The Struggle for Control of the Modern Corporation: Organizational Change at General Motors, 1924-1970

Published by EH.NET (March 2003)

Robert F. Freeland, The Struggle for Control of the Modern Corporation:

Organizational Change at General Motors, 1924-1970. Cambridge: Cambridge

University Press, 2001. xviii + 364 pp. $59.95 (cloth), ISBN: 0-521-63034-7.

Reviewed for EH.NET by Paul Robertson, Department of Management, University of

Wollongong.

In this important new book, Robert F. Freeland provides a new perspective on

the management structure of a firm that is, perhaps, already the most

thoroughly studied American corporation. The book is divided into two

closely-related sections. The majority is devoted to a detailed discussion of

the changing organizational structure of the General Motors Corporation over a

period of nearly half a century, but the theoretical sections at the beginning

and end more than justify the book’s place as Volume 17 in a series devoted to

“Structural Analysis in the Social Sciences.” Although the middle portion is

used to provide evidence to support the arguments on the flanks, the two parts

can best be discussed independently.

To begin with the empirical chapters: On the basis of a wealth of primary

material, Freeland surveys changes in the management structure of General

Motors from the days of William Crapo Durant to the chairmanship of Frederic

Donner in the 1960s. The person central to the argument, however, is Alfred P.

Sloan, Jr. Sloan was not only president or chairman of the firm for much of the

period, but has left a wealth of documentation concerning his actions and

motives. Freeland’s argument is that Sloan, despite any impression given by his

memoirs (My Years with General Motors, 1964), did not try to create a

strictly hierarchical firm in which divisional managers were rigidly separated

from owners and in which financial and strategic decisions made by the owners

were passed on by fiat to operating executives to be carried out on a

lump-it-or-leave-it basis. Instead, although the forms of organization employed

by Sloan varied in their degrees of centralization, Sloan knew that he

generally needed to obtain the “consent” of divisional managers in order to get

their full cooperation. To achieve this, he engaged in what he called

“selling,” which covered a variety of activities ranging from closely-argued

written justifications of policies to consultation to active participation of

divisional managers in decision making. Moreover, Sloan frequently supported

the role of the divisions in undermining the authority of the owners, in this

case the du Pont family and their representatives. As a result, at least at the

top, General Motors relied far more on consensus than on a command-and-control

structure. This part of the book provides an excellent discussion of the

historical development of the firm based on a solid command of detailed

evidence.

By contrast, the theoretical discussion, which is probably closer to Freeland’s

heart, is less satisfactory. As economic and business historians know,

Freeland’s topic has been dealt with before, not only by Sloan but also by

Alfred D. Chandler, Jr. in Strategy and Structure: Chapters in the History

of the American Industrial Enterprise (1962). Chandler, who covers much of

the same ground as Freeland for the earlier period, uses GM (along with Du

Pont, Esso, and Sears-Roebuck) to demonstrate how decentralized,

multi-divisional structures were devised by owners and managers to cope with

the growing complexity of giant corporations in the early decades of the

twentieth century. Freeland, however, does not engage directly with Chandler’s

ideas. Instead, he conflates Chandler’s discussion with the later ideas of

Oliver E. Williamson, in the process turning Chandler into a mouthpiece for

Williamson’s transaction cost based concept of the “M-form” corporation. Not

surprisingly, Professor Chandler fails as an advocate for an idea that was not

conceived until some years after he wrote his book.

Freeland’s book is disturbing because it creates a straw person (or more

accurately a small straw army) to knock over rather than concentrating on his

positive contribution — that consent is often needed to achieve efficiency in

complex organizations. In one sense, this is understandable since Freeland’s

point, while valid, is not nearly as exciting as killing giants. Regardless of

what Williamson may contend, one wonders if Sloan and Chandler would really

have contested the point that consent may improve efficiency in many cases.

Freeland’s theoretical discussion also suffers from selectivity. The immediate

heirs of Chandler’s insights were not transaction cost economists, but

sociologists and organizational theory specialists such as James D. Thompson

(Organizations in Action, 1967) and Jay R. Galbraith. Their ideas, which

are closer to Freeland’s own, are barely covered. Similarly, there is no

acknowledgement that, sixty years ago, Herbert Simon (whom Freeland ominously

terms an “economist,” a designation that Simon might have disputed) pointed out

that experts have independent authority based on unique knowledge and may need

to be consulted rather than commanded. Finally, Freeland explicitly uses “the

terms ‘bounded rationality’ and ‘imperfect information’ interchangeably” (p.

10, fn. 29). In doing so, he jettisons one of the two props of bounded

rationality, namely the inability of individuals to process large amounts of

information efficiently. In this way, Freeland glosses over a major connection

between the work of Chandler, Thompson, Galbraith and Simon, and also over one

of the major connections between “consent” and the multi-divisional structure

in their work.

In short, while Freeland provides a wealth of good historical information,

readers should be careful in picking their way through his theoretical

arguments.

Paul Robertson is author (with Richard N. Langlois) of Firms, Markets, and

Economic Change: A Dynamic Theory of Business Institutions, Routledge,

1995. He is editor of several books including Authority and Control in

Modern Industry: Theoretical and Empirical Perspectives, Routledge, 1999

and (with Richard N. Langlois and Tony F. Yu) Alternative Theories of the

Firm, Edward Elgar, 2003.