Exit, Voice, and Albert O. Hirschman - Harvard Business Review

The terminology comes from Albert O. Hirschman's 1970 classic Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, ... Youhave1freearticlesleftthismonth. Youarereadingyourlastfreearticleforthismonth. Subscribeforunlimitedaccess. Createanaccounttoread2more. Organizationalculture Exit,Voice,andAlbertO.Hirschman Thelateeconomisthelpedusseetheworldinanewway,butleftusnomarchingorders. by JustinFox by JustinFox December12,2012 Tweet Post Share Save Print Tweet Post Share Save Print Leerenespañol Leremportuguês You’reacorporateshareholderunhappywiththedirectionmanagementistaking.Doyoua)takethe“WallStreetwalk”andsell,b)raisehellatthenextannualmeeting,orc)justholdontoyoursharesandhopeforthebest? You’reaUnitedAirlinesPremierPlatinummemberwithhundredsofthousandsofunusedmiles,andyou’vedecidedyoucan’ttaketheairline’spost-mergerdisorganizationandshoddyserviceanylonger.Doyoua)startflyinganotherairline—puttingyoubackatsquareonewithzeromilesandzerostatus—b)startleavingregularvoicemailmessagesonUnitedCEOJeffSmisek’shomephone,orc)sitbackinthefirst-classseatyou’vejustbeenupgradedtoafteratensewaitintheterminalandtrytotakeanap? You’reaRepublicanintellectual—DavidFrum,say—dismayedbythedirectionyourpartyhastakenoverpastfewyears.Doyoua)switchovertotheDemocrats,b)raisehellinthemedia,orc)trytostaywelcomeintheparty’scorridorsofpowerinordertoquietlyexerciseyourinfluence? Ineachexampleabove,you’rechoosingamongtheoptionsofexit,voice,andloyalty—orsomecombinationoftwoofthethree(it’sdifficulttocombineallthree,althoughaparentwhoyanksherkidoutofpublicschoolbutstillshowsupatschoolboardmeetingsandgivesalittlemoneytothePTAwouldpresumablycount).TheterminologycomesfromAlbertO.Hirschman’s1970classicExit,Voice,andLoyalty:ResponsestoDeclineinFirms,Organizations,andStates.AsHirschman’sdeathonTuesdaymadeclear,thebookhasasubstantialfanclubamongsocialscientists. Butitdoesseemmoreofacultfollowingthanauniversalone.Ionlyfirstheardofthebook(oratleastheardofitandrememberedit)inaconversationwithRogerLowensteinafewmonthsago.IwastalkingaboutsomewritingI’dbeendoingoncorporategovernanceandtheroleofshareholders;RogerimmediatelybroughtupExit,Voice,andLoyalty.SoIcheckedacopyoutofWidenerLibraryandstartedreading.ThismorningIfinallyfinishedit(it’sashortbook,andmuchofitisfascinating,butIwoulddefinitelynotcallitapage-turner). Hirschmanarrivedathisbasicideawhen,inabookoninternationaldevelopment(afieldthatPaulKrugmandubbedhimthe“tragichero”of),hehadtriedtoexplain“whytheNigerianrailwayshadperformedsopoorlyinthefaceofcompetitionfromtrucks.”Thereasonhecameupwith:“themostarousedandpotentiallymostvocalcustomers”—commercialenterprisesneedingtoshipcargo—hadquicklyabandonedtherailroadsfortrucks.Andbecausetherailwaysweregovernment-ownedandsubsidized,themanagementdidn’tcarealltoomuchaboutthesubsequentlossofrevenue. Asimilarlypoorresult,Hirschmanwrote,mightapplytopublicschoolsinaU.S.communitywherethemost“quality-education-conscious”parentspulledtheirchildrenoutandputtheminprivateschools.Theirexitmightgoadschooladministratorsintoaction,butthelossoftheirvoicewouldlikelyhaveamuchgreaternegativeimpact. Thepointherewasthatcompetition,commonlypresumedbyeconomiststocureallills,couldundercertaincircumstancesmakethingsworse.Thesewereadmittedlyspecialcircumstances,andHirschmanwasn’ttryingtoarguethatcompetitionandexitwerepointless.Hewasjustmakingthepointthatwhileexithadbeenthemainthingeconomistspaidattentionto—nottomentiontheculturallypreferredoptionintheU.