Chandler's article on business history and organizational structure

¶ … Decision making and modern institutional change (Chandler, 1973), "The replacement of small personal enterprises by large managerial ones in many industries radically altered the nature of the decision-making unit, and the types of decisions made within the unit." (p. 10) Prior to the 1850's, most economic decisions in the United States were made by entrepreneurs who either worked alone or collaborated with one or two partners (p. 3). High-volume production and distribution fueled the creation of the multi-unit enterprises operated by career managers rather than owners (p. 3). The new enterprises required a formal internal organization to run efficiently given that a large number of sub-units that carried out several different functions of production, distribution and transportation all within a single enterprise (p. 3).

Chandler describes a single administrative network composed of thousands of managers that has emerged to executive new operating requirements (p. 12). In this network, individual actions are largely determined by organizational aspects and less by the individualism of the past. And, roles and responsibilities are now different. In Chandler's scenario, senior executives have turned their attention to investment and policy formulating decisions, leaving the Board of Directors with little more than ratification duties (p. 10). Specialized managers with training in engineering and business management have emerged to manage the high velocity of throughput in various operational functions (p. 11).

Chandler aptly describes why it was necessary for organizational structure and decision making to evolve for the age of mass production and distribution (p. 3). However, his essay is flawed in several areas. First, he is overly optimistic regarding the replacement of individualism with an internal grouped-based administrative network (p. 12). Secondly, his theory that the senior executive is the sole authority on investment and policy formulation has not stood the test of time (p.10). Thirdly, Chandler has not adequately addressed the role of culture in organizational decision making, focusing instead on only responses to operational necessities.

Unless one actually believes that financial fraud benefits a company, one must assume that individualism, contrary to Chandler's single administrative network theory, ruled in fraud cases at numerous companies such as Enron, WorldCom, Adelphia, and McKesson, to name just a few. Most of the fraud was committed by executives to enhance their own financial well being, not the well being of the company. Further, the fraud wasn't committed by just internal executives; there was an intricate web of business relationships involving external parties such as financial analysts, auditors and bankers. Yet, Chandler makes no mention of external factors in his analysis of the operation of the administrative network. Because of the prevalence of fraudulent behavior, one can only conclude that either an individual can participate in a group network and still behave individually or that the group network is not as tightly linked as Chandler asserts. In other words, there are gaps in the links that are easily exploited by individuals if they want to do so.

The United States is still in the age of mass production and distribution, but executive authority over investment and policy formulation is substantially eroding. For example, the Sarbanes-Oxly Act aims to address systemic weaknesses in corporate governance structures that have led to wide-spread financial fraud. Intensified regulatory scrutiny of public companies requires new channels of communication and sign off among an organization's decision makers, meaning that the Board of Directors is no longer just a ratification board. It is now playing a very large role in corporate governance.