The Decline and Fall of the Conglomerate Firm in the 1980s: The Deinstitutionalization of an Organizational Form

Gerald F. Davis; Kristina A. Diekmann; Catherine H. Tinsley

American Sociological Review, Vol. 59, No. 4. (Aug., 1994), pp. 547-570.

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http://www.jstor.org Thu Apr 19 14:34:46 2007 THE DECLINE AND FALL OF THE CONGLOMERATE FIRM IN THE 1980s: THE DEINSTITUTIONALIZATION OF AN ORGANIZATIONAL FORM*

GERALDF. DAVIS KRISTINAA. DIEKMANN Northwestern University Northwestern University CATHERINEH. TINSLEY Northwestern University

In 1980, the conglomerate firm, a firm composed of several unrelated businesses, was perhaps the dominant corporate form in the United States. Yet, by 1990 this form had in effect become deinstitutionalized. Using comprehensive time-series data from the 1980s on a population of the largest industrial firms in the United States, we demonstrate that this deinstitutionalization was effected by two processes: First, diversified firms were taken over at a high rate and their unwanted parts were typically sold ofi and second, the less diversifiedfirms that survived shu.nned the strategy of conglomerate growth. The aggregate result was that by 1990 the largest industrial firms in the United States be- came considerably less divers$ed. Business rhetoric tracked the shift in this prevalent organizational form and practice by denouncing the '5rm-as-porgolio" model in favor of a network model of regularized economic exchange. We argue that an unintended consequence of the successful spread of the conglomerate form was to replace the conceptualization of the corporation as a sovereign actor with a reductionist view of the firm as a network without boundaries or a nexus-of-contracts among separate individu- als. We discuss the implications of this conceptualization for organization theory

he diversified corporation became the grow through acquisition were forced to diver- T dominant form of industrial firm in the sify into other industries. This fueled the con- United States over the course of the twentieth glomerate mergers of the late 1960s and 1970s century. During the 1920s, DuPont and Gen- (Fligstein 1991). The strategy of growth eral Motors pioneered the use of the multi- through acquiring firms in unrelated lines of divisional form (or M-form) to produce and business and stmcturing them as a collection market a number of related products through of separate business units reflected an under- separate divisions, and this organizational lying model of appropriate corporate prac- structure subsequently spread (Chandler tice-the "firm-as-portfolio" model. By 1980, 1962). The M-form also allowed easy integra- the triumph of the firm-as-portfolio model tion of acquired businesses, which enabled seemed complete, as growth through diversifi- firms to grow through acquisition. Following cation was perhaps the most widely used cor- the enactment of the Celler-Kefauver Act in porate strategy among large firms (Porter 1950, horizontal and vertical acquisitions 1987), and fewer than 25 percent of the For- (buying competitors, buyers, or suppliers) fell tune 500 largest industrial corporations made out of regulatory favor, and firms seeking to all their sales within a single broadly-defined (2-digit SIC) industry.' * Address correspondence to Gerald F. Davis, Kellogg Graduate School of Management, North- The Standard Industrial Classification (SIC) is western University, Evanston, IL 60208-201 1. We a system used by the U.S. Office of Management thank Bernard Black, Mark Granovetter, Walter and Budget as well as other public and private agen- Powell, Linda Brewster Stearns, Thomas Vonk, cies to categorize industries at multiple nested lev- five anonymous ASR reviewers, and two ASR edi- els of aggregation. Broader categories are denoted tors for helpful comments on this project. [Review- by numbers with fewer digits; for example, 28 de- ers acknowledged by the authors are Neil D. Flig- notes "Chemicals and allied products"; 28 1 denotes stein, Charles N. Halaby, Anne Miner, Charles B. "Industrial and organic chemicals"; and 2812 de- Perrow, and David Weakliem. -ED] notes "Alkalies and chlorine."

