Economic Sociology’s Legacy to Corporate Governance, 2004

This paper explores the intellectual tradition of Max Weber,Emil Durkheim, Joseph Shumpeter and Karl Polanyi — economic sociologists whose work has been largely ignored by corporate governance scholars focused on the more traditional areas of economics. The foundation laid by Weber is the central focus of the paper. Weber's writing in Economy and Society laid the groundwork for an approach to the study of firms and markets that diverges significantly from that in of the neoclassical economic model. Weber viewed firms and markets as being deeply embedded in and inseparable from the larger systems of social values and social structures that make a society durable. He grounded his view of economic action in a view of social action. Social actions are all deliberate (meaning purposive, which would include deliberately passive) acts undertaken in contemplation of others' acts and reactions. Transactions in money are generally social actions, since the value of money is determined by what people will decide to give you for it! Economic actions are constantly ormed by patterns of meaning, systems of power and social systems (the family....) that underlie them. From this perspective, the growth of the firm has as much to do with the need for rationalization and the rational/economic division of labor (esp. in a condition of limited liability) as it does with any immediate reduction of transaction costs. Rationality ( the struggle for meaning and systems that order chaos) is as pressing a force as efficiency. Recent writing in economics has come close to building a bridge back to economic sociology, especially with its interest in the effects (or lack of) trust in economic transacting as well as other "behavioral" variations. Economic sociology pursues these departures from qualitative rationality at the level of social structure, rather than individual psychological aberrancy. This paper tries to broader this more "socially" oriented view of the behavior of human beings in firms and markets. This intellectual background is related to contemporary issues in corporate governance legislation, and especially the Sarbanes Oxley reforms and then the increased demand for independent directors at public companies and mutual funds.