931 and 1932, also at the request of the governor, he had created New Jersey’s system of relief assistance, organizing state aid to the needy whose numbers had outrun the capacity of charities and churches. Barnard’s work in New Jersey, acclaimed for both efficiency and humanity, became a model for publicly funded relief efforts elsewhere, making him a pioneer of the modern managerial state in which social problems are delegated to expert administrators. Now in 1935, both the relief recipients and the general public believe that the New Jersey program has run downhill, with the result that Barnard has been pressed back into service. To Barnard’s dismay, this new stint running the relief program has begun with a potential public relations disaster in the ‘‘riot,’’ part of an outbreak of aggressive activism by Trenton’s unemployed. Influenced by radical students from New York and by local socialists, the relief recipients had organized themselves, elected leaders, and begun to push aggressively for

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increased benefits, a move that Barnard believed would only hurt their cause. Barnard set himself the job of snuffing out protests by the Trenton unemployed in order to protect the relief recipients from themselves. Their militancy ‘‘threatened the demoralization of the relief organization of the entire state’’ (Barnard, 1948, p. 69). Much of the tax-paying public resented the expensive relief program, which by 1935 consumed more than half of the state government’s budget. Conservatives thought of relief as a boondoggle laden with graft and chiseling. If the protest by the Trenton unemployed flared into a state-wide movement, political support for relief might evaporate, leaving tens of thousands of families to beg or go hungry. The ‘‘revolutionary conditions’’ would be intensified. Who knew what might happen? Putting to work in the public arena the cool civility that he had learned in corporate life, Barnard aimed to reduce tension as the first step toward controlling the situation. The wounded feelings of the unemployed seemed certain to be further tormented by the trial, just two days after the riot, of four of the arrested demonstrators (the fifth was still in the hospital). Later, in his Harvard ‘‘riot’’ lecture, Barnard reported tersely that he ‘‘had requested indirectly that the least possible punishment be given’’ (Barnard, 1948, p. 65) to the men, his lack of detail indicating the unseemliness of what he likely did, working behind the scenes to influence the outcome of a trial. The day of the trial, the defendants’ supporters filled the courtroom and jeered when the chief of police testified that only one of his men had used his nightstick on the crowd. Barnard, who knew the truth, may have gotten word to the judge, who dismissed the charges, saying that the police as well as the demonstrators had ‘‘lost their heads’’ (Trenton State Gazette, 1935a). The judge may also have spoken Barnard’s views when he lectured the courtroom full of unemployed citizens that they would be dealt with harshly for any further disorder and that they should purge their ranks of radical elements. Courts were one thing, public opinion another. Fearing that newspaper coverage hostile to the unemployed would heighten tension (Barnard, 1948, p. 65), Barnard made a statement to the Trenton Evening Times that government assistance to the state’s 160,000 families on relief was a simple matter of ‘‘public decency’’ (Trenton Evening Times, 1935a). The statement carried weight coming from Barnard who, as President of New Jersey Bell, already enjoyed the public’s gratitude

for his company’s no lay-off policy during the Depression. Telephone service was still a labor-intensive industry, with thousands of operators manually connecting calls. Most operators were women, with no other skills and few alternatives for employment. Yet New Jersey Bell, having lost 100,000 customers in the first three years of the Depression, had to reduce its workforce (Communication, 1977). Barnard spread the pain evenly by cutting back all employees’ hours instead of dismissing some. Thanks to falling prices during the Depression, lower pay from shorter hours did not necessarily leave employees much worse off than before (Scott, 1992, p. 68). With his state-wide reputation as a socially responsible employer and his record of efficient administration of the relief program, Barnard had credibility when he claimed to be working in everyone’s interest. ‘‘Fortunately,’’ opined the Trenton Evening Times in a statement aimed at reassuring both needy citizens and the tax-loathing public: . . . Mr Barnard, even while entertaining rational faith in the sincerity and integrity of the rank and file unemployed, recognizes the continuing need for a maximum of vigilant economy (Trenton Evening Times, 1935a).

So Barnard had done everything he could to calm feelings when, on the following Tuesday, he resumed the meeting with representatives of the unemployed that had been interrupted by the riot. Just as he had requested the week before, the relief recipients sent eight representatives instead of the unmanageable 18 from the first meeting. Barnard went alone, exposing himself, he later said, to the risk of physical violence, the risk of verbal attack from eight different points of view, and the risk of misquotation after the meeting. The offsetting advantage in going alone lay in reducing tension. The relief recipients’ representatives, outnumbering him by eight to one, had less reason to fear his superior social status and power than if he had brought other officials. For two hours Barnard listened sympathetically to grievances against the relief program. Recipients resented the bureaucratic system’s waste of money that should have been stretched as far as possible to cover their needs. They could not even get an aspirin until a doctor wrote a prescription in return for a state fee of $1.50, a substantial sum in the deflationary era of the Depression. One social worker, they complained, drove a new Buick, a conspicuous waste of government money. Some social workers treated the unemployed

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with disdainful rudeness, asking nosy questions and playing favorites (Barnard, 1948, p. 72). The food allowance of six cents per meal per person was inadequate, the men said, even when paid in cash. But it was often distributed in vouchers usable only at officially approved stores, limiting recipients’ ability to shop for the best price. Able-bodied men could get the food allowance in cash, plus a 20 per cent bonus, if they accepted jobs on public works, cleaning parks, sweeping streets, repairing buildings, and so forth. But some of their work supervisors treated them harshly, knowing that the men had to take the abuse or else lose the bonus that stretched the food allowance far enough to feed their families. Just one missed day, even for illness, cost a man his bonus and put him back on voucher payment. After the unemployed had aired their complaints, Barnard made a short speech, correcting some of their misunderstandings. The new Buick belonged to a relief worker, not the state, so it took no public funds or food from the mouths of the unemployed. He wished the relief workers treated recipients with more respect, but he had to hire ‘‘ordinary human beings’’ (Barnard, 1948, p. 73), imperfect people who were certain sometimes to fail in courtesy. Admitting the justice of many of the other complaints, he promised that he would correct them as far as possible. Having shown all the respect and sympathy he could muster for the aggrieved protestors, Barnard turned to his agenda, his goal of quelling their rebelliousness. Moving swiftly from a sympathetic to a confrontational stance, he vowed to the men that he would: . . . be God damned if I will do anything for you on the basis that you ought to have it just because you want it, or because you organize mass meetings . . . For the kind of behavior which you have been exhibiting is alienating from you the very people upon whom you or I depend to get the money for relief, and I assure you there are many who object to giving it now (Barnard, 1948, pp. 73-4).

One of the men, red with anger, jumped to his feet to denounce Barnard’s idea that there was serious opposition to spending money on relief. Only the rich, he claimed, were so ignorant of hard times that they begrudged aid to the unemployed. ‘‘No,’’ answered Barnard: . . . the well-to-do . . . are grumbling about taxes . . . . But they’re not the people who are opposed to you. The people who are most opposed to you and whom you and I must pay attention to are those nearest to you – those

just one jump ahead of the bread line (Barnard, 1948, p. 74).

The most radical member of the group, a socialist agitator, agreed with Barnard: He’s dead right. That’s the crowd we have to fear (Barnard, 1948, p. 75).

Tension in the room dissipated. Barnard and the relief recipients had found a common enemy – the slightly better off proletarians, still working, who held the unemployed in contempt and, fearful for their own futures, resented every penny of taxes that the government took to help those further down the social scale. After another hour of talk, the men agreed that they could trust Barnard to do his best for them and left everything in his hands. He had apparently achieved his objective of getting them to give up their political activism. What a triumph of managerial people handling! Three years later, visiting L.J. Henderson’s Harvard seminar in ‘‘concrete sociology,’’ Barnard presented the experience as a ‘‘case’’ that became famous at the Business School, a primary example of what could be accomplished by an able manager skilled in human relations. Barnard credited his success in controlling the unemployed to the recognition and respect he had shown them by shaking their hands, by meeting them alone as a gesture of trust, and by not taking advantage of his superior status. He seemed to have met the situation with exquisite sensitivity and tact: ‘‘As I look back on it,’’ Barnard told his Harvard audience: . . . I do not think I had ever before made a purely personal accomplishment the equal of this, or that I am likely to equal it again (Barnard, 1948, p. 75-6).

Barnard’s interpretation of the riot Barnard did handle the situation sensitively and tactfully. The respect and courtesy he showed the unemployed unquestionably helped resolve the situation, not incidentally adding credibility to Barnard’s emphasis on the importance of managers’ recognition of employees’ dignity and power. Barnard’s message that the manager’s job is moral leadership in order to win employees’ willing cooperation in shaping and fulfilling organizational purpose constituted an undeniably important contribution to managerial knowledge. Yet, as is often the case with proponents of new management ideas, Barnard underestimated older techniques, including power and money, not just as management tools in general but also in his own confrontation with the Trenton ‘‘rioters.’’