American Sociological Review, 1994, Vol. 59 (August:547-570) 547 AMERICAN SOCIOLOGICAL REVIEW

During the 1980s, however, a wave of protected large corporations from hostile take- "deconglomeration" restructured American in- overs (Davis and Stout 1992). Moreover, the dustry and heralded a return to corporate spe- stock market undervalued conglomerates rela- cialization (Bhagat, Shleifer, and Vishny tive to sets of "focused firms operating in the 1990). From an economic perspective, the same industries (LeBaron and Speidell 1987) value of bringing a number of weakly related and, at least during the 1980s, punished firms business operations under a single manage- acquiring unrelated businesses with drops in ment had long been suspect, as financial ortho- share price (Morck, Shleifer, and Vishny doxy insisted that investors should diversify, 1990). In hindsight, all these factors indicate not firms (Amihud and Lev 1981). Moreover, that in 1980 the field of the largest American the construction of a takeover market for large industrial corporations was fundamentally firms in the 1980s, supported by Reagan-era flawed and that an enormous "collective error" regulatory policy, empowered a mechanism to had been made. Yet organization theorists pro- support this orthodoxy. So-called "bust up" vide a cogent argument that it is exceptionally takeovers, where raiders bought conglomerates difficult for organizations to make major and financed the deal through the post-acquisi- changes in strategies and structures (Hannan tion sale of their separated parts, became ac- and Freeman 1989), particularly in those struc- cepted and then common~ace(Lipton and tures that have been "institutionalized" and Steinberger 1988), while diversified firms not widely adopted across an organizational field threatened by takeover voluntarily shed unre- (DiMaggio and Powell 1983). Compelling lated operations to focus on "core businesses." theory and evidence was purported early on As prevalent corporate practices changed, re- that the firm-as-portfolio model was a finan- visionist views of conglomerate mergers sug- cial mistake (Levy and Sarnat 1970; Rumelt gested that it was "almost certainly the biggest 1974; Mason and Goudzwaard 1976), and collective error ever made by American busi- many individual corporations had their own ness,'' a "colossal mistake" that had left Ameri- ample evidence that this model was failing, as can industry uncompetitive relative to interna- they divested upwards of three-quarters of the tional rivals (Economist 1991:44).As we docu- unrelated businesses they had acquired because ment in this paper, by the late 1980s only a tiny of their poor post-acquisition performances handful of firms continued to pursue a strategy (Porter 1987; Ravenscraft and Scherer 1987). of unrelated diversification, the prevalence of Yet little evidence of either individual or col- conglomerates declined substantially, and busi- lective learning was evident-bust-up take- ness rhetoric denounced both the strategy of overs of conglomerates were unknown during diversification and the conglomerate" form. the 1960s (Palmer, Barber, Zhou, and Soysal Thus, over the course of a decade, the firm-as- 1993) and firms continued to follow the dic- portfolio model was abandoned on a large scale tates of the firm-as-portfolio model throughout across the population of the largest American the 1970s, with the vast majority of mergers corporations-in a word, corporate conglom- representing diversification and half the ac- erates became "deinstitutionalized." quired assets being in unrelated industries In retrospect, the "deconglomeration" of (Scherer 1980:124). Thus, the process required American industry in the 1980s can be seen as to correct the collective error of conglomerate economically sensible, if not inevitable. The mergers entailed involuntary organizational corporate managers who built the conglomer- upheaval on a scale previously unknown in this ates of 1980 had made a "colossal mistake," century. either out of self-interest-larger firms pay bet- We believe that the sociology of organiza- ter, and diversification buffers the employment tions can benefit from examining the co-evo- uncertainty of operating in a single industry lution of corporate strategies and structures and (Amihud and Lev 1981)+r out of simple imi- the underlying models of appropriate practice tation of other firms that had diversified (Flig- that occurred during the retreat from conglom- stein 1991). By the early 1980s, the antitrust eration. Recent theoretical approaches in the regime that had made diversification preferable sociology of organizations have focused on to buying competitors during the 1960s and changes in aggregates of organizations, such as 1970s had fallen away (Bhagat et al. 1990), as populations (Hannan and Freeman 1989) or had the legal impediments that had previously fields (Powell and DiMaggio 1991), and thus THE DEINSTITUTIONALIZATION OF CONGLOMERATE FIRMS 549 deconglomeration is an appropriate topic of lated diversification, which subsequently study for both. Yet deconglomeration does not spread widely among established corporations readily fit the explanatory categories of either (Fligstein 199 1). approach. ~colo~istsseek "to understand the he process of deconglorneration does not fit dynamics of organizational diversity, how so- readily into either of these explanations of cial changes afSect the mix of organizations in deinstitutionalization. Bust-up takeovers did society" (Hannan and Freeman 198652; em- not introduce a new organizational structure, phasis in original), primarily by examining the but delegitimated an old one-conglomerate birth and death rates of relatively inert organi- firms were taken over and broken up specifi- zational forms. But organizational births and cally because of their organizational form. The deaths were unimportant in deconglomeration; actors responsible for spreading this tactic were rather, the parts of conglomerates were re- often not other organizations-peripheral or shuffled as going concerns (through takeovers core-but simply groups of individuals who or restructurings), with most of the same em- saw an opportunity for profit and, implicitly, ployees continuing to produce the same prod- held alternative views of appropriate corporate ucts in the same industries, suggesting that eco- structure (Coffee 1988). From the perspective logical theory would be of little help in under- of large corporations, bust-up takeovers were standing deconglomeration. not a voluntary practice, introduced by either Neo-institutionalists also seek to explain fringe or core players; indeed, takeovers were variations in the prevalence of forms and prac- done to core players, not by them. Further, in tices in organizational fields, but their focus is contrast to the conglomeration movement of more on voluntary shifts, that is, on how mod- the 1960s, the state did not single-handedly els of appropriate action come to be taken for rule out particular practices (such as unrelated granted, thereby shaping organizational prac- acquisitions), but rather deregulated a wide tice. Thus, institutional theory should be more range of practices, allowing the field to evolve directly relevant to examining deconglomer- on its own. Finally, both explanations of the ation as an instance of deinstitutionalization. process of deinstitutionalization described pre- But as DiMaggio (1988) noted, "[Tlhe theo- viously take for granted that an organizational retical accomplishments of institutional theory field consists of a set of organizations as mean- are limited in scope to the diffusion and repro- ingfully bounded social actors that is relatively duction of successfully institutionalized orga- stable over time-it is organizations that act, nizational forms and practices. . . . Institutional and they adopt and discard practices (organi- theory tells us [little] about deinstitutional- zational strategies and structures) more or less izatioi: why and how institutionalized forms voluntarily (subject to constraints imposed by and practices fall into disuse" (p. 12). Institu- the state). Yet perhaps the most radical con- tionalists have offered two explanations for comitant of the deconglorneration movement deinstitutionalization. First, new practices can was the undermining of the notion of organiza- displace old ones. Peripheral players in a field tions as primordial social units in favor of a may introduce practices which come to be seen radical individualist view in which corpora- as preferable to existing arrangements, or con- tions were simply "financial tinker toys" which versely core members of a field may adopt a could be rearranged at whim, without regard new practice, and other members of the field for organizational boundaries (Gordon 199 1). follow suit (Leblebici, Salancik, Copay, and Ironically, it was the firm-as-portfolio model King 199 1; Burns and Wholey 1993). Second, itself that made this imagery credible practices can simply be abandoned, either by (Espeland and Hirsch 1990). Thus, to accom- force, as when federal antitrust regulation in modate deconglomeration, institutionalist argu- effect ruled out horizontal mergers (Fligstein ments need to be expanded to accommodate 1990), or voluntarily, as when hospitals that contradictions inherent in institutionalized as- had adopted a matrix structure subsequently pects of organizations (Leblebici et al. 1991). dropped it (Burns and Wholey 1993). These We investigate empirically how the process processes are not mutually exclusive; for ex- of deconglorneration occurred and offer an in- ample, after the Celler-Kefauver Act of 1950 stitutionalist interpretation for how corporate restricted horizontal and vertical mergers, practices and rhetoric co-evolved during the fringe players introduced the practice of unre- 1980s. Like most institutional stories, ours is AMERICAN SOCIOLOGICAL REVIEW