S.,anationpopulatedmostlybypeoplewhovoluntarilyexitedothercountries(andtheirdescendants)—theroleofvoicewascrucialinunderstandinghoworganizationsactuallyworked. Afashionablepoliticalsciencetheoryofthe1950sand1960sheldthat,inatwo-partysystem,vote-maximizingpartieswouldinexorablymovetowardthepoliticalcenter.ThatthisdidnotevenremotelydescribetheRepublicans’choiceofself-proclaimedextremistBarryGoldwateraspresidentialnomineein1964,Hirschmanargued,hadtodowiththevoiceexercisedbyenergizedconservativeswithintheparty. Theirsturnedouttobeaprescientvoice.GoldwaterwastrouncedbyLyndonJohnson,butwithinafewyearsanewRepublicanmajoritywasbeingbuiltaroundhisconservativebase.WhethertheinternalexerciseofvoicethathaspushedtheGOPevenfurtherrightwardoverthepasttwodecadesandespeciallythepasttwoyearswillbringsimilarlybountifuleffectsseemsdoubtful,butwhoknows.Whatmattersisthatvoicematters.Andwhenvoiceisabsent,therecanbeproblems.BacktoHirschman: Whenthemanagementofacorporationdeteriorates,thefirstreactionofthebest-informedstockholdersistolookaroundforthestockofbetter-managedcompanies.Inthusorientingthemselvestowardexit,ratherthantowardvoice,investorsaresaidtofollowtheWallStreetrulethat“ifyoudonotlikethemanagementyoushouldsellyourstock.”Accordingtoawell-knownmanualthisrule“resultsinperpetuatingbadmanagementandbadpolicies.”Naturally,itisnotsomuchtheWallStreetrulethatisatfaultasthereadyavailabilityofalternativeinvestmentopportunitiesinthestockmarketwhichmakesanyresorttovoiceratherthanexitunthinkableforanybutthemostcommittedstockholder. Overthepastcoupleofdecades,oneanswertothisproblemhasbeentomakemanagersmoresensitivetoshareholderexitbytyingtheircompensationmorecloselytostockprices.Anotherhasbeentostrengthenthevoiceofshareholdersbygivingthemmorethingstovoteon.ButI’veneverseenthediscussionframedintermsofexitandvoice(well,IhavenowafterGooglingit,butitseemslikeaprettymodestliterature).Instead,thestandardmodelusedinanalyzingcorporategovernanceisthatofprincipals(shareholders)tryingtogettheiragents(managers)todotherightthing.Ifexitandvoicewereconsidered,we’dprobablythinkmoreabouttherolethatthevoiceofemployees(whooftenhavefarmoreatstakethanashareholderwiththousandsofotherinvestments)couldplayinstemmingcorporatedecline. Notthatwe’dgetmuchmoredefinitiveguidancethatthat.AsHirschmanconcludes,hisapproach“doesnotcomeoutwithafirmprescriptionforsomeoptimalmixofexitorvoice,nordoesitwishtoaccreditthenotionthateachinstitutionrequiresitsownmixthatcouldbegraduallyapproachedbytrialanderror.”Inotherwords,figureitoutforyourself. It’sthisopen-endedaspectofHirschman’sanalysisthatprobablyexplainswhy,althoughithasmanyfans,itdoesn’tseemtohavegenerateditsownschoolofthought(tellmeifI’mwrongaboutthat,Hirschmanites).It’sabookthatmakesyouseetheworldinnewways,butdoesn’tgiveyounewmarchingorders.Tome,thatconstitutesmuchofitsappeal.AndwithamassivenewbiographyofHirschmancomingoutthisspring,maybewe’redueforathink-for-ourselvesHirschmanrevival. (Bytheway,thenextthingonmyHirschmanreadinglist,asrecommendedtomeearlierthisyearbyHBSprofessorRebeccaHenderson,isThePassionsandtheInterests:PoliticalArgumentsforCapitalismBeforeItsTriumph.Bookreporttocome.) ReadmoreonOrganizationalculture JustinFox,aformereditorialdirectorofHarvardBusinessReview,isacolumnistforBloombergView.HeistheauthorofTheMythoftheRationalMarket.FollowhimonTwitter@foxjust. Tweet Post Share Save Print ReadmoreonOrganizationalculture PartnerCenter Diversity Latest Magazine Ascend Topics Podcasts Video Store TheBigIdea Data&Visuals CaseSelections