Lex Donaldson Quotes (1947-)

“Within organization studies, contingency theory has provided a coherent paradigm for the analysis of the structure of organizations. The paradigm has constituted a framework in which research progressed leading to the construction of a scientific body of knowledge... Contingency theory states that there is no single organizational structure that is highly effective for all organizations. It sees the structure that is optimal as varying according to certain factors such as organizational strategy or size. Thus the optimal structure is contingent upon these factors which are termed the contingency factors. For example, a small-sized organization, one that has few employees, is optimally structured by a centralized structure in which decision-making authority is concentrated at the top of the hierarchy, whereas a large organization, one that has many employees, is optimally structured by a decentralized structure in which decision-making authority is dispersed down to lower levels of the hierarchy.”

“Agency theory argues that in the modern corporation, in which share ownership is widely held, managerial actions depart from those required to maximise shareholder returns (Berle and Means 1932; Pratt and Zeckhauser 1985). In agency theory terms, the owners are principals and the managers are agents and there is an agency loss which is the extent to which returns to the residual claimants, the owners, fall below what they would be if the principals, the owners, exercised direct control of the corporation (Jensen and Meckling 1976). Agency theory specifies mechanisms which reduce agency loss (Eisenhardt 1989). These include incentive schemes for managers which reward them financially for maximising shareholder interests. Such schemes typically include plans whereby senior executives obtain shares, perhaps at a reduced price, thus aligning financial interests of executives with those of shareholders (Jensen and Meckling 1976). Other similar schemes tie executive compensation and levels of benefits to shareholders returns and have part of executive compensation deferred to the future to reward long-run value maximisation of the corporation and deter short-run executive action which harms corporate value.”

“Some scholars have argued strenuously against the idea that the organization is determined by its situation and have instead asserted that managers have free choice and are thereby to be held morally accountable (Bourgeois 1984; Whittington 1989). Contingency theory appears to some critics to be a managerially convenient ideology that justifies as inevitable organizational characteristics that are not really inevitable, because they are not really required for organizational effectiveness, and that injure the interests of employees (Schreyogg, 1980). Thus contingency theory is opposed by free choice. An intermediate position within this debate is that propounded by Child (1972), which he terms “strategic choice” (though he is talking about choice regarding structure). This takes the contingency theory of organizational structure but shows that some degree of choice can nevertheless enter in at several stages in the process.”

“Donaldson [is] a leading proponent of ‘sociological positivism’ in the field of organisation studies.”