in essence a case study of a single organiza- gio and Powell 1991). Moreover, notions of tional field during a particular time period- appropriateness impose what is in effect a cog- the 500 largest American industrial corpora- nitive viability test on organizational forms and tions during the 1980s. As with all case stud- practices: While a variety of social structural ies, it is difficult to draw strong causal infer- arrangements may be possible and technically ences, because there are no comparison adequate in principle, to be adopted they must cases-say, another field of 500 large corpora- be cognitively "available" to the relevant ac- tions with an alternative regulatory regime. tors-to both potential adopters and those pro- Thus, while our data comprehensively docu- viding resources. What is available, as well as ment the widespread abandonment of practices what is ruled out, follow in part from what has associated with the firm-as-portfolio model, gone before. Thus, imitation and rule-follow- our interpretation of the cognitive factors un- ing reduce some of the "cognitive start-up derlying the data is of necessity somewhat costs" for organizations (DiMaggio and Powell speculative. Like most singular historical 1991). events, deconglomeration was overdetermined. In empirical work, institutionalization is Yet, we believe that the shifts in rhetoric that typically operationalized by prevalence within accompanied deconglomeration reflected an a given population of organizations rather than institutional shift that was not simply epiphe- through direct assessments of "taken-for- nomenal (Hirsch 1986). Corporate practices grantedness" by aggregates of relevant actors. reflect underlying models of appropriate ac- One sign of institutionalization is widespread tion, which in turn are shaped by prior models adoption of a form or practice, independent of and practices. Thus, we contend that the move evidence that it "works." Thus, Tolbert and to extreme vertical disintegration in the late Zucker (1983) found that cities implementing 1980s arose in reaction to the firm-as-portfolio civil service reforms early on tended to have model and the subsequent deconglomeration good reasons for doing so, while late adoption movement. of the reforms was not associated with such reasons, indicating that the reforms had be- come institutionalized. Controlling for the in- INSTITUTIONALIZATION, dividual characteristics that commonly prompt DEINSTITUTIONALIZATION, AND adoption, Fligstein (1985) showed that firms ORGANIZATIONAL BOUNDARIES were more likely to adopt a multi-divisional Researchers under the banner of the New In- structure when other firms in their industry had stitutionalism have documenied several epi- done so, and Burns and Wholey (1993) found sodes of institutionalization (DiMaggio and that hospitals were more likely to adopt a ma- Powell 1991). The meaning of "institution," trix structure when a large proportion of other however, is somewhat unclear in their work, hospitals in their region had. except that it resembles the notion of "norm" But these characterizations of institutional- (Scott 1991): Social relations and actions are ization offer little sense of when deinstitution- institutionalized when they come to be taken alization can or will occur and imply that insti- for granted (Zucker 1983) or associated with tutionalization is a once-and-for-all process. situations via rules of appropriateness (March According to this view, absent a disruptive ex-

and Olsen 1984):,. conventions are institutions ogenous force, such as the state ruling out a when they "take on a rulelike status in social practice that has become common (Fligstein thought and action" (Meyer and Rowan 1977: 1990), institutions apparently don't budge: 341); and so on. In short, organizational forms Once a sizeable proportion of actors adopt a and practices are institutionalized when they social structural arrangement, it remains wide- are adopted because actors take them for spread. Unlike most institutionalist writers, granted, rather than because a rational choice however, Douglas (1986) has given an excep- process found them to be best suited for the tionally clear notion in cognitive tenns of what technical requirements of the task. Judgments defines institutions and what sustains them; of appropriateness are not based solely in indi- from Douglas we can derive