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His account of the event left a number of obvious questions unanswered. For example, he presented himself as resolving the situation through superior psychological insight while giving little credit to the unemployed and their representatives. Yet they seem to deserve plenty of credit for restraint if nothing else. He says that ‘‘fortunately’’ the initial delegation of 18, when they looked out of the window and saw their friends beaten by the police, were not ‘‘hostile or bellicose’’ (Barnard, 1948, p. 64). Given his analysis of their motives in other parts of the lecture, it is surprising that he offers no explanation of this initially cooperative behavior. Nor does he stop to commend their constructive suggestion of rescheduling the meeting for the next week, their cooperation with his suggestion that they send only eight representatives the following week, or their restraint in not bringing street demonstrators to the second meeting. Nor did Barnard raise the possibility that, just as he had tried to meet the psychological needs of his social inferiors, they may have worked to meet his, including his need for a sense of managerial power and mastery. He had listened to their grievances for two hours, he said, to meet their need for ‘‘selfexpression, self-respect.’’ But after his speech condemning their activism there was an ‘‘hour’s discussion’’ of which Barnard said nothing except to relate the men’s conclusion that ‘‘we would be smart to let him [Barnard] work it out for us’’ (Barnard, 1948, p. 73). Was that hour filled with ritualistic back-pedaling by which the men slowly worked toward Barnard’s position, preserving their selfrespect while gratifying his need to feel himself the manager of the situation? Given the gaps in his story, readers of Barnard’s account, were it the only version available, could justifiably wonder if he made up the whole thing. Or, if it really happened, it would seem likely from his account that he over-dramatized the crisis, especially the need for him to guide the unemployed out of an activism that endangered their cause. After all, they had not staged another street demonstration. Maybe they had already decided before Barnard’s harsh warning that mass marches were counter-productive. If so, instead of lashing out at them, he might have congratulated them for their good sense. Fortunately, there are contemporary accounts of the riot in the local Trenton newspapers, but rather than confirming or refuting Barnard’s story they only add to the puzzle. For newspaper coverage shows that Barnard far understated the significance and danger of the movement he quelled. The riot

climaxed a two-week old strike, unmentioned by Barnard, of 1,600 unemployed men in the Trenton area who refused to report for public work. The strike, deeply offensive to a public already worried about the relief program’s cost, deprived the taxpayers of any return on their money. Public projects calling, according to a newspaper estimate, ‘‘for eventual employment of slightly more than 6,000 men’’ were put ‘‘virtually at a standstill’’ (Trenton State Gazette, 1935b). Barnard was surely right that, if the strike had spread beyond Trenton to the rest of the state, it would have been a political disaster for the New Jersey relief system. Yet even though the strike demonstrated both the strength and importance of the social movement he subdued, Barnard left it completely out of his account. Why did Barnard omit from his Harvard version of the story so many of the facts, including especially the ‘‘strike’’ by the unemployed, that gave significance to the case? Why did he not explain the full danger and importance of the crisis he had resolved? Part of the explanation may lie in the simple lapse of three years between the riot and Barnard’s lecture, leaving him plenty of time to unconsciously, unintentionally accentuate the elements of the story that remained most interesting to him. A somewhat understated man of intellectual integrity, Barnard would never deliberately have misinterpreted an event like the riot. Yet he had subtle pressures working on him, including the ideological influence of the Harvard human relations group. Barnard had helped Henderson write the introductory lectures for the course in ‘‘concrete sociology’’ and understood very well that the general purpose of the course was to apply Pareto’s theory of e´lites to the visiting lecturers’ personal social experience (Barnard, 1948, p. 55). In the riot lecture itself, Barnard told the students that for ease of communication: . . . I shall use many of the terms of Pareto’s general sociology . . . with which I assume you are well acquainted (Barnard, 1948, p. 59).

Barnard lived with all of the moral challenges of managerial power, including the intellectually and ethically dangerous opportunity to explain the behavior of those beneath him by whatever theory he chose. No doubt adding to the influence of the Harvard group on Barnard was their taking him up as a model manager, an ideal type of the new corporate executive they hoped to train at the Harvard Business School. Taking a broad view of his social responsibilities, the new manager, like Barnard, would aim not just to make money for his firm but also to

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serve society at large. Accordingly, the new manager had to combine concrete operational knowledge with a theoretical understanding not just of human relations within the firm but the broad processes of social change outside it, just as Barnard seemed to have done in his impressive handling and subsequent analysis of the Trenton riot. Barnard, an unusual combination of the practical and the cerebral, perfectly exemplified the rare mix of hands-on skill and intellectual sophistication that Mayo, Donham, and Henderson believed the new executive had to possess. The most intellectually gifted businessman of his generation, Barnard was not only an apparently masterful manager but also a sophisticated scholar. Living a sort of double life as corporate executive by day and ascetic student by night, he read voraciously, in several languages, across the disciplines, especially the social sciences. The Harvard human relations group can only have been astounded to find a corporation president who not only had read Vilfredo Pareto’s sociological writings in French but had done so before meeting Henderson. Yet Barnard was no mere armchair scholar. His behindthe-scenes maneuvering in the Trenton newspapers and municipal court, along with his psychologically skillful confrontation of the protest’s leaders, seemed just the sort of e´litist action on which Pareto said social equilibrium depended. Henderson admired Barnard for his dazzling virtuosity, his worldly exercise of e´litist managerial and political power, while simultaneously living a second life as a scholar, pursuing the civilized arts whose preservation necessitated and justified a topdown social order. Both Henderson and Barnard were aloofly distant and formidably intelligent men who did not make friends easily. But they developed an affinity in the late 1930s, exchanging house visits and dozens of abstruse letters, sometimes 5,000 words long, on the state of the social sciences in general and on Pareto in particular. Far too independent to follow anyone blindly, Barnard admired Pareto but not as unreservedly as Henderson. Near the end of his life Barnard recalled that in Henderson’s ‘‘ardor of behavior regarding Pareto, he was off-balance considerably’’ (Wolf, 1972, p. 17). At dinner after the ‘‘concrete sociology’’ meetings, several of which Barnard attended in addition to the one at which he spoke, he impressed the other participants by daring to criticize some of Pareto’s ideas in Henderson’s presence (Barnard, 1946). In his lecture on the riot, he suggested that the

Swiss-Italian sociologist had not sufficiently recognized the importance in small group behavior of the need to preserve individual dignity through social recognition or, in Pareto’s terminology, the ‘‘instinct of personal integrity’’ (Barnard, 1948, p. 76). Although this correction to Pareto ran the risk of offending Henderson, it had the effect of moving Pareto’s system closer to the emphasis by the rest of the human relations group on group identity. Barnard also agreed with the Harvard group’s downplaying of economic motives by reporting that his personal experience of the business world convinced him that most statements of economic interest are ‘‘largely derivation,’’ explaining in a footnote that ‘‘derivation’’ was ‘‘Pareto’s term for nonlogical or illogical statements and arguments’’ (Barnard, 1948, p. 77). Barnard also supported the deeper belief of the Harvard group that business managers educated in human relations could help preserve social order thanks to their insight that statements of economic interest were seldom what they seemed. The Depression era’s ‘‘social discord and friction,’’ Barnard said: . . . is due to the illusion that economic interests govern behavior almost exclusively in business, industrial, and political situations (Barnard, 1948, p. 78).

So Barnard’s account of the Trenton riot both drew on and reinforced the ideological setting in which he told the story – the managerially liberal but politically conservative ambience of the Harvard human relations group in general and Henderson’s Pareto seminar in particular. Barnard analyzed the riot and its aftermath in the light of Pareto’s conception of human behavior as governed by basic social sentiments – ‘‘residues’’ – and by irrational ‘‘derivations’’ of those sentiments. Hence Barnard attributed his Trenton triumph to the respect and consideration he had shown the demonstrators’ leaders, assuaging their desire for recognition and sociability or what Pareto called the Instincts of Personal Integrity and Combinations. Also influenced by Pareto’s notion of society as a dynamic system held in equilibrium by a dominant e´lite, Barnard treated the Trenton riot as an example of ‘‘revolutionary conditions’’ (Barnard, 1948, p. 62) where human behavior so defies integrity and common sense that only a rational e´lite, not an irrational democracy, can maintain social order. Henderson, in one of the Pareto seminar’s opening meetings, had presented a similar situation from

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Thucydides’ history of the Peloponnesian Wars: Revolution brought upon the cities of Hellas many terrible calamities . . . [as successive insurgents attempted] . . . to outdo the report of all who had preceded them by . . . the atrocity of their revenges. The meaning of words had no longer the same relation to things but was changed by them as they thought proper.

Barnard, citing the same passage from Thucydides in his riot case, compared dishonest and irrational human behavior in antiquity with that of the Communists during the Depression (Barnard, 1948, pp. 62-3). From classical times to the present, politicians had shown, just as Elton Mayo had said, that they lacked the skill at human relations needed to preserve social order. The Trenton riot, as told by Barnard, seemed to confirm the idea of the Harvard human relations group that the fate of modern civilization rode with corporate society’s managerial e´lite. The ideological context in which he was working so minimized economic interests in favor of dignity and sociability that Barnard ended up making a statement upon which he was far too decent ever actually to have acted. The Trenton protestors, he said, had been driven less by their hunger than by their desire for society to recognize their dignity, a need: . . . literally more important to these personalities than more or less food for themselves or their families (Barnard, 1948, p. 71).

Thus Barnard came close to claiming that he understood better than the protestors their material hardships. The food allowance, he said, was ‘‘insufficient’’ but ‘‘little was made of it’’ (Barnard, 1948, p. 72). A fact comprehensible in view of the greater importance attached to social recognition by the human relations ideology. All very neat but not true. The Trenton newspapers reported, contrary to Barnard’s Harvard statement that the relief recipients ‘‘made little’’ of the food allowance, that the strikers demanded ‘‘that the present amount for food relief be increased by 35 per cent’’ (Trenton Evening Times, 1935b). One newspaper quoted Barnard himself as announcing after meeting with relief recipients that they wanted ‘‘a very large increase in food allowance’’ (Trenton Evening Times, 1935c). Moreover, Barnard brought the strike of the unemployed to an end not merely by his sophisticated people handling, as he suggested in his Harvard lecture, but by promising, according to newspaper accounts, to ask the relief council to allocate more

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money for relief in Trenton (Trenton Evening Times, 1935d). Contrary to what Barnard told his Harvard audience, money was a powerful driver of the Trenton unemployed, and they made much, not ‘‘little’’ of it. With three years’ distance from the event and dealing with a Harvard seminar interested in Pareto, Barnard, no doubt acting honestly, nevertheless had selected his facts to fit a theory. Barnard was well aware of this danger and cautioned the students that his analysis was ‘‘pure rationalization . . . concocted by me after the events’’ (Barnard, 1948, p. 57). Only his years of practical experience in human relations gave: . . . grounds for probability that, in many respects at least, my present analysis is correct (Barnard, 1948, p. 58).

