TCS Daily

Intelligent Design? Not So Much!

By Stephen Bainbridge - January 11, 2006 12:00 AM

In a recent TCS column, Dominic Basulto took the debate over Intelligent Design on a wild ride into corporate governance. Yes, really.

Seemingly every major media publication has already weighed in on what the teaching of intelligent design ID could mean for the future of the nation, especially when it comes to religion, science and education. Well, nowhere will the teaching of intelligent design have a more pronounced and lasting effect than in the corridors of Corporate America.

While ID was dealt a setback this week in Pennsylvania -- as a judge tossed out an effort to force it into public schools -- ID is still gaining favor in Kansas and elsewhere. If Intelligent Design gains further momentum, corporate PR and marketing machines across the nation will have to retool their press releases, marketing brochures and advertising campaigns to include principles of intelligent design, rather than corporate Darwinism.

Think about it. With the exception of the sports metaphor (e.g. the "slam dunk," "two-minute drill," "level playing field"), Darwinian terms and principles have probably transformed corporate jargon more than any other field of human endeavor.

Cute. Mr. Basulto's column, of course, was written with his tongue firmly planted in his cheek. Yet, behind the humor lurks a serious question: Are corporations grown pursuant to a coherent plan or do they grow organically and haphazardly?

A Finely Crafted Swiss Watch?

INTELLIGENT DESIGN, or creationism in sheep's clothing, goes something like this: If you examine a finely crafted Swiss watch, you immediately assume someone smart made it (presumably someone Swiss, but don't rule out the Chinese). Now you apply this premise to human beings and the known universe. How could entities so intricate and marvelous as you and I -- and the other heavenly bodies -- have just happened along without the deft hands of Intelligent Design, who shall henceforth be referred to as Mr. ID?
-- Boston Globe

In my experience, very few corporations bear sufficient resemblance to "a finely crafted Swiss watch" that one would infer a Mr. ID lurked in the background planning their every step.

An intelligently designed corporation, for example, presumably would make optimal use of hierarchy. Yet, we know that hierarchical organizations, including nominally profit-maximizing corporations, tend to create excessive layers of bureaucracy.

Managers have well-known incentives to prefer empire-building to profit-maximization. In part, this phenomenon is driven by the psychological rewards of empire-building, but in many organizations the compensation regime reinforces these tendencies by adding pecuniary rewards for those who build large sub-enterprises around themselves. Because this tendency is only partially constrained by the familiar arsenal of legal and market forces directed at all forms of shirking, firm expansion is difficult to reverse.

Layers of bureaucracy therefore tend to grow over time in a process only weakly constrained by external forces. As I observed in Participatory Management Within a Theory of the Firm, Peter Drucker once offered the impressive anecdotal example of a self-evaluation by one large defense manufacturer revealing that as many as 6 out of 14 management layers had no useful purpose.

Whether business decisions will be correct obviously depends on the accuracy and speed of information flows within the corporation. Unfortunately, the virtues of hierarchy become vices as firm size increases. Various inefficiencies arise as firms get larger, of which the most important for present purposes is the effect of unnecessary hierarchy on the transmission of information within the firm. Because of the inherent tendency for excessive growth in corporate hierarchies, the process of funneling information upwards and decisions downwards can break down in large corporations. Drucker made this point quite forcefully, arguing that "whole layers of management neither make decisions nor lead. Instead, their main, if not their only, function is to serve as relays -- human boosters for the faint, unfocused signals that pass for communication in the traditional pre-information organization." Unnecessary information relays threaten to substantially distort the flow of information within a firm. Each additional layer of bureaucracy increases the average path information must follow in order to reach the proper decision makers. Because the amount of systematic distortion to which messages are subjected is directly proportional to the length of the average path they follow, as is powerfully illustrated by the childhood game in which a secret message is whispered down a line of players, longer paths inexorably lead to poorer corporate decisions.

Sometimes corporations are smart enough to realize that they have to hack away at this deadwood, but even then their response often lacks evidence of intelligent design. As I detailed in Privately Ordered Participatory Management, restructurings often have strongly negative morale effects, especially when the restructuring includes a significant down-sizing of the workforce. Retained workers frequently experience a survivor's syndrome, whose symptoms include risk aversion, demoralization, loss of commitment, and high stress levels, which is a major reason the expected economic benefits of a restructuring often fail to materialize.