implications re- vidual cognitions, but follow from cognitive garding when deinstitutionalization is likely to structures, such as scripts and schemas, that are occur. An institution is a convention that has more-or-less shared across societies (DiMag- become legitimized. Conventions arise when THE DEINSTITUTIONALIZATION OF CONGiLOMERATE FIRMS parties have a common interest in a rule or ar- and its own esprit de corps. Each body was made rangement that coordinates their actions (e.g., of a single internally differentiated but intercon- having a speed limit). A convention is legiti- nected substance, and harm inflicted on any mem- mized when it is able to withstand challenges ber was felt by the whole. (Sewell 1980:36-37) based on instrumental grounds. The source of this legitimacy is the "naturalizing analogy," a Thus, organizations were sovereign, and parallel cognitive structure that sustains the in- members were wholly contained within them stitution by demonstrating its fit with the natu- having no separate legal existence. The French ral order. When a convention has been institu- Revolution manifested an explicit effort to do tionalized, it is no longer simply mutual con- away with such bodies, recognizing as sover- venience that accounts for why things are done eign only the individual and the state with no in a particular way, but the convention paral- intermediary entities, but the compelling force lels other aspects of the way the world works of the body analogy was not so easily displaced and is therefore "natural" (Douglas 1986). (Sewell 1980). Coleman (1974) documented Analogies provide a source of stability for the origins of the modern corporate form and conventions by "scripting" appropriate behav- showed how corporations came to be "juristic ior, and they are a potent rhetorical resource persons" with rights and interests that are not for ordering social arrangements. For example, simple aggregations of their members' inter- radio airwaves were initially an unfamiliar me- ests. These artificial persons had distinct legal dium, and the way that radio frequencies personalities and, unlike their Medieval prede- should be allocated by the government was ini- cessors, did not wholly contain their (volun- tially unclear. Radio was seen as analogous to tary) members. Yet, they were still meaning- a public utility (like the post office) or a fully referred to as actors. Thus, the legal "magazine of the air," but eventually an anal- conceptualization of the corporation relied on ogy to transportation was settled on-"radio as and furthered the analogy of the organization public waterway"-and appropriate regulatory as body. Moreover, the perceived rightness and structures then fell into place (Leblebici et al. naturalness of the analogy is evident even in 1991).2 Analogies have their limits, however, theoretical discourse on corporations. Discus- and not just any analogy is sufficient to legiti- sions of organizational birth, growth, and death mate a practice or structure. Without an au- are considered unexceptionable, not transpar- thoritative analogy, an institution becomes vul- ently metaphorical (Scott 1992). nerable, suggesting a basis for deinstitutional- The body analogy implies a way of thinking ization and a limit to what institutions can be about what an organization is-a bounded so- sustained. cial structure composed of members-as well The use of naturalizing analogies to legiti- as a set of desiderata (e.g., growth and sur- mate organizational arrangements has a long vival) that can guide action and provide a basis history, with the "organization as body" anal- for the adoption of organizational practices and ogy playing a particularly prominent role since forms. Perhaps the most basic aspect of an or- before the Middle Ages. Sewell (1980) de- ganizational form is the placement of bound- scribed the status of corporate actors in France aries-which activities are done inside or out- prior to the Revolution, when the king estab- side the organization and which individuals are lished social groupings, such as guilds, "en considered "members" underlie an organ- corps et communaute"-as a body and com- ization's very identity. Divergent notions about munity, subsequently considered a single per- the appropriate placement of organizational son under the law. The term "corps"-body- boundaries for business corporations have been implied a set of analogical characteristics: prevalent in different industries and at differ- All bodies were composed of a variety of organs ent points in history. Transaction cost econo- and members, which were hierarchically arranged mists analyze this as the "make or buy" or "ef- and were placed under the command of the head. ficient boundaries" problem-should an orga- Each