Power_ Why Some People Have Itand Others Don't - Jeffrey Pfeffer [40]
5
Making Something out of Nothing: Creating Resources
IN VIRTUALLY all organizational domains, controlling access to money and jobs brings power. In government, Jesse Unruh, a former Democratic political boss and treasurer of California, called money the mother’s milk of politics. Former two-term San Francisco mayor Willie Brown, whose 16 years as speaker and virtual ruler of the California Assembly prior to becoming mayor marked him as an extremely effective politician, began his campaign for the legislative leadership post by raising a lot of money. And since he was from a “safe” district, he gave that money to his legislative colleagues to help them win their political contests. Brown understood an important principle: having resources is an important source of power only if you use those resources strategically to help others whose support you need, in the process gaining their favor. In contrast to Brown, the Assembly speaker at the time, Leo McCarthy, irritated his Democratic colleagues to the point of revolt by holding a $500,000 fundraiser in Los Angeles featuring Ted Kennedy and then using 100 percent of the money for his nascent efforts to run for statewide office.1 He was soon out of his job, replaced by Willie Brown.
Investigative journalists have long adhered to the maxim “Follow the money” as they uncover power structures in governments and communities. And for good reason: research shows a correlation between campaign contributions and public officials’ voting behavior, partly because legislators reward their supporters and partly because political action committees choose to direct their funding toward legislators with compatible voting records.2 What’s true in government and community power is just as true for understanding power dynamics inside profit and nonprofit organizations—the people and the subunits that control resources possess an important source of power, as I briefly discussed in chapter 3. You can see this dynamic play out over time in financial institutions, where the power of investment bankers waned as more profits came from the firms’ trading activities—that is, until trading got the companies into financial trouble. Then power migrated back to those responsible for more traditional, stable, and less risky sources of revenue and earnings.
There are numerous examples of the connection between resources and indicators of power in the corporate world. As one example, research on executive compensation consistently shows a connection between the size of the firm and CEO pay, an effect much larger than the relationship between pay and performance. One meta-analysis of chief executive compensation found that firm size accounted for more than 40 percent of the variation in pay while performance accounted for less than 5 percent.3 The positive association between firm size—the amount of resources controlled by the CEO—and pay results in efforts to expand the size of the pot regardless of the financial consequences. Such behavior includes merging with other companies to create a larger entity, even though studies consistently show that the vast majority of mergers destroy shareholder value. The relationship between organizational size and pay extends down into the employee ranks and holds for other organizations such as universities and other nonprofits as well.
Resources are great because once you have them, maintaining power becomes a self-reinforcing process. CEOs of larger companies with more resources can afford to hire high-priced compensation consultants who, big surprise, recommend pay policies that favor the CEOs who hired them. People with money or with control over organizational money get appointed to various for-profit and nonprofit boards where they are in contact with others who have business and investment ideas and social and political influence.