Business Collective Action
Organizing collective action is an important business strategy. I investigate two types of business collective actions. One type is the collective action that involved only business organizations. My research of the New York Clearing House Association (a banking self-regulation program) illustrates the prominent role that it played in stemming the tides of bank panics in the National Banking Era. Moreover, dense elite social networks solved the free-riding problem in business collective action. Yet, the industry self-regulation was later controlled by large banks to disadvantage their competitors, which unexpectedly escalated market crises and led to the failure of private regulation.
The second type of business collective action is that business organizations mobilize not only among themselves but also the support from the public. I investigate the issue of "illegal" of local currency by banks during the Panic of 1907. Money is socially constructed. To make it work, banks need the support from other stakeholders (other businesses, government, citizens). I found that banks' mobilization efforts were more likely to be successful when the local economic inequality was low and social groups could be bonded by a collective identity. Organizing collective action to secure support from the public empowers businesses to protect their interests, and the external factors such as pre-existing community structures constrain the effectiveness of such a strategy.
Business collective action has consequences on the evolution of business networks and subsequent rounds of business strategies. There is a problem of "the exploitation of the great by the small", which means that large players often bear a higher burden of the cost of collective action than small players. To mitigate the problem, during the post-collective action period, large banks tended to focus more on their sectional interests and to favor a market stabilization strategy that involved eliminating small banks. Yet the experience by being supported by community made bankers more aware of their responsibility to their community and support market stabilization strategy that involved assisting small banks.
Social Movement against Business Organizations
Businesses are sometimes targets of social movement activists. According to Forbes, Walmart's biggest enemy was not its business rivals but protestors from local community. Focusing on Walmart and the protests it has faced over new store proposals, my coauthors and I found an empirical puzzle--in fully 65% of the cases, protests dissuaded Walmart from opening the proposed store, why were these protests so effective? Why would Walmart propose so many stores only to have to withdraw? We suggest that companies face uncertainty regarding whether activists will organize a protest, and companies respond to this uncertainty through a "test for protest" approach. In Walmart's case, this consists of a relatively low-cost probes that take the form of proposals to open a store. They then withdraw if they face protests, especially when the contexts of those protests make them more costly.
Protests against Walmart send a signal not only to Walmart but also to its competitor, Target. Protests against a first entrant (Walmart) reveal community preferences and affect the second entrant’s (Target) assessment of the potential profitability of a market. However, protests against a first entrant are noisy signals for the second entrant. To resolve the uncertainty, the second entrant discounts protests against the first entrant that are led by protest-prone activists and instead relies on protests led by moderates as an indicator of a community’s preferences. The second entrant also differentiates between protests against the first entrant firm and the organizational form (for instance, Walmart versus big-box stores), and discounts the former but not the latter. Moreover, Target relies on the protest signals only in markets in which it lacks local knowledge.
Business organizations strategically respond to activism in markets. Introducing regulatory arbitrage opportunities into the strategic interaction between companies and potential activists, we find that firms view regulatory differences as part of a corporate political opportunity structure, and exploit regulatory variations to disadvantage their rivals. We focus on variations in right-to-work (RTW) laws that signal a pro-business climate in a state. Using a spatial-regression discontinuity design, we analyze how Walmart locates new stores in the face of anti-Walmart activists and exploits regulatory discontinuities on the borders between RTW and non-RTW states. We find that Walmart is more likely to propose new stores on the borders of RTW states, and to open those stores if they are protested, compared to the borders of neighboring non-RTW states. This paper shows that the geographical spread of organizations is not solely the outcome of internal capabilities but is partly shaped by protests launched by activists.
Community and Business Relationship
Community has strong impacts on business organizations. My research on the relationship between community and business organizations focus on how the changes in the community-business relationship (such as crisis, disruptive events, and protests) affect business organizations' behaviors.
My research on banks' issue of illegal currency substitutes during the Panic of 1907 shows that the community support is an important source of power. To utilize community power, businesses need to overcome the public's distrust. The determinants of businesses’ success include not just community members’ rational calculations about costs and benefits, but also cultural and structural factors that shape the collective meaning of the community members’ support for businesses’ actions and the identities that are formed from their doing so. Therefore, businesses are more likely to mobilize support in communities where structural conditions facilitate the formation of a collective identity that links divergent social groups. Bonding structures such as equality, homogeneity, and inter-community rivalry that nurture intra-community cohesion, as well as legitimation driven by inter-community diffusion and favorable ideologies, are likely to increase the efficacy of businesses' mobilization of community support.
Similarly, the anti-Walmart protests also demonstrate the influence of community on the market expansion business organizations. According to Forbes, Walmart's biggest enemy was not its business rivals but protestors from local community. When protests signal that the costs of entry are likely to be high, Walmart is likely to drop the proposal and try elsewhere. Community protests are especially effective in deterring Walmart when they are led by local organizations, or when there are successful protests in nearby communities, or when nearby communities have imposed tough regulations, or when they occur in communities with liberal ideologies.
A crisis in community demonstrates to community participants what they can expect from others in extreme circumstances, and thus community crisis provides the testing grounds of cohesion and trust. With my coauthor, I examine two adjacent financial crises during the National Banking Era, the Panic of 1893 and the Panic of 1907, and find that organizations learn from a crisis that serves as a test of trust within the community, and the memory of the early crisis directs their responses to a later financial crisis. This research also suggests that organizational learning is an important mechanism that carries forward the institutional legacy within community.