body was distinct from every other, with its nization buy an input on the market or make own will, its own interests, its own internal order, the input itself, thus bringing the activity within the organization's boundary. For ex- Compare this to recent national discussions ample, auto manufacturers may have different about the "information superhighway." answers to the question of whether steel should AMERICAN SOCIOLOGICAL REVIEW be made or bought. Transaction cost analysis THE CONTEXT OF CONGLOMERATION suggests that the appropriate answer turns on asset specificity-in short, the extent to which In the United States in 1980, the dominant buyers and sellers make investments that are model of strategy and structure for large cor- specific to their relationship and which lose porations was the firm-as-portfolio model value if the relationship is discontinued (Wil- (Fligstein 1991). The firm-as-portfolio model liamson 1975). When such relationship-spe- implies both a practice (growth through diver- cific investments are necessary, Williamson ar- sification) and a form (the conglomerate). Un- gued, it is more efficient to bring the activity related diversification entails buying busi- within the boundary of the firm. Against this nesses in industries that are neither potential view, however, Granovetter (forthcoming) buyers, suppliers, competitors, or comple- pointed out that there is interesting variation ments to the firm's current business. For ex- across cultures and over time in how economic ample, an appliance manufacturer buying a activities are grouped together, with parts of stock brokerage house is an instance of unre- production processes differentially grouped lated diversification. The organizational form within firms and firms often grouped into cul- that typically results from unrelated diversifi- turally specific supraorganizational structures, cation is the conglomerate, a corporation with such as the keiretsu in Japan and the grupos relatively autonomous business units operating economicos in Latin America. The degree of in numerous unrelated or weakly related indus- variation across cultures suggests that more tries and a corporate headquarters acting as an than efficiency considerations are governing internal capital market, allocating resources decisions and that there is an institutional or among the units. The firm-as-portfolio model normative element to the placement of organi- was promoted through a range of institutional zational boundaries. processes over a period of three decades, in- Prevalent ideas about the appropriate place- cluding the actions of the state, organizational ment of organizational boundaries have imitation, the advice of business consultants, changed in substantial ways throughout U.S. and the efficiency rationales of organizational corporate history (Chandler 1977; Fligstein theorists. 1990). A driving principle throughout this his- The federal government inadvertently pro- tory is that bigger is better-that organizational moted corporate diversification through its an- growth (expanding the organization's bound- titrust policies, which successively eliminated ary) is an appropriate end to pursue. Organiza- horizontal and vertical growth as viable op- tions can grow through internal expansion or tions for large firms (Bhagat et al. 1990). Un- through acquiring or merging with other orga- restrained horizontal growth can lead to an in- nizations. Three merger waves prior to the dustry being dominated by a monopoly; unre- 1980s manifested each of the following as strained vertical integration where supplies prevalent means of expanding organizational are limited may allow firms to bar their com- boundaries: horizontal growth (acquiring com- petitors from access. In either event, the ef- petitors) at the turn of the century, vertical fects of such growth were thought to be anti- growth (acquiring buyers or suppliers) during competitive, aid antitrust polic~-particularly the 1920s, and diversification (acquiring busi- the Celler-Kefauver Act of 1950-substan- nesses producing related or unrelated products) tially reduced the possibility of horizontal and during the 1960s (Weston, Chung, and Hoag vertical growth after 1950 (see Weston et al. 1990). The question for institutional analysts 1990:chap. 23 for a concise discussion of U.S. is, what was legal and what was appropriate? antitrust law). Thus, firms seeking to expand Because the historical shifts underlying each of their boundaries were forced to look beyond these different dominant notions of appropri- their primary industry and their buyers' and ate organizational growth have been amply suppliers' industries for acquisition candi- documented elsewhere (Chandler 1977; Flig- dates, and large numbers of firms did this