Restructurings can also disrupt internal information flows. The most obvious effect of the layoffs associated with a down-sizing restructuring is the loss of the departed workers' expertise and knowledge, but their more subtle effect is to break up the informal mechanisms by which managers and workers bypass hierarchy. One party (or both) to an informal bypass may be laid off. Lost trust and enhanced risk aversion may result in a communication breakdown even if both parties remain with the firm. Once severed, these informal links are slow to heal. Informal relationships of the sort at issue here typically develop around social interactions such as company sporting events, outings, car pools, and break rooms. By one estimate, a strong internal organization can take three to seven years to evolve.

In sum, corporate success all too often is a matter of survival of the least unfit. So if courts ban teaching of intelligent design in public schools, maybe business schools should start teaching it.

Stephen Bainbridge is Professor of Law at UCLA. His scholarship focuses on corporate governance and law. His website is a widely read blog covering business, law, and politics.


A Real Corker
It is astonishing that someone with such splendidly lucid views on the informatinal pathology of corporate growth should have such benighted views on plastic corks.

Instead of encouraging the California wine industry's collusion with Fortune 500 corporation plastic divisions , Bainbridge should exhort Governor Schwatzenegger to earmark some of California's state investment in biotech to seek out the plant genes responsable for the biological pathways to the 3-chloroanisole he rightly loathes,and knock the offending genes out of the cork oak's genome. T
Establishing a monopoly of cloned groves of these supercork trees will make the Golden state the OPEC of wine bottle closures , an instance of intelligent design so benign that he will become the toast of the Discovery Institute.

Spontaneous organization is how 'intelligent design' works, naturally
I applaud Dr. Bainbridge's work and share his criticism of arthritic and sclerotic bureaucratic hierarchies, whether in large corporations (where he examines the flow of information and the breakdown of operational relations) or in educational institutions (where I struggle to communicate and form working relationships in practice).

However, it's a big category mistake (a 'straw man' fallacy) to conflate centralized planning, or top-down hierarchy, with 'intelligent design' in nature. Modern centralized power politics and large-scale social, corporate bureaucratization are historically located in the evolution of the body politic. The overgrowth of structures in biology and society is an interesting problem in evolution, but complaining about inefficiency in a developed body says nothing about the quality or origin or end of the design. My eye works not as well today as it did ten or twenty years ago, but it's a marvelous design anyway. If anyone proposing 'intelligent design' in nature or history were to discount the constitutive role of time in the development of creature or company, we could safely ignore him or her. Does anyone? Things change over time and from place to place. That's evolution, in a fundamental sense that no one can doubt. Organisms are born, they grow, and they die. Anyone--Darwinian biologist or intelligent designer--must ultimately account for death.

Death, I take it, is part of life. If you have a dead-end job, either it'll be the death of you, or you'll break the stultifying pattern. That's the way of life. It's a pattern. Where did it come from? Where does a spontaneous organization come from? The same spontaneously ordered social pattern (say, friendship or marriage) works for Tom and Susan, or John and Marsha? How is that possible? Can we analyze how that same pattern fails with Mark and Mary (or Tom and Tom, or Susan and her porpoise)? Perhaps the patterns of life are themselves evidence of an intelligent design, but we have to struggle to figure it out. Perhaps evolution then is compatible with intelligent design. :)

It's analogous to the misunderstanding of ethical 'natural law' as if that notion stipulates a plaque with the Ten Commandments on the wall. Obviously, in natural law thinking, ethical practices are to be founded on ethical principles which are formulated to describe how nature seems, tends, ought to work (psychologically, sociologically and environmentally). So you have to perceive how the situation unfolds and interpret what it means to know how to act properly. The most famous example is the Golden Rule (the rule of reciprocity present in some form in every culture, but moralized for us in the Bible). [N.B. "Survival of the *****st" in the law of tooth and claw in the jungle is a social darwinist description of the state of nature. Dawkins extrapolates ethics from evolutionary seeds.] Natural law properly understood merely identifies the tools we have in our toolbox, as well as the kinds of work we can put them to, and the kinds of opportunities for that work.

The very term 'corporation' comes from the classical and Christian metaphor comparing social organization to the physical body, and so is a special, political case of natural law. There are, it suggests, certain roles in society (like the 'head' or chief member, the 'hands' or tools of industry, etc.), and we can better understand our experience by defining such roles. Now, you could take this as a cookie-cutter design (and surely it's convenient for the leader to emphasize his headship), but the notion of spontaneous self-ordering suits a more libertarian political sensability, which can help re-form corporate and educational organizations. The head one time may be the hand next time, and all the parts of the body had better communicate to achieve the ends they share.

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