New Prospects for Organizational Democracy?: How the Joint Pursuit of Social and Financial Goals Challenges Traditional Organizational Designs

For an extended period during the first half of the 20th century, industrial democracy was a vibrant movement, with ideological and organizational ties to a thriving unionism. In 2015, however, things look different. While there are instances of democracy in the business landscape, hierarchical forms of organization remain dominant, and organizational democracy commands only scant attention in organizational theory. The precise reasons for this trend are undoubtedly complex and bridge economic, sociological, and psychological concerns. Nonetheless, a key indicator of this trend is the dominance of the view of organizational economists that hierarchy outperforms non-hierarchical alternatives (including democracy) on grounds of economic efficiency across a wide range of contexts (Coase, 1937; Williamson, 1981; Ouchi, 1980). The underrepresentation of democratic models compared to hierarchy would thus seem to reflect, in part, a triumph of this economic logic (e.g., Hansmann, 1996). What does the balance of arguments look like, however, when values besides efficient revenue production are brought into the picture? The question is not hypothetical. In recent years, an ever increasing number of corporations have developed and adopted socially responsible behaviors, thereby hybridizing aspects of corporate businesses and social organizations (Margolis & Walsh, 2003; Kanter, 2009; Porter & Kramer, 2011). Particularly striking is the marked growth of social enterprises, which adopt a social mission as their principal objective but sustain themselves through commercial activities (Battilana and Lee, 2014; Battilana, 2015). This deliberate integration of social concerns into the value proposition of businesses—be they corporate businesses or social enterprises—is notable in its own right as a challenge to conventional conceptions of what the very practice of business is about. It is also notable, from an organizational point of view, insofar as it raises questions about what model is best suited to the integration of nonfinancial concerns. Does the joint pursuit of commercial and social objectives require new ways of organizing? In this essay we argue that it does. Or at least—to put our thesis in more measured terms—we argue that the joint pursuit of financial and social objectives warrants significant rethinking of organizational democracy’s merits compared both to hierarchy and to nondemocratic alternatives to hierarchy. In making this argument, we draw on some parallels with political democracy: the success of political democracy as a model for integrating diverse values offers some grounds for thinking about parallel virtues in the business case. Our goal is not to offer any general prescription for organizational democracy at this stage but, instead, to argue that the merits of more democratic models of organizing deserve significant reevaluation in the context of organizations pursuing multiple objectives. We proceed, first, by drawing on an extensive literature review to assess the way in which organizational democracy has been conceptualized in recent decades as well as to document the relative lack of substantive discussion about it in comparison with some other alternatives to hierarchy. We then characterize the recent surge of socially engaged models of enterprise and press the case that this turning point warrants reconsideration of the merits of organizational democracy. We close with some reflections on the future prospects of the democratic model and the limitations of our argument.