dur- stein 1990), we focus here on only the last ing the 1960s and 1970s, creating the con- model-that of diversification as an organiza- glomerate merger wave. A handful of highly tional growth strategy and on the conglomer- visible firms-the "acquisitive conglomer- ate as an organizational form-which we refer ates"--experienced dramatic growth through to as the "firm-as-portfolio" model. unrelated diversification, prompting other or- THE DEINSTITUTIONALIZATION OF CONGLOMERATE FIRMS ganizations seeking growth to imitate their over, unlike individual investors, who can eas- strategy. The prevalence of this strategy ily change the distribution of holdings in their within industries also appears to have been portfolios, conglomerates are more attached to self-reinforcing, as firms were more likely to their divisions and it is more costly to move switch to a strategy of unrelated diversifica- into and out of businesses as conditions war- tion when others in their industry had previ- rant (Porter 1987). The prevalence of the con- ously done so (Fligstein 1991). Corporations glomerate form was therefore puzzling to rushed to adopt the firm-as-portfolio model, economists with an efficiency orientation. despite the fact that the evidence on conglom- While isolated instances of diversification into erates' profitability was ambiguous at best and unrelated businesses could be dismissed as disastrous at worst (Black 1992), thus sup- managerial empire-building, the large number porting the interpretation that the model was of conglomerates developing in the United spread more through institutional than market- States required an efficiency-based explana- based processes (Fligstein 1991). tion. Thus, Williamson (1975:chap. 9) argued The firm-as-portfolio model was also pro- that conglomerate acquisitions were a tool for moted by management consultants, who well-run multidivisional form (M-form) cor- spread so-called "portfolio planning" tech- porations to spread their management talents. niques that allowed top corporate managers.to Conglomerate acquisitions by M-forms did deal with the unrelated business units they not represent inefficient empire-building by faced by treating them as analogous to stocks managers, according to Williamson (and con- in a portfolio (Haspeslagh 1982). Portfolio trary to most empirical evidence [Amihud and planning entailed (I) defining "strategic busi- Lev 19811); rather, these acquisitions were ness units" within the corporation, (2) classi- missionary work meant to rehabilitate poorly- fying the units according to their position in run businesses-the M-form's burden. The M- their industry and the attractiveness of that in- form conglomerate profited by identifying and dustry, and (3) assigning resources across the buying undervalued targets and running them business units based on a corporate strategy. more effectively by implementing appropriate The Boston Consulting Group, McKinsey, internal financial controls, ultimately benefit- Arthur D. Little, and other consulting firms ing economic efficiency (Williamson 1975). developed "portfolio grid technologies" for The result of these processes was the wide- the second part of this process, which reduced spread adoption of the firm-as-portfolio model what top managers had to know about a busi- by large corporations. By the early 1980s "al- ness unit to simply the unit's position on an most all of the [loo] largest firms [were] sig- industry grid. Coupled with cash-flow state- nificantly diversified and set up in divisions" ments, this was virtually all headquarters (Fligstein 1990:256), and "the concept of cor- management needed to manage the corpora- porate strategy most in use [was] portfolio tion as a portfolio. Such techniques spread management, which is based primarily on di- rapidly during the 1970s, and by 1979,45 per- versification through acquisition" (Porter cent of the Fortune 500 companies-upwards 1987:49). Only about 25 percent of the 1980 of 75 percent of the diversified ones-had Fortune 500 operated exclusively in a single adopted portfolio planning, with more compa- 2-digit SIC industry, while over half operated nies joining the firm-as-portfolio fold every in three or more. Prevalence of forms and year (Haspeslagh 1982). Operational knowl- practices is an imperfect proxy for institution- edge about particular industries was no longer alization, to be sure. Yet all the indicators sug- required to manage businesses in those indus- gest that the firm-as-portfolio model was tries, in principle allowing organizational widely regarded as an appropriate one for the boundaries to expand without limit. management of large corporations. To the ex- Finally, organizational economists provided tent that notions of institutionalization are ap- a theoretical legitimation for the firm-as-port- plicable to large corporations, there is a strong folio model. From a financial perspective, case for regarding the spread of the firm-as- conglomerates are merely "mutual funds with portfolio model-in the absence of good evi- smokestacks" and redundant headquarters dence that the model promoted profitability- staffs (Espeland and Hirsch 1990:78). More- as an instance of institutionalization. AMERICAN SOCIOLOGICAL REVIEW