My on-going research with doctoral student, Jue (Kate) Wang, investigates the impact of disruptive events on the community business relationship on entrepreneurship. We investigate the relationship between communities and the nascent commercial drone service industry. Industrial accidents caused by the use of industrial technology raise people’s concern about safety and privacy; such concerns, in turn, prompt public collective action to push for laws and regulations on the use of this technology as well as private action to directly attack organizations within the new industry. At the emerging stage of an industry, these dynamics exert a profound impact on geographical variations in organizational population density.
Evolution of Social Networks
Social networks such as board interlocks (inter-organizational ties created by directors sitting on the boards of multiple corporations) is an important channel of organizational learning. I study the formation and dissolution of the interlocking ties of S&P 1500 firms with Internet companies from 1996 to 2006. However, unlike most prior studies on the evolution of board interlocks, I examine how contextual factors such as fads and fashions attract organizations to each other to form relationships. I find that fads and fashions affect the formation and dissolution of inter-organizational networks in an asymmetrical way. Fads and fashions legitimate a certain type of network partner (such as dotcoms during the Internet Bubble period) and encourage other actors to connect with them. Yet, network dissolution is not as responsive to fads and fashions as network formation because partners have already obtained direct information and are consequently less affected by social information.
Board interlocks also provide a channel for business leaders to socialize with each other, build consensus, and recruit participants of collective action. Board interlocks not only facilitate business collective action, and their evolution is also affected by the experience of business collective action. In particular, the large market players’ response to the classic problem of the “exploitation” of the great by the small provides a mechanism for interlocks to evolve. Through studying the two types of collective action that banks organized during the Panic of 1907, I find that the experience of issuing currency substitutes, a course of collective action that needed to mobilize community support, made bankers more aware of their responsibility for community welfare, and thus in the post-crisis period, bankers were more supportive of the market stabilization strategy of assisting small banks. In contrast, the experience of organizing mutual lending, a course of collective action that highlighted the power of businesses in a way that was independent of the communities in which they were located, led bankers to focus more on their sectional interest and favor the market stabilization strategy of eliminating small banks. These different attitudes toward small banks affected the evolution of the interlock networks between large and small banks.
Elites, Networks and Mobilization
Elites are often defined as a small social group that occupies the command posts of key societal institutions. The traditional elite mobilization studies have focused on how elites coordinate among themselves to influence institutionalized channels to achieve outcomes that serve their interests. I argue that elites’ advantages are dynamic and changing rather than static or self-perpetuating. There are situations in which formal institutions are inadequate to protect elites’ interests, and elites are motivated to build private institutions and actively seek support from other social groups. My research of the banking elites' collective action to survive the Panic of 1907 shows that, to make their mobilization efforts successful, elites need to be united in the first place, and a high level of cohesion increases their capacity to organize collective action. Yet, community structures also affect the success of elites’ mobilization because the level of community support may directly determine the utilities that elites obtain from their collective action. Economic inequality affects the efficacy of elites’ mobilization because the public is more likely to participate in elites’ programs in places where the intra-community trust is high. Religious homogeneity has a special significance for elites as religious activities supply meaning systems and organizational infrastructures for collective action. Spatial contagion facilitates elites’ mobilization efforts because it spreads information and facilitates inter-community competition.
Elites also face the classic collective action problem. In the case of the New York Clearing House, an industry self-regulation program that pooled the resources of member banks during financial crises and imposed reserve requirements on members in normal times, what enabled it to overcome the dilemma of collective action and govern the Manhattan banking market for sixty years? We find that the dense connections between bankers through elite clubs and board interlocks help them monitor each other and overcome the free-rider problem.
Board interlocks provide a channel for business leaders to socialize with each other, build consensus, and recruit participants of collective action, studying the formation and dissolution of board interlocks can enhance our understanding of the infrastructures of elite mobilization. Board interlocks not only facilitate elite mobilization, and their evolution is also affected by the experience of elite mobilization. Building on the classic collective action problem of the exploitation of the great by the small, I argue that large market players would have incentives to respond to this problem in the post-collective action period, and their responses would result in structural changes in the relationship between large and small market players.
Market Governance Institutions and Industry Self-Regulation
Effective market economies rely on various forms of market-governance institutions. Among these institutions, there are government regulations as well as private institutions. Private institutional practices built by market players themselves often take the form of a trade association or industry self-regulation program. While the prior research has focused on the free-riding problem to explain the effectiveness of private institution. My research of the New York Clearing House Association highlights the distributional function of institutions (i.e., as an instrument that favors one group over others). If cohesion is necessary to overcome the free-rider problem that all forms of private institutions face, maintaining a high intragroup cohesion would require excluding rival groups, especially in a large society that is more likely to have groups with competing interests. Yet, this exclusivity breeds instability. Thus exclusivity may be another built-in limitation that private institutions face when functioning in a large society. This may also partially explain why private institutions, despite being hailed as an important form of regulation, are far from being ubiquitous.
Money can be a private institution.The public’s confidence in money does not have to depend on the state’s authority. To make money possible, “all that is necessary is community agreement to establish such a system” (Frankel, 1977). My research on the issue of local currencies during the Panic of 1907 shows that to successfully issue currency substitutes, there had to be sufficient confidence in a community that bankers could be counted on to ensure the maintenance of the monetary order.