Wednesday, June 27, 2018

The Political Firm: How State and Party Careers Influence Chinese Firms

It is well known that firms ask for favors from the state and often get them, with examples ranging from all the secretive lobbying in the U.S. to the land use permits that politically connected firms seem to get more often in many developing nations. But what do the firms give in return? In democracies, the answer is easy: money. Donations to help re-elections are channeled to politicians’ election campaigns from firms and their owners through Political Action Committees in the U.S., ensuring that the politicians remain grateful and compliant. Money does not work as well to secure the favors of state officials who are not elected, however, unless they are corrupt, so the question is what can firms do when seeking favors from unelected officials?

A recent article in Administrative Science Quarterly by Danqing Wang and Xiaowei Rose Luo explores this question using data on Chinese firms during the market reform in the 10 years starting in 2001. They take advantage of the fact that provincial government officials and party officials have different goals, as do officials near retirement and younger officials with much of their career ahead of them, to show that there is a very close relation between the goals of important state officials and a very consequential firm action: diversification through the acquisition of failed firms. This was a period in which many state-owned firms that had enjoyed significant state support before the reform failed and laid off their workers, creating the potential for social unrest. Other independent firms could help this unemployment problem (albeit unprofitably) by acquiring the failed firms and continuing operations. Whether they helped or not was closely tied to the careers of state officials.

The key insight is that party officials and government officials both care about social stability and economic growth, but party officials care especially about social stability, while government officials care especially about economic growth. Taking this reasoning one step further, government officials are generally more interested in economic growth, but when provincial governors are close to retirement they become interested in social stability too (it turns out to be good for their post-retirement careers). Firms react to this in responding to calls for help for the failing firms. Having a provincial governor near retirement makes them more likely to diversify in response to layoffs by local firms, but having a provincial governor not close to retirement has no effect. A party official near retirement has no effect because party officials always care about social stability, so retirement does not increase pressure on the firm.

Wang and Luo went one step further in showing that political pressure changed firms’ diversification. They looked at whether the provincial level of civil unrest could explain the firms’ reactions, whether retirement alone could explain it, or whether it was a combination of the two. It turned out to be the combination: layoffs, retirement, and civil unrest together made firms help the governor by diversifying to absorb the laid-off workers.

So we know that firms are politically sensitive and can do useful things like reducing unemployment. That’s often a good thing. The problem lies somewhere else. The relationship between firms and the state is one of give and take, so if you see firms giving they are usually taking something else. If you can’t see what they are taking, you should probably start worrying.

Wednesday, June 13, 2018

Coupled Careers: Why Some Work Better Than Others

We humans have a habit of getting attached to each other. People often connect as couples, who may then form families, and their lives outside work become closely connected. But the lives of members of a dual-earner couple, especially professionals each developing their own careers, also become connected in the work world, for better or for worse. We often hear that couples with dual careers must make sacrifices and tradeoffs, such as when deciding where to live and how much to work, which could negatively affect one or even both partners. Yet some couples seem to have very different experiences: both members reap benefits in the workplace that emerge from their personal connection.

A new paper in Administrative Science Quarterly by Jennifer Louise Petriglieri and Otilia Obodaru investigates how members of some dual-career couples – but not others – grow their professional identities and careers thanks to each other. They look at how each partner in a relationship can promote the other’s professional development by encouraging exploration and being supportive when the exploration has disappointing results. This type of support ranges from the breakfast conversation about important decisions to the evening consolation following problems at work.

Petriglieri and Obodaru home in on a feature of supportive partnerships that we often overlook: who supports, and who receives support? There is a radical difference between dual-career couples in which one partner supports the other and couples in which both partners support each other. A couple with a single supporter is essentially a relation in which support is traded for dependence. Inevitably the two partners will develop differently, and they will understand the tradeoffs involved in how much support to give and how much to receive. The result is likely a relationship with built-in conflict and weaker professional growth for at least one of the partners.

A couple with two supporters does not have this problem of unequal trade and dependence because each supports the other, usually in ways that are different enough to be hard to compare. This not only reduces conflict but also has another key benefit: because one’s own experience is an important source of support, mutual support means learning from each other and using the other’s professional identity to develop one’s own. Often this works well because partners have complementary skills, so through mutual support and learning they can grow their professional identities and improve their professional skills.

This research really is a combination of old and new knowledge. The old knowledge is that we learn by teaching and that dependence produces weakness. The new knowledge is that this explains how dual-career couples can benefit from each other’s professional identity. It should come as good news to any couple wondering if it’s truly possible to support each other’s careers.

Thursday, June 7, 2018

Let’s Talk about Our Breakup: How Communication Facilitates Separation

Don’t worry, you haven’t stumbled onto a relationship advice column. I’m here to talk about an old problem for organizations: how to successfully divest parts of organizations that need to become independent entities. There’s lots of research on how to incorporate acquired previously independent organizations and turn them into parts of a larger organization. That’s because the problem of incorporating acquired organizations appeals to our appetite for growth, so it’s a sexy topic. But large organizations must deal with divestments as well as acquisitions, and divestment research is harder to find.

A recent paper in Administrative Science Quarterly by Rene Wiedner and Saku Mantere teaches us some new things about the separation process. They look at the separation of one part of an organization in the English National Health Service from a larger part, and they examine what went right, what went wrong, and why. The findings offer very useful lessons, and some are surprising.

It would seem logical that for others to gain independence, we should not help them too much. Helping means communicating and giving advice, and that is exactly how organizations (and people) stay dependent on others, right? Well, when separating out an organization, this is exactly wrong. Regular and respectful communication actually makes the separation easier and more successful for both the “parent” and the “child” organization.

Wiedner and Mantere found that communication is important because it creates two kinds of respect: appraisal respect, which is based on recognized ability and effort, and recognition respect, which is based on shared values. Both forms of respect are needed for the newly separated organization to be fully autonomous, as it needs to be to function well. Interestingly, these forms of respect don’t require that the organization can already stand on its own at the time it separates. Quite the opposite: they enable the organizations involved to ask for help and give help, which leads more quickly to the divested organization experiencing autonomy and the divesting organization granting it. Autonomy in turn creates independence.

The message here is that separation involves some leaps of faith because the respect has to be given before the newly separated organization is fully autonomous and independent. This is why separation can easily fail: if we demand that a divested organization demonstrate its independence before we grant it autonomy and respect, we’re doing things in exactly the wrong order. 

Many parents already know this lesson, of course, because letting children become independent involves many leaps of faith. Before we hand them the keys, we can’t know for sure that our teens won’t wreck the car. Before we pay the tuition bill, we aren’t guaranteed that they’ll study hard in their college courses. In addition to reading this new research by Wiedner and Mantere, divesting organizations might do well to check out some parenting advice columns.

Wiedner, R., and S. Mantere
2018. "Cutting the Cord: Mutual Respect, Organizational Autonomy, and Independence in Organizational Separation Processes." Administrative Science Quarterly, forthcoming.