His analysis included the idea that: . . . economic considerations or interests were negligible . . .

Although he admitted that: . . . one who observed only what the men said would have perhaps reached a contrary opinion (Barnard, 1948, p. 77).

Under the ideological influence of Pareto and the Harvard group, Barnard not only misrepresented what the unemployed ‘‘said’’ about money but left out what they did about it, omitting altogether the two-week strike by 1,600 men demanding a higher food allowance. Barnard’s strange omission of the strike and the unemployed Trentonites’ political activism becomes understandable in the face of the emphasis they placed on food and money. The fact that the riot took place in the context of a strike for a higher food allowance did not square easily with the human relations ideology of the Harvard group or with Pareto’s emphasis on personal integrity as a primary human motivator. Nor would it have supported the Harvard Business School doctrine that recognition could be a more important motive than money. The politically conservative ideology of the Harvard group, devaluing economic forces in favor of psychologically skillful human relations as a way by which e´lite administrators could preserve social order, offered no scope for money to drive a political movement of the unemployed. Ideology charms us to the degree that it provides comforting assurance that we understand our otherwise dangerous world. Once under its charm, even people of great integrity will cling to the comfort of their ideology, justifying it through convoluted ratiocination they would otherwise see through in a moment. Barnard’s emphasis on the need of the unemployed for social

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recognition raised a problem since their leaders had in fact ‘‘made little’’ of it, just as Barnard, wrongly, claimed that they had made little of money. But for Barnard their relative silence on recognition only indicated its importance: . . . men often cannot talk about what they most want . . .,

Barnard explained to his Harvard audience: They could not say either to me or even to each other, ‘‘I am starving to be recognized as a man, as a citizen . . .’’ Dr Mayo said to me once, ‘‘I do no longer ask what men mean by what they say,’’ I ask ‘‘Why do they say it?’’ (Barnard, 1948, p. 71).

The danger of managerial ideology in licensing unwarranted certainty by the powerful as to the motives of the weak is clearly demonstrated in the reasoning, by a man of Barnard’s intelligence and integrity, that little discussion of food during his meeting with the unemployed proved they were not driven by hunger, while even less discussion of social recognition was evidence of their desperate craving for it. Sharing in the universal human weakness of judging others by a different standard from himself, Barnard failed to ask to what degree his response to the riot and its aftermath might have been driven by his own need for recognition. Deference to his managerial authority and superior social position would, of course, have seemed to a man of Barnard’s social skills an inappropriately personal goal, needing rationalization by his description of his efforts to minimize his own authority and enhance the men’s self-respect. As Barnard told the story at Harvard, getting control of the unemployed had everything to do with their egos and nothing to do with his. Some of Pareto’s disciples in the audience, including Henderson, saw that it could not have been that simple and pointed out Barnard’s failure to examine his own motives (Henderson, 1938). Although dissatisfied with Barnard’s lack of self-analysis, his Harvard audience was otherwise thrilled with his riot lecture. Henderson called it the best case presentation he had ever heard (Henderson, 1938). Barnard’s riot story fitted wonderfully not just into the Pareto seminar but also into the developing Harvard Business School doctrine as to the importance of group identity and social recognition as organizational forces, superior even to money as a motivator. Mayo, who believed that at Hawthorne he had discovered the art of managing workers by minimizing the use of power and money, credited Barnard with extending such views to the executive offices:

Next to the question of authority as source of learned confusion, Barnard places ‘‘the exaggeration of the economic phases of human behavior’’ (Mayo, 1945, p. 48).

The still deeper appeal of Barnard’s riot story to the Harvard group lay in its congruence with their e´litist conception of the corporate manager as civilization’s front-line warrior against barbarism. As the only businessman among the seminar’s visiting lecturers (Henderson, 1968, p. 41) – mostly academics with ‘‘concrete’’ experience far less dramatic than quelling protests by the lumpenproletariat – Barnard awed his bookish audience with his combination of worldly grit in handling the unemployed and intellectual deftness in analyzing the situation. By squashing an insurgency, he had demonstrated the social usefulness of the modern executive skilled in human relations. In the first half of the twentieth century, torn by war and weakened by depression, not only firms in search of profit but also society in search of order needed such masterful managers of the dangerous classes.

Implications for the new millennium Barnard eventually exercised significant influence on managerial practice, especially in his well-known idea that real authority in an organization flows from the bottom up. Workers do not follow orders but consent to them in order to escape the fearsome burden of responsibility shouldered by leaders. Authority, according to Barnard, is a fiction used by an organization to cover up the consent for which employees do not wish to accept responsibility. One of the moral qualifications Barnard stipulated for managers is the courage openly to consent to organizational purpose and accept responsibility for achieving it. But able managers, he believed, intuitively know that they cannot achieve their purpose through power, intuitively understand that their authority is a fiction and that they must win employee consent through moral influence and recognition of employee effort. The deepest purpose of his managerial writings was to bring this intuitive knowledge to the level of consciousness where it could be made part of the education of managers. It does not impugn the importance of Barnard’s insights to suggest that he overemphasized them, even as he underestimated the reality and importance of power and money as managerial tools – as, for instance, in his account of the Trenton riot. In the general intellectual context of the

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time, as social theorists attempted to come to terms with the reality of a managerial society, the idea of authority as a social fiction and of organizational power as bottom-up can only have been a deeply appealing ideological solution to the problem of reconciling democratic social ideals with the giant corporations that had arisen in the late nineteenth and early twentieth centuries. Barnard’s idea of the corporation executive not as a wielder of power but as a moral leader fostering cooperation would have had special appeal to those like the Harvard group who feared for social order and doubted, as Mayo once put it, that: . . . ‘‘democracy’’ . . . will act as a magic talisman . . . and solve the problem of cooperation (Mayo, 1945, p. xii).

It is a sobering warning for us in our time to maintain some humility as to the objectivity of our managerial knowledge when we consider that Barnard, a profound student of Pareto’s explanation of the role of ideology in sustaining e´lite power, missed the ideological content in his own ideas. Barnard in effect warned against ideology and formal systems of knowledge in his lecture when he said that at the time of the riot he had acted ‘‘intuitively’’ as do: . . . men of affairs . . . in those matters in which they are most skillful, although they frequently, if not usually, take statements literally in matters in which they are not skillful (Barnard, 1948, p. 71).

Although he alerted the students to the fact that ‘‘my presentation of the case in this lecture hall constitutes a case in itself’’ of ‘‘my social behavior,’’ he nevertheless described the case as ‘‘intended for knowledge, not action’’ (Barnard, 1948, p. 58). By this somewhat factitious distinction between knowing and acting he underestimated the degree to which he was a social actor in the Harvard seminar and in danger of taking Pareto and the ideology of the human relations group ‘‘literally.’’ As a young man Barnard had come of age in the early twentieth century, an era resembling in some respects our own time in the early twenty-first century, both periods marked by great social optimism promising limitless future prosperity through internationalism, free trade, and technological progress. One great difference between the two periods lay in the degree of society’s comfort and adaptation to the managerially intense organizations through which, in the modern world, these social forces largely exert themselves. In Barnard’s youth, even as society looked optimistically to the future, the corporation was the subject

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of intense political contention, a symbol to many of unscrupulous greed and undemocratic practices by malefactors of great wealth. Barnard was not least among those who helped accommodate democratic society to corporate life by a new ideology according to which many of us now live, an ideology in which the manager fills a benign social role of muted e´litism, fostering cooperation within the firm and acting as a public-spirited servant of the community without. As the halcyon days of the early twentieth century gave way to social and political disaster – world wars, economic depression, and, subsequent to the period with which this paper deals, the Cold War and the threat of nuclear annihilation – it was natural enough that some would find in the manager a solution to the social crises that democracy had not prevented and to which it seemed slow to respond. Such was the more or less explicit position of the Harvard human relations group as it helped stimulate and, later, drew on Barnard’s denial of the reality of managerial power and his minimizing of economic incentives in order to emphasize the social value of the psychologically astute manager, resolving crises by fostering cooperation rather than wielding power. In our own time of massive globalization when business corporations are taking on power and prestige dwarfing those of many nation states, when managerial values exercise increasing influence not just within the corporation but in all of society, it is important that we not mislead ourselves by overestimating how humane and bottom-up corporations are capable of being. Unrealistic claims that business organizations depend exclusively on bottom-up cooperation fostered by powerless but psychologically skillful managers surely impair the ability of those who hold power to use it humanely and productively. Still more importantly, maintaining and adapting democratic political institutions to a global economy, not hopeful reliance on managerial morality to surmount the temptations of power, remain humanity’s best bet for whatever freedom and justice are possible in a morally ambiguous world. Recognition of managers’ top-down power and authority may be vital not only to preserving within business organizations a role for the moral leadership and bottom-up cooperation for which Barnard spoke but also to preserving a nonmanagerial, democratic polity in the broader society outside the corporation.

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References Barnard, C.I. (1938), The Functions of the Executive, Harvard University Press, Cambridge, MA. Barnard, C.I. (1946), ‘‘Letter to G. Homans 7 Feb.’’, Barnard Papers, Baker Library, Harvard Business School, Boston, MA. Barnard, C.I. (1948), Organization and Management: Selected Papers, Harvard University Press, Cambridge, MA. Communication (1977), ‘‘Fifty years of service’’, Vol. 4 No. 3, p. 13. Cruikshank, J.L. (1987), A Delicate Experiment: The Harvard Business School, 1908-45, Harvard Business School Press, Boston, MA. Donham, W.B. (1931), Business Adrift, McGraw-Hill, New York, NY. Henderson, L. (1938), ‘‘Letter to Barnard 10 May’’, Barnard Papers, Baker Library, Harvard Business School, Boston, MA. Henderson, L. (1968), in Barber, B. (Ed.), On the Social System: Selected Writings, University of Chicago Press, Chicago, IL. Horvath, S.M. and Horvath, E.C. (1973), The Harvard Fatigue Laboratory: Its History and Contributions, Prentice-Hall, Englewood Cliffs, NJ. Keller, R.T. (1984), ‘‘The Harvard ‘Pareto Circle’ and the historical development of organization theory’’, Journal of Management, Vol. 10 No. 2, pp. 193-203. Kloppenberg, J.T. (1986), Uncertain Victory: Social Democracy and Progressivism in European and American Thought, 1870-1920, Oxford, University Press, New York, NY.

Mayo, E. (1919), Democracy and Freedom: An Essay in Social Logic, Macmillan, Melbourne. Mayo, E. (1945), The Social Problems of an Industrial Civilization, Graduate School of Business Administration, Harvard University, Boston, MA. Purcell, E.A. (1973), The Crisis of Democratic Theory: Scientific Naturalism and the Problem of Value, University Press of Kentucky, Lexington, MA. Scott, W.G. (1992), Chester I. Barnard and the Guardians of the Managerial State, University Press of Kansas, Lawrence, KS. Spengler, O. (1980), The Decline of the West, Atkinson, C.F. (Trans.), Allen & Unwin, London (originally published 1926). Trenton Evening Times (1935a), ‘‘Sympathy and prudence’’, April 30, p. 6. Trenton Evening Times (1935b), ‘‘Thousand marching strikers surround ERA headquarters’’, April 23, p. 1. Trenton Evening Times (1935c), ‘‘Confusion hides status of strike’’, May 1, p. 2. Trenton Evening Times (1935d), ‘‘ERA strike at end’’, April 30, p. 1. Trenton State Gazette (1935a), ‘‘New violence is reported as court frees ERA group’’, April 25, p. 1. Trenton State Gazette (1935b), ‘‘Barnard will hold conference with arbitration committee of Mercer ERA strikers on tuesday’’, April 25, p. 1. Wolf, W.B. (1972), Conversations with Chester Barnard, New York State School of Industrial and Labor Relations, Cornell University, Ithaca, NY.

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Chester Barnard: member of the ‘‘e´lite’’?

Steven M. Dunphy The University of Akron, Akron, Ohio, USA James Hoopes Babson College, Wellesley, Massachusetts, USA

Keywords Management theory, Social responsibility, History

Introduction

Today’s airways are full of commentators, pundits and radio ‘‘Dr Lauras’’ warning that, This paper asks whether or not in this first year of the twenty-first century, a Chester Barnard was a member of general deterioration in moral values that an intellectual or managerial began in the latter half of the previous ‘‘e´lite’’. While it is clear that century continues unabated. Numerous Barnard provides great insight regarding leadership and social examples are cited: the impeachment of the responsibility, it is also apparent President, regional genocide in both Africa that his views regarding, for and Central Europe, the continuing spread of example, race relations were, at Aids and the deterioration of the family least by our contemporary standards, unenlightened and may structure, to name but a few. Some might say have conformed more with the that the moral deterioration is also due to the ‘‘e´lite’’ of that time. With the excessively democratic ethos and lack of stronger democratic sensibilities standards for both morality and achievement of our time, represented by affirmative action, etc., Barnard resulting in ‘‘dumbing down’’ and social has to be read historically and promotion in schools. It is as if the emphasis understood in the light of his own of US values has changed from a commitment time in order to get out of him to build the industrial-military complex to a what is still useful today. The paper does not propose to resolve passion to engorge at the sportsthe issue of whether or not he was entertainment complex. Whether a an e´litist. The conclusion is degeneration in society’s moral fabric has or reached, however, that the has not occurred is subject to debate. A continuation of the debate regarding Barnard’s membership consensus seems to be that a ‘‘quickening’’ or of an intellectual or managerial acceleration in the rate of change in e´lite may have implications for the ongoing reading of Barnard’s work technological, financial and political (work or get ‘‘thrown off’’ welfare) arenas has by the management students of today. occurred and is affecting expectations, the dissemination of knowledge and the requirement for results (Bell, 1997). The authors wish to thank In today’s culture wars in which advocates Kenneth Aupperle for his helpful comments on earlier of standards and morality seem poised versions of this paper. against proponents of democracy and inclusion, Chester Barnard’s possible usefulness both to our general cultural situation and to management in particular may depend on understanding his so-called ‘‘e´litism’’[1] as at least partly a response to his own Great Depression time. Otherwise, new millennium readers may not wish to wade through his ponderous The Functions of the Executive in order to find out, despite Management Decision Abstract

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The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

Barnard’s ‘‘e´litism,’’ what he has to offer to their more ardently democratic perspective. Today’s upholders of standards and morality may make the mistake of thinking that Barnard’s alleged e´litism can be simply transported to our own time in order to provide us with an answer. However, that assumes ‘‘e´litism’’ was not an issue in the 1930s as it has become in the year 2000.

Arguments pro and con Implicitly rather than explicitly Barnard argues that social responsibility is a function of the ‘‘e´lite,’’ or what he called ‘‘the executive’’ class. There are a number of sources supporting this argument. William B. Wolf (1974) in The Basic Barnard asserts: Most importantly, Barnard was a member of what Karl Mannheim describes as a free-floating intellectual e´lite (Wolf, 1974, p. 3).

William G. Scott devotes two chapters of his book, Chester I. Barnard and the Guardians of the Managerial State, to ‘‘The leadership attributes of the management e´lite’’ (Ch. 8) and ‘‘The moral obligations of the e´lite’’ (Ch. 9) (Scott, 1992). In a subsequent review of Scott’s book, however, Wolf protests that: . . . I found that Scott constantly inserts words or statements which tend to infer that Barnard . . . was authoritarian . . . was an e´litist . . . and had a low opinion of the common man (Wolf, 1995, p. 1892).

Given that the New and Old Testaments are open to debate by some religious groups, it is not surprising that an argument has been made, on the basis of Barnard’s actual writings, that Barnard was authoritarian and was a member of the ‘‘e´lite.’’ His background as a student at Harvard University and his position as President of New Jersey Bell Telephone indicate that he was a member of the ‘‘intellectual e´lite’’ (Wolf’s own words) and that he did understand how to use authority.

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Do Barnard’s writings also support some of Scott’s assertions? On this point Wolf’s complaint that ‘‘Scott fails to give evidence to support (his) assertions’’ (Wolf, 1995, p. 1862) is debatable. Although Scott’s assertions are not always directly linked to the actual writings of Barnard, Scott’s points seem supportable. For example, in his case on ‘‘The riot of the unemployed,’’ Barnard wrote: In the fall of 1931 . . . I accepted appointment by the Governor as State Director of Emergency Relief in New Jersey . . . The present point is to establish certain properties of myself as a person in the situation to be described. Note that the properties are of two classes: 1. The attitudes, knowledge, and abilities possessed by me; these, of course, have a bearing on my behavior. 2. Reputational properties – position, corporation standing, volunteer worker, probably well-to-do or wealthy at least from the standpoint of the jobless, without scandal, favorably treated by the public and political authorities after the job was done (1948, p. 60).

Barnard’s feelings that his ‘‘reputational properties’’ of position, corporate standing and ‘‘well-to-do’’ background were instrumental in his appointment as the State Director of Emergency Relief in New Jersey suggest an e´litist attitude. The argument could be made that a 1930s Director of Emergency Relief should have training in and understanding of urban issues and previous professional experience in helping the homeless, the downtrodden, the dispossessed. What does the ‘‘well-to-do’’ background ‘‘without scandal’’ have to do with the tasks at hand and with a candidate’s ability to get the job done? Barnard might have argued – if the authors were able to paraphrase him – that: Having a well-to-do background without scandal has a lot to do with a candidate’s ability to get the job done.

In other words he probably saw being a member of the e´lite not as an evil, special privilege but as something he had earned that gave him more credibility than being merely a technocrat with ‘‘training in health care.’’ Wolf is a persuasive champion of the writings of Chester Barnard. Yet, a number of inconsistencies remain. For example, Wolf records in his book Conversations with Chester Barnard the following exchange: Wolf. ‘‘What kind of man was Henderson?’’ (This question refers to Professor Lawrence Henderson, a Professor at Harvard who Barnard refers to as ‘‘a very close friend’’ in whom he shared ‘‘a bond of interest.’’)

Barnard. ‘‘Well, he was a Brahmin. He was intellectually quite arrogant, I think. He didn’t suffer fools gladly’’ (1973, p. 2).

Clearly, the near-orphan Barnard did not fit in the same social category as Henderson, who was born into the e´lite social circle of Boston Brahminism (the 1997 American Heritage Dictionary defined ‘‘Brahminism’’ as ‘‘the attitude or conduct typical of a social or cultural e´lite’’). Henderson was also the great propagator at Harvard in the 1930s of the ideas of the Swiss-Italian sociologist wilfredo Pareto, who argued that social order could not be maintained by an irrational democracy and depended on skillful use of power by a rational e´lite. It would be wrong to make Barnard guilty by association because of his friendship with the arrogant, e´litist Henderson. Yet Henderson admired Barnard tremendously, and it is reasonable to ask if there were aspects of Barnard’s ideas that might have been attractive to Henderson because of their seeming agreement with his own e´litism. In his chapter on ‘‘The economy of incentives,’’ Barnard writes: By associational attractiveness I mean social compatibility. It is in many cases obvious that racial hostility, class antagonism, and national enmities absolutely prevent cooperation, in others decrease its effectiveness, and in still others make it impossible to secure cooperation except by great strengthening of other incentives . . . Men often will not work at all, and will rarely work well, under other incentives if the social situation from their point of view is unsatisfactory. Thus often men of inferior education cannot work well with those of superior education, and vice versa. Differences not merely of race, nation, religion, but of customs, morals, social status, education, ambition, are frequently controlling. Hence, a powerful incentive to the effort of almost all men is favorable associational conditions from their viewpoint. Personal aversions based upon racial, national, color, and class differences often seem distinctly pernicious; but on the whole they are, in the immediate sense, I believe, based upon a sound feeling of organization necessities (1968, p. 147).

This does seem to be an e´litist’s view of organizational realities but, in fairness to Barnard, it was the accepted (accepted certainly by Boston Brahmin society) view of that time. Now, it is not only unacceptable to harbor personal aversions for co-workers based on racial, national, color or class differences, it is illegal. Such aversions, if made manifest, typically result in charges being filed by the aggrieved party with the Equal Employment Opportunity

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Commission. Further, the expression of these aversions, or even the creation of a climate within which these aversions fester, is a direct violation of current employment law. Perhaps greater clarity of Barnard’s view on race relations is available through a reading of Organization and Management: Selected Papers of Chester Barnard (Barnard, 1948). In his essay on the ‘‘Dilemma of leadership,’’ Barnard observes that there are challenges to getting democracy to work when there is a high level of diversity in society. He expresses concern whether some consensus will be possible when so many differences exist. Barnard notes that there are ‘‘limitations of democracy’’ by explaining: The democratic process, whether for nations or small organizations, appears to be ineffective and incapable of commanding loyalty when the franchise is extended to individuals of widely diverse races, religions, capacities or interests, unless matters of race, creed, and economic interest of individuals are within broad limits excluded from direct and from important indirect decisions made by the democratic method. This exclusion must be by constitution or by social habits not alterable without nearly unanimous consent and conformance both. Thus either religious freedom or religious uniformity, either actual absence of racial discrimination or complete exclusion of some races, and individual economic freedom or substantial economic equality are necessary conditions of the democratic franchise (1948, p. 48).

Barnard was not a racist at heart. Although he saw racism as wrong, as a ‘‘realistic’’ member of the e´lite, he did not intend to fight racism because he believed that to do so would not help victims of racism but would only hurt the corporate USA’s need for what we today call ‘‘teamwork.’’ The point is that Barnard could travel comfortably in the circle of e´litist Brahmins like Henderson because, even though he possessed e´litist thoughts, he qualified them by noting that ‘‘personal aversions . . . seem distinctly pernicious.’’ Still, his writings reflect the fact that he believed that such e´litism and personal aversions were real social facts about which nothing could be done. In this he neglected to see the richness and improvement in output that can occur when races work together in a cooperative manner. Nor was he able to recognize the fact that ‘‘something could or should be done.’’ Of course something was done but not for a few more decades until the birth of the Civil Rights movement and the leadership of Dr Martin Luther King.

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The e´litism matrix In peering through a lens back in time, an obfuscation may occur between Barnard’s personal e´litism and his views on the ideal qualifications of an executive. Was Barnard the man an e´litist in the life he led? There is superficial evidence both pro and con. More to the point is the question, did Barnard the writer deem that executives should be especially trained and that this training should elevate them to an e´litist class? If so, which form of e´litism did he favor? (see also Table I): . A French style of e´litism in keeping with the phrase ‘‘noblesse oblige’’ meaning that the noble classes are obligated to help the other, lower classes? This style of e´litism is fostered by the prestigious military and engineering schools called ‘‘grandes e´coles’’ located in Paris and throughout France. These schools emphasize discipline and rely on rigorous, quantitative training. . A British-style e´litism based on birth? Provided that the well-born has the minimum requisites for training, attendance at a ‘‘proper’’ preparatory school such as Harrow or Eton typically follows. Here, the moneyed and well-born acquire the proper accent, correct manners, and overall ‘‘desirable’’ forms of behavior. Such an education leads to elitist attitudes and behaviors in the entire person. The US system seems to favor neither the British nor the French style. Although Harvard seems to be patterned more on the British style, one can argue that actually it was greatly influenced by engineering schools and that it is based more on meritocracy than aristocracy. Further, the US educational system has long been known for its excellent, land grant universities, which provide, in many cases, open admissions to all residents of the State. Progression through the university and on to its graduate programs is based on ability, not on birth or membership of an e´lite class. Of course this development has also been greatly influenced by the third and perhaps most influential branch of the US government: the courts.

Summary It is not clear from the quotations above whether Chester Barnard personally favored uniformity over diversity. However one interprets Barnard’s views, the authors recognize that some might object to

Steven M. Dunphy and James Hoopes Chester Barnard: member of the ‘‘e´lite’’?

Table I Two forms of e´litism

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The questions

The British system of preparatory The French system ‘‘grandes e´coles’’ schools (Eton, Harrow) of military or engineering academies

If Barnard was personally an e´litist, his recommended course of training of the executive would be: If Barnard the writer deemed that executives need special training, his recommended course of training would be: classifying Barnard as a member of the ‘‘e´lite.’’ Regardless, the fact remains that his major work, The Functions of the Executive, is still useful for providing insight and guidance to those seeking to pursue business careers and that Barnard includes social responsibility as a core function. However, his seminal text could not provide specific guidance regarding programs that did not exist yet such as affirmative action, minority hiring quotas and/or executive commitment to racial, religious and/or sexual preference diversity within the workforce. These programs were not a part of the moral or legal fabric of the times. Still, a more generally democratic view would have been possible and useful. Now, at a time when affirmative action programs are rapidly being dismantled state-by-state, such guidance would be especially useful. Admittedly, such guidance could only have been provided by an organizational visionary. Barnard was an organizational visionary who had the capacity to offer such guidance, but his ideas about ‘‘inclusion’’ render him more of an exclusionist than inclusionist and these ideas seemed to be more in keeping with the e´lite of that time. As a result, his Functions text may stand out as a forerunner of things to be and yet Barnard is a bit slow to accept the importance of societal and organizational diversity.

Conclusion Barnard lived during a time when being a member of an intellectual and/or managerial e´lite was nothing about which to be embarrassed. Walter Lippmann (1929) had called for the creation of government ‘‘intelligent bureau’’ in his book, Public Opinion. Something of the sort seemed to come true during the 1930s when President Franklin Roosevelt created an informal ‘‘brain trust’’ of Ivy League college professors to design and, sometimes, manage the bold initiatives of the New Deal. Barnard was involved at the state level in the New Deal, as

X

X

state director of the Emergency Relief Agency in New Jersey for several years in the 1930s. He also served directly in the Roosevelt Administration as an Assistant Secretary of Treasury for two months in 1941. Moreover, Barnard was closely tied to the Harvard Business School in the late 1930s, with its famous interest in the Swiss-Italian sociologist, Vilfredo Pareto fostered by HBS Professor Lawrence Henderson. Pareto argued that social order was maintained by dominant e´lites. Conservative elements at Harvard, fearing social disorder during the Depression, admired Pareto’s unsentimental, seemingly scientific appreciation of the usefulness of social e´lites in maintaining order. Barnard visited Harvard often in the late 1930s and spoke on a number of occasions at Henderson’s seminar on Pareto. The fact remains that much of what Barnard gave us in his classic text was and remains seminal. Barnard stressed the cooperative nature of business and argued that power flows from the bottom up. In this regard some might argue that he was more of a populist than an e´litist. Also, in judging Barnard from the context of the 1920s and 1930s, some might point out that Barnard is no more of an e´litist than others in similar positions. In fact, a strong democratic and populist ethic seems to flow naturally from his The Functions of the Executive. No doubt, Barnard was a complex person who possessed some seemingly paradoxical views and perspectives. Still, readers in our time might easily and maybe wrongly be put off by the seeming e´litism of some of his writings. In conclusion, Barnard’s alleged ‘‘e´litism’’ was part of the generally prevailing corporate and social ambience that existed in his day. The authors do not mean to suggest that Barnard is therefore irrelevant to our own times. But if the present trend of Barnard’s writings showing up less frequently among the reading-lists of today’s management students is to be reversed, management scholars will do well to acknowledge Barnard’s ‘‘relative’’ e´litism by

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relating it to the context of his time. In so doing he will then be more useful to today’s management thinkers and cultural commentators. However, it is unlikely that either the e´litist upholders of traditional morals and standards or New Age democrats can fully claim Chester Barnard as their own. Still, today’s companies, and society in general, can create some measure of equal opportunity and foster greater societal synergy depicted by an ever expanding economic pie by addressing and perhaps embracing those of Barnard’s concepts and arguments which have been sifted through the filter of time.

Note 1 The term ‘‘e´lite’’ is used in the traditional sense of Barnard’s time and not in terms of the privileged.

References Barnard, C.I. (1948), Organization and Management: Selected Papers, Harvard University Press, Cambridge, MA. Barnard, C.I. (1968), The Functions of the Executive, Harvard University Press, Cambridge, MA (originally published 1938). Bell, A. (1997), The Quickening: Today’s Trends, Tomorrow’s World, Paper Chase Press, New Orleans, LA. Lippmann, W. (1929), Public Opinion, Macmillan Book Publishers, New York, NY. Scott, W.G. (1992), Chester I. Barnard and the Guardians of the Managerial State, University Press of Kansas, Lawrence, KS.

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Wolf, W.B. (1973), Conversations with Chester I. Barnard, W.F. Humphrey Press, Ithaca, NY. Wolf, W.B. (1974), The Basic Barnard: An Introduction to Chester I. Barnard and His Theories of Organization and Management, W.F. Humphrey Press, Ithaca, NY. Wolf, W.B. (1995), ‘‘Facts and fictions regarding Chester I. Barnard: a review of William G. Scott’s Chester I. Barnard and the Guardians of the Managerial State’’, International Journal of Public Administration, Vol. 18 No. 12, pp. 1859-904.

Further reading Abzug, R. and Phelps, S. (1998), ‘‘Everything old is new again: Barnard’s legacy – lessons for participative leaders’’, Journal of Management Development, Vol. 17 No. 3, pp. 207-18. Donham, W.B. (1945), Education for Responsible Living, Harvard University Press, Boston, MA. Koontz, H. and O’Donnell, C. (1959), Principles of Management, McGraw-Hill Book Company, Inc., New York, NY. McMahon, D. and Carr, J.C. (1999), ‘‘The contributions of Chester Barnard to strategic management theory’’, Journal of Management History, Vol. 5 No. 5, pp. 228-40. Mannheim, K. (1997), Collected Works of Karl Mannheim, Vol. 11, Routledge & Kegan Paul, London/New York, NY. Wolf, W.B. and Iino, H. (Eds) (1986), Philosophy for Managers: Selected Papers of Chester I. Barnard, Bunshindo Publishing Company Ltd, Tokyo.

Deming: a new philosophy or another voice?

John B. Washbush University of Wisconsin, Whitewater, Wisconsin, USA

Keywords Deming, Management theory, Quality management, Taylorism

Abstract This article questions the widely held proposition that the management philosophy of W. Edwards Deming, with its focus on quality improvement and pragmatic thinking, is a new conceptual paradigm which renders previous management thought, particularly that represented by the scientific management concepts of Frederick W. Taylor, obsolete and wrong-headed. A closer examination of the similarities between older management theories and those of Deming indicates that there is significant commonality. Deming has provided, not a radical new school of thought, but a complementary body of emphases that enrich our understanding of management rather than revolutionize it.

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Background-battles of management thought In his famous essay on organizational theory, Charles Perrow (1978) remarked that organizational analysis has repeatedly been marked by a battle between the forces of darkness (the mechanical school which treats the organization as a machine) and the forces of light (the human relations school which emphasizes people, accommodation and systems). Though this battle has raged for most of the last century, Perrow concluded that we have learned more about what does not work than what works. The search for the light has gone on. Over the last ten to 15 years, the forces of light have often been defined by scholars, consultants and practitioners for what has come to be called the ‘‘Total quality’’ movement. Their argument has been that US industry has failed to keep pace with progressive industrial and managerial practice (most often identified with the Japanese). In addition to promising to revitalize US industry, proponents of the total quality movement have boldly suggested that they have found the secret for improving every type of formal organization. As with most movements, promises have exceeded grasp. Clearly, organizational success entails more than a focus on quality, use of techniques such as quality circles, understanding concepts of variation, exceeding customer expectations, consensus, and all the other terms and concepts associated with total quality management (TQM)[1]. Nevertheless, no one has repealed the business cycle, good intentions do not guarantee success, and new paradigms may not fully exploit their promises. The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0025-1747.htm

Deming versus Taylor A common theme during the years of development of management thought is that a new idea (or what appears to be a new idea) must identify some older concept as the cause of failures. We are wont to resist making the intellectual effort to treat new ideas as potential complements to old ideas. As an example, proponents of W. Edwards Deming and his concepts (e.g. Delavigne and Robertson, 1994) have been particularly critical of classical management, in particular the ideas of ‘‘scientific management’’ as proposed by Frederick W. Taylor and his followers (Taylorism). Deming’s disciples have frequently argued that basic philosophical perspectives are at war: Taylor representing positivistic, deterministic concepts rooted in the understanding of a predictable, mechanical universe; Deming representing systems-oriented and dynamic pragmatism. Taylorism is condemned as a false doctrine that ultimately seeks managerial dominance over workers and fosters unhealthy outcomes, such as: workers who are but biological parts in some great machine; unhealthy competition between organizational units and individuals; and sub-optimization. It is further condemned for making management and managers dictators and definers who are to decide and enforce upon the workers all aspects of their jobs while mandating compliance. Resulting evils identified include individual performance evaluations, merit pay, trivial slogans and goals, and quality by inspection. The Deming philosophy (Deming, 1986, 1993), on the other hand, is proposed and praised as providing a ‘‘correct’’ theory founded on general systems theory, an accurate understanding of the nature and interpretation of variation, a proper understanding of human behavior, and an understanding of the nature and purpose of ‘‘theory’’. Here, managers are to be

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accountable, to beneficially coach and to facilitate integration of all parts of the organizational system. Integrative systems concepts to be used include exhortations to exceed customer expectations, emphasize the group over the individual, use communication and involvement techniques, understand the nature and importance of intrinsic rewards, eliminate goal setting and performance evaluations, and teach and use quality charting techniques. Examples of support and admiration for Deming are found in the works of Dobyns and Crawford-Mason (1991; 1994). These authors have extolled Deming’s ideas as the work of a philosopher, prophet and revolutionary. They also have given us some insight into why Deming vaulted into visibility and popularity in the 1980s – his messages of customer focus and quality spoke powerfully to US managers who were becoming obsessed with the emergence and power of the Japanese economy and the fact that US consumers increasingly bought quality.

Deming and ‘‘profound’’ knowledge The Deming philosophy purports to be based in a ‘‘system of profound knowledge’’. In The New Economics (Deming, 1993), Deming described ‘‘profound knowledge’’ as consisting of four components: 1 understanding of the system concept; 2 knowledge of variation; 3 a theory of knowledge; and 4 understanding of human psychology (see also Little (1994)). Deming took an expansive, open-system view of organizations. In addition to seeing the organization as a purposeful, interactive, interdependent set of components, he included both supply and distribution chains and customers in his sense of system. Every component of the organizational system exhibits process flows, and these components and flows must be effectively linked via cooperation achieved through communication. Systems must be managed to avoid selfish, competitive independence and sub-optimization. Although management is ultimately responsible for all aspects of the organization, it must, above all, exercise control over and improvement of organizational processes with the active help of those who are most intimately involved in and knowledgeable of those processes. Deming’s concepts of variation reflect the work of the statistician Walter Shewhart (1939) who stated that all processes exhibit variation which can be either random (inherent in a process) or externally caused.

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Both sources of variation need to be addressed in different ways. Tools, such as statistical process control charts, are valuable in the analysis of variation, and such analyses must be carefully and properly done to avoid counter-productive tampering. Deming was emphatic in asserting that poor system design (a management responsibility) is the overwhelming cause of poor system performance. All organizational members need to develop and share knowledge of variation. The Deming ‘‘theory of knowledge’’ is pragmatic in that it avoids absolutes and allows for change. It can be characterized as predictive empiricism. Ideas about what should happen under certain circumstances are to be developed using systematic learning about results achieved in past experimentation. Knowledge is achieved when evidence, prediction, and information correlate. This system of knowledge is operationalized through the ‘‘Shewhart Cycle’’ (Deming, 1993, p. 135) containing the steps: plan, do, study, act (PDSA): 1 Plan – using the results of past experimental experience, plan a study that might be expected to lead to process improvement. 2 Do – perform the experiment or study designed in the Plan phase. 3 Study – evaluate carefully the result obtained. 4 Act – if positive results are obtained, implement and use as the basis for continuing study and development using the PDSA cycle. If negative results are obtained, re-enter the planning phase of the cycle and develop a new approach to the problem identified. Note that knowledge gained through this process is tentative rather than cumulative because it becomes the basis for further analysis and experimentation. Additionally, because Deming believed that the pursuit of process improvement is never-ending, the PDSA model provides a pragmatic structure for framing both organizational behavior and knowledge itself. Deming’s view of psychology reflects the concept of variation in that individuals are seen as differing in learning style and ability. Thus, important responsibilities of management toward employees are ability analysis, training and development. From a motivational perspective, Deming’s approach strongly reflects Maslow’s needs hierarchy (Maslow, 1954), particularly the esteem and self-actualization levels, and McGregor’s Theory Y (McGregor, 1960), particularly in its

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emphasis on intrinsic motivation and joy of work. Delavigne and Robertson (1994, pp. 3-4) elaborated on the elements of profound knowledge. They have provided the following listing which they claim is representative of the broad spectrum of Deming’s writing. This includes knowledge: . about the statistical concepts of variation; . of the losses from tampering with a stable process, and missed opportunities for improvement of an unstable process; . of procedures aimed at minimum economic loss from those mistakes (statistical process control); . about the interaction of forces (systems theory); . about the losses due to demanding performance that lies beyond the capability of the system; . about loss functions and problem prioritization (the Taguchi loss function and the Pareto principle); . about the instability and loss that come from successive application of random forces (butterfly effect/chaos theory); . about the losses from competition for share of market (win-win versus win-lose); . about the theory of extreme values; . about the statistical theory of failure; . about the theory of knowledge; . of psychology and intrinsic and extrinsic motivation; . of learning and teaching styles; . of the need for transformation to the new philosophy (management of change); and . about the psychology of change. Proponents of Deming’s concepts argue that learning and applying this interactive knowledge system constitute a new philosophy of management, one which overcomes the failings of previous approaches to management, and a process for understanding and applying this new philosophy to the needs of modern organizations.

Deming as a revolutionary thinker As noted above, criticisms of the ‘‘failed’’ approaches have decried beliefs in classical (deterministic and positivistic) perspectives that see knowledge as cumulative and absolute. Thus, frequent targets are the scientific management concepts spawned by Frederick W. Taylor (1913, 1947) – ‘‘Taylorism’’ and ‘‘Neo-Taylorism’’ (extensions and ‘‘corruptions’’ of Taylor’s thinking by others) – and the ‘‘limited rationality’’ approach to decision making as

described by Herbert W. Simon (1976), reflective of rationality concepts put forward by Barnard (1968). Delavigne and Robertson (1994) have presented one of the most expansive criticisms of Taylorism and Neo-Taylorism. According to these authors, Taylorism, among other things, proposed the: . . . concept of business as . . . amenable to scientific analysis, and, ultimately, control and prediction in Newtonian terms via standardization of all work (Delavigne and Robertson, 1994, p. 17).

Neo-Taylorism similarly fails by emphasizing: . . . little more of management beyond hiring, firing, and the giving of orders – and maintaining an image (Delavigne and Robertson, 1994, p. 24).

Specific ‘‘flaws’’ of scientific management are stated to be (Delavigne and Robertson, 1994, p. 24): . believing in management control as the essential precondition for increasing productivity; . believing in the possibility of optimal processes; . having a narrow view of process improvement; . emphasizing low-level suboptimization rather than holistic, total system improvement; . blaming people (only) for defects; . separating planning and doing; . failing to recognize systems and communities in the organization; and . viewing workers as interchangeable bionic machines. In counterpoint, the ideas of Deming are proposed as capable of overcoming these failings by, among other things, emphasizing continuous learning and improvement, helping us understand variation, providing holistic systems understanding, promoting win-win solutions, eliminating suboptimizing competition in all forms, eliminating slogans and quotas, and using the PDSA cycle (Delavigne and Robertson, 1994, pp. 25-35). Little (1994) has pitted Deming against the concepts of ‘‘administrative man’’ as proposed by Herbert A. Simon (1976). Simon’s concepts have had particular influence in administrative and organizational theory. Little asserted that Simon’s theoretical propositions are based on logical positivism (systematic, cumulative empiricism). In opposition to the rational optimizer (‘‘economic man’’), Simon proposed ‘‘administrative man,’’ who, living in a world of bounded (limited) knowledge and

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rationality, ‘‘satisfices’’ (makes satisfactory decisions). Thus, a decision is a means to an end, provided that the decision is appropriate to the ends desired (which may be arbitrarily selected). In Simon’s world, the premises of decision making (obvious and subtle environmental signals to the decision maker) determine the decision that is made. Organizational control can be established by controlling decision premises. Criteria such as effectiveness and efficiency, in relation to defined outcomes desired, are important in guiding behavior in economic organizations. Little also has asserted that Deming, rather than focusing on decision making and decision premises as the arbiter of organizational action, relied on systems and processes to propose action as a response to ‘‘theory’’ (action appropriate to experience). This then produces knowledge that is at best temporarily useful. Thus, the ideas of satisficing, efficiency, and self-interest stand against continual improvement, quality, and joy in one’s work. Little proposed a distinction between a perspective that is oriented toward control of organizational members for the purpose of achieving ends, which may be arbitrarily chosen, and a perspective that is oriented toward ever better aligning of customer needs and organizational performance.

Deming as a not-so-revolutionary thinker Points of view such as these are typical expositions of darkness-versus-light arguments. But are Taylorism and ‘‘administrative man’’ irreconcilably at war with Deming? While a number of people have accepted a perspective that portrays Deming’s philosophy and methods as answers to Taylorism, others have proposed that aspects of the Deming philosophy reflect classical and later management theory roots and are not in absolute conflict with them (e.g. Ehrenberg and Stupak, 1994; Spencer, 1994; Anderson et al., 1994; Knouse et al., 1993). Common focuses of similarity include concepts such as scientific analysis and study, systematic decision making, employee selection and training and cooperation. With specific reference to Taylor, Mooney (1996, p. 7) has argued that, while Taylor made major contributions in developing rules for organizing work, applying scientific analysis, standardizing methods and establishing monitoring and performance criteria, Deming’s concepts for modernizing knowledge (the PSDA cycle) build on these rules:

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Discrete elements of the knowledge production process are identified and systematically analyzed to reveal the most efficient design. Findings are then used to propose standard work methods and rational rules and procedures for measuring and monitoring performance.

Carson and Carson (1993) have proposed a reconciliation between Deming’s distaste for numerical quotas and goal setting and concepts of numerical goals as developed in Locke’s goal-setting theory (Locke and Latham, 1984), which have roots in Taylor’s task management concepts. Their argument is that there is substantial potential to be gained by integrating Deming’s philosophy with the Taylor approach (management by numbers methods). Duncan and Van Matre (1990) have examined the major themes present in Deming’s management philosophy. Their examination has led them to conclude that much of the Deming philosophy is rooted in or consistent with a broad spectrum of management thought and history, including the works of: . Taylor (1947) – the task idea, the mental revolution, managerial responsibilities. . Gilbreth (1914) – job design and performance standards. . Barnard (1968) – organization as common purpose. . Drucker (1954) – response to customer needs. . Dennison (1931) – teamwork as an essential ingredient of business success. . Mooney and Reiley (1931) – coordination. . Likert (1961) – exploitative authoritarianism. . McGregor (1960) – integration of individual and organizational goals. . Maslow (1954) – self-actualization. . Herzberg (1959) – job enrichment and pride in workmanship. Perspectives such as these have merit, but writers pointing to them have generally failed to provide detailed analyses based on the original works of those being compared. A rare exception to this lack of depth is the work of Rossler and Beruvides (1994). They have developed a systematic, originalliterature-based comparison of Deming and Taylor in the thematic areas of general management, management of operations, and management of people. Table I summarizes Exhibit 1 from their article and illustrates the extent to which they have found comparable or complementary themes by analyzing the original words of the two authors. An important conclusion reached by Rossler and Beruvides was:

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Deming emphasizes product design and customers, both internal and external, to a much greater degree than Taylor does. Deming also enlarges the scope of top management’s planning efforts, making it both strategic and operational. In addition, he enhances our understanding of performance variation and its meaning. Last, he highlights the role that intrinsic motivation plays in work performance. All these additions, however, are extensions of scientific management principles rather than radical departures from them (1994, p. 14).

Coordination and cooperation are the great themes There is substantial evidence that connections, such as those outlined above, are deep, important, and include the thinking of a number of other significant management theorists. Some illustrations are worth examining. One of the enduring themes in management and organizational theory is the imperative of establishing and maintaining effective and efficient cooperation between people in organizations. For example, Deming has stated: An important job of management is to recognize and to manage the interdependence between components. Resolution of conflicts, and removal of barriers to cooperation, are responsibilities of management (Deming, 1993, p. 65).

Frederick W. Taylor believed that ‘‘scientific management’’ was: . . . applicable to all kinds of human activities . . . which call for the most elaborate cooperation (Taylor, 1913, p. 7).

Chester Barnard, who viewed organizations as cooperative social systems, stated that: . . . the functions of executives relate to all the work essential to the vitality and endurance of an organization . . . as it must be accomplished through formal coordination (Barnard, 1968, p. 215).

Mary Parker Follett echoed similar sentiments: . . . there is still another way of looking at business unity which should be one of the chief concerns of the business administrator. He sees the three classes: (1) workers . . . (2) consumers, and (3) investors. The chief job of business is to find a method for integrating the interests of these three classes (Metcalf and Urwick, 1940, p. 93).

As expressed by these authors (and many others who might be cited), common goals for managerial effort could be said to include effective and efficient accomplishment of organizational purpose with consideration for all interested parties (we would call them the stakeholders, today).

A continuing jungle of management thought Despite foundational similarities, the development of managerial thought has

Table I A comparison of Deming’s quality management with Taylor’s scientific management Thematic areas

Deming’s quality management

General management

Continually provide better products and services

Taylor’s scientific management

Develop every branch of the business to its highest state of excellence Constantly improve production and service processes Develop every branch of the business to its highest state of excellence Focus on increasing performance, not dividing profits Put quality first, not short-term profits Understand quality requirements and teach workers how to do Define quality standards in customer terms work of the right quality Share responsibility for making the workplace a success Involve everyone in improvement Management of operations Design quality into products, services and processes Plan both good and careful performance into task design Study the work to determine which elements affect Understand the meaning in performance variation performance Continually find better and more reliable methods and practice Work to minimize variation and total costs those methods Cooperate with one another Break down barriers between staff areas Use standards as benchmarks for testing new methods Eliminate numerical standards and goals Management of people Educate, train and develop people Train, help and develop each individual Remove barriers that rob people of pride in their work Eliminate arbitrary management and provide people with the best methods and tools Lead and manage with knowledge, not slogans Manage scientifically Drive out fear Eliminate deliberate underworking caused by the fear of making performance records [ 1033 ]

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displayed a repetitive tendency to pit perspectives against one another in a continuing ‘‘I’m right and you’re wrong’’ contest. This has resulted in an ongoing series of often conflicting concepts about the nature and purpose of management. The fact that management is not a real discipline, but relies on perspectives drawn eclectically from any number of disciplines (such as economics, sociology, psychology, engineering, etc.), would seem to argue for effectively identifying and blending the best thought available. Unfortunately, this has not happened. Perhaps the clearest statement of the problem has come to us from Harold Koontz (1980). In defining the ‘‘management theory jungle,’’ he noted with some dismay a worsening problem rooted in competing perspectives, rival dictionaries, and a lack of integrative perspective. Were he writing on the subject again today, he would doubtless add the total quality perspective to his list. Deming was not immune from the tendency to find fault with those who have gone before. In enunciating his concept of ‘‘profound knowledge’’ (Deming, 1993), he placed himself apart from other perspectives which are seen as wrong or at least ill-guided. Despite what might be seen as an integration of perspectives (e.g. mechanistic and organismic concepts (Spencer, 1994)), Deming has added to the difficulty of searching for an understanding of management. Strongly evident in Deming’s perspective is a vitriolic distrust of management education, particularly in areas of finance and accounting. Other targets for his wrath have included goal-setting and slogans, merit pay, performance evaluations, and internal competition. By placing himself apart from and above other management theorists, Deming promoted an image of himself as a revolutionary, armed with a comprehensive theory. Followers must accept the doctrine whole cloth. Unfortunately, Deming’s concepts raise more questions than they answer.

What Deming did not explain In Deming’s world, organizational and production systems seem to always exist. The responsibility of management is to facilitate the alignment of these systems to customers, to simplify systems through analysis of variation, to enable workers to engage in processes leading to pride of workmanship. Not directly addressed are vital questions, such as: . What are the products and their characteristics?

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.

. . . .

.

What are the processes and their components? How are jobs defined and by whom? How are workers assigned to jobs? How are jobs priced? How are employees selected, trained, promoted, and paid? What is the method for determining what investments are to be made?

Inasmuch as Deming has consistently insisted that ‘‘the system’’ is the responsibility of management, it seems reasonable to assume that the answers to questions such as those posed here reside within the responsibility of management. But how? It is true that Deming was not silent on such issues, but his advice was sketchy at best. For example, Ranney (1996) has correctly noted that Deming (1993), in addressing the obligations of management for system improvement, advocated that managers have several sources of power, including authority of office, and need to use these sources as appropriate to cause change to occur. However, Deming’s writings were generally short on advice or prescriptions as to how to change structure, processes, job designs, process flows, the steps of operations, human behavior, and a myriad other questions. Clearly, however, such issues must be faced with concrete actions. Consider this situation: Assume that you are a work study student at a university. You are given an assignment to collate and staple together a 50-page document for a professor. One hundred copies are to be delivered to this person. Yet, you are given no deadlines, you are not told where to do the work, you do not know where the copies to be assembled are located, you have not been trained in any way, and, in fact, you do not know what the word ‘‘collate’’ means. What do you do? How can you get this job done soon and satisfactorily?

Taylor has more to say to you at this point than does Deming. The answers to all the problems posed and the questions stated are fundamental issues in job design and training in method. Until and unless these matters are properly dealt with, this task will cause the worker a great deal of anxiety and even fear. However, after being trained and amassing a reasonable amount of experience, that person may be ready and able to contribute to process improvement and develop ways to do such a job with increased efficiency and skill. At this point, Deming would speak louder than Taylor. But note that the issues here are clearly not mutually exclusive. Rather they are complementary

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and interactive. Pitting one school of thought against another does nothing to resolve issues such as are portrayed here. What about the Simon-Deming controversy? Clearly, Simon (1976) did not write a primer on ‘‘how to manage’’. Administrative Behavior, building on the thinking of Barnard (1968), presented a perspective of human behavior in organizational systems, emphasizing concepts of decision making within an environment where perfect knowledge and perfect analysis are not possible. Major attention is thus given to the concepts of effectiveness, efficiency and the role of authority. Rather than decry Simon’s concepts, one might well use them to explain some of the managerial failings against which Deming has railed. For example, he was emphatic in declaring that US management has ‘‘walked off the job’’ (Deming, Foreword to Walton (1986, p. xi)) by emphasizing short-term profits, stock price, and dividends rather than strategic, long range factors dedicated to meeting and exceeding customer expectations. Simon’s insights into influences on and processes of managerial decision making might provide us with useful insights into means and methods to improve managerial focus and performance. A fundamental Simon concept is that the premises (perceived situational variables and influences) of decisions determine the decisions made. Using Simon’s analytic model, an analysis of the environments of modern managers, particularly those of strategic managers, would indicate that quarterly financial reporting requirements, the speed with which information travels, investment speculation, shareholder expectations, and the current emphasis on shareholder wealth produce substantial pressures on managers to promote cost cutting and earnings performance in the short term. Merely to decry these as not rational, inappropriate, or even wrong is not going to make for change in the direction Deming charted. Furthermore, American culture is conditioned to immediacy. These, and other realities, may not be rational, but they exist and they exert predictable influences on managerial behavior. Managers who ignore these realities are often likely to suffer negative consequences. Indeed, one might also assert that Skinnerian conditioning (Skinner, 1971) could be used to explain a considerable amount of managerial behavior in these environments where managers tend to repeat those actions for which they are rewarded.

Let us avoid making the management theory jungle deeper and darker While Deming did point us in desirable ways, the mechanisms for change are clearly more intricate than he suggested. Behavioral change is a very difficult process. As part of the process of change, it might be useful to examine the ways in which decision environments might be configured to encourage the outcomes Deming earnestly desired. A useful way to consider the potential of the Deming philosophy is within an examination of the breadth and depth of management and organizational thought. Even a cursory examination of a book such as Daniel Wren’s, The Evolution of Management Thought (Wren, 1994), quickly convinces the reader that there are many perspectives that should be considered in evaluating the future of organizations. All of these have something to say to us, and none has said everything. Indeed, they clearly provide a mosaic of complexity and possibility. Managers would be well advised to build a substantial foundation in this literature. Ignorance of this body of thought condemns us to a continuing search for the lessons of the past. We ought to be smarter than that. Concluding their comparison of Taylor and Deming, Rossler and Beruvides stated: The widespread tendency of many managers (and academics) to latch on to what is tangible and relatively easy to implement (such as tools) suggests little in the way of fundamental change. Unfortunately, the efficiency experts who followed Taylor but lacked his insights and made a mess of his ideas have re-emerged in the form of modern-day Deming disciples . . . Perhaps too many people are just a little too willing to let others interpret for them what others have written or said or done (1994, p. 15).

Managers and those who purport to teach management, be they academics or consultants, need to do the hard work of developing a true knowledge of the field. A failure to do this work condemns us to tampering with managerial concepts. As Deming himself would be quick to tell us, tampering with a system only makes things worse.

A final thought Knouse et al. (1993) have perhaps given us the best resolution to these arguments by suggesting that the major differences between Taylor and Deming are caused by

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their relative places along management history’s timeline. However, a century after Taylor’s time, it remains to be seen whether Deming’s ideas will have similar long-term influence and impact.

Note 1 W. Edwards Deming did not invent nor subscribe to this terminology (Peterson, 1999).

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Koontz, H. (1980), ‘‘The management theory jungle revisited’’, Academy of Management Review, Vol. 5 No. 2, pp. 175-87. Likert, R. (1961), New Patterns of Management, McGraw-Hill, New York, NY. Little, J.H. (1994), ‘‘Administrative man faces the quality transformation’’, American Review of Public Administration, Vol. 24 No. 1, pp. 67-80. Locke, E.A. and Latham, G.P. (1984), Goal Setting for Individuals, Groups, and Organizations, Science Research Associates, Chicago, IL. McGregor, D. (1960), The Human Side of Enterprise, McGraw-Hill, New York, NY. Maslow, A.H. (1954), Motivation and Personality, Harper & Row, New York, NY. Metcalf, H.C. and Urwick, L. (1940), Dynamic Administration: The Collected Papers of Mary Parker Follett, Harper & Brothers, New York, NY. Mooney, J.D. and Reiley, A.C. (1931), Onward Industry, Harper & Brothers, New York, NY. Mooney, M. (1996), ‘‘Deming’s real legacy: an easier way to manage knowledge’’, National Productivity Review, Vol. 15 No. 3, pp. 1-8. Perrow, C. (1978), ‘‘The short and glorious history of organizational theory,’’ in Shafritz, J.M. and Whitbeck, P.H. (Eds), Classics of Organization Theory, Moore Publishing, Oak Park, IL. Peterson, P.B. (1999), ‘‘Total quality management and the Deming approach to quality management’’, Journal of Management History, Vol. 5 No. 8, pp. 469-88. Ranney, G.B. (1996), ‘‘Getting back to Deming’’, The Journal for Quality and Participation, Vol. 19 No. 7, pp. 16-18. Rossler, P.E. and Beruvides, M.G. (1994), ‘‘Management theory de´ja` vu? Scientific and total quality management’’, Engineering Management Journal, Vol. 6 No. 2, pp. 6-15. Shewhart, W. (1939), Statistical Method from the Viewpoint of Quality Control, Graduate School of the Department of Agriculture, Washington, DC. Simon, H.A. (1976), Administrative Behavior, 3rd ed., The Free Press, New York, NY. Skinner, B.F. (1971), Beyond Freedom and Dignity, Alfred A. Knopf, New York, NY. Spencer, B.A. (1994), ‘‘Models of organization and total quality management: a comparison and critical evaluation’’, Academy of Management Review, Vol. 18 No. 3, pp. 446-71. Taylor, F.W. (1913), The Principles of Scientific Management, Harper & Brothers, New York, NY. Taylor, F.W. (1947), Scientific Management: Comprising Shop Management, the Principles of Scientific Management, Testimony before the Special House Committee, Harper & Row, New York, NY (originally published 1914). Walton, M. (1986), The Deming Management Method, Perigee Books, New York, NY. Wren, D.A (1994), The Evolution of Management Thought, 4th ed., John Wiley & Sons, New York, NY.

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As Emerald expands into new markets and new subscriber offers, more academics and professional managers have access to this unique resource and are choosing Emerald journals to read and cite in their management research. Management Decision is a truly international journal, publishing papers by authors from all over the world. Over the course of volume 40, we have published the work of over 100 different authors from a variety of countries (see Figure 1) and we are proud to continue to expand this global focus into Vol. 41 with the inclusion of a special issue from the African Conference on Management.

Figure 1 Country of origin of management decision authors

Management Decision 40/10 [2002] 1037 # MCB UP Limited [ISSN 0025-1747]

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