CHANGES IN THE INSTITUTIONAL economists). Horizontal mergers were no CLIMATE DURING THE EARLY 1980s longer scrutinized simply on the basis of the industry concentration that would result; rather, Despite the widespread adoption of the firm- several factors were taken into account before as-portfolio model by the largest American cor- a merger would be considered anticompetitive. porations during the 1960s and 1970s, there was In effect, this reduced the barriers to acquisi- little evidence that it "worked" and mounting tions in the same industry (Weston et al. 1990). evidence that it did not work by one crucial Reduced antitrust barriers meant that in prin- metric: the stock market valuation. According ciple the parts of conglomerates could be sold to Black's (1992) review, "The evidence that to acquirers in the same industries. Legal bar- corporate diversification reduces company riers to hostile takeovers also fell early in the value is consistent and collectively damning" Reagan years. In the Edgar v. MITE (457 U.S. (p. 903). Even as early as the 1960s, the finan- 624 [1982]) decision, the U.S. Supreme Court cial performance of conglomerates was, on av- overturned the laws that made takeovers diffi- erage, inferior to that of randomly-selected cult in most states, and the Reagan Adminis- portfolios of firms operating in the same indus- tration, relying on the arguments of Chicago tries (Mason and Goudzwaard 1976). By the School economists who lauded the efficiency 1980s, the practical implications of this fact had effects of an active market for corporate con- become apparent, and a small industry devel- trol, demonstrated a principled resistance oped around detecting corporations underval- against regulations that might make takeovers ued by the stock market. For example, LeBaron more difficult (Stearns and Allan 1993). and Speidell (1987) of Batterymarch Financial At roughly the same time as these regulatory Management created a "Chop Shop" valuation changes, innovations in takeover financing model to determine how much a conglomerate emerged that made conglomerates potential would be worth if it were broken up and the targets for "bust-up takeovers" by outside raid- parts were sold off. They found that, in general, ers. In a typical bust-up takeover, the raider the sum of the potential stock market value of would identify a conglomerate with readily the parts of a conglomerate was substantially separable parts and find buyers for some or all more than the actual stock market value of the of the parts in advance of the takeover attempt. whole. Furthermore, this differential increased Based on the presale of the separated parts, the with the degree of diversification: "The more raider could secure short-term debt financing divisions a company has, the more it is likely to through junk bonds or other financial vehicles

be undervalued" (LeBaron , and Speidell to complete the takeover, sell the parts, and re- 1987:87). Note that inherent in this valuation tire some or all of the debt with the proceeds model is the idea that activities "inside" the or- from the bust-up (see Lipton and Steinberger ganizational boundary should be subject to the 1988 for a discussion). One implication of this same market tests as those "outside" it (Meyer is that the raider could complete a takeover us- 1991) and, moreover, that decisions about what ing very little of his or her own cash-like a activities are appropriate within a particular cor- mortgage on a house, the value of the property porate boundary are not the sole province of being purchased secured most of the financing. those running the corporation, but are revocable This enabled small firms or even groups of in- by the market. dividuals to buy much larger corporations, In addition, the policies that supported the whereas previously the privilege of acquiring conglomerate form changed substantially dur- large firms was effectively limited to a pool of ing the early Reagan years. The so-called Chi- even larger corporations (Coffee 1988). cago School of antitrust law and economics By the.early 1980s, then, the model of ap- gained policy dominance in the early 1980s at propriate corporate practice that had guided the the Federal Trade Commission (FTC) (where strategies and structures of the largest Ameri- Chairