On Size and Formality in Business Organizations

William Redmond

Journal of Economic Issues, 2013, vol. 47, issue 3, 689-704

Abstract: Large corporations are invariably structured as formal institutions, and this formality is reflected in organizational charts. These charts depict a multilevel managerial hierarchy of authority within the organization typified, in the simplest case, by a pyramid. Many economic and business researchers attribute formality to a desire for greater efficiency, although I do not take this position in the present paper. Instead, I agree with researchers who connect formality with organizational legitimacy. I further argue that personal interests are at work in bigness and formalization. Top managers are motivated by desire for power and prestige. Formality furthers these objectives by rigidly fixing relations and ranks within the organization. Widespread belief in efficiency and legitimacy converge with personal motives to encourage and entrench formality. Corporate size and structure are seen as having deleterious effects on employees and society at large. But they also have some negative impacts on those at the top.

Date: 2013
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DOI: 10.2753/JEI0021-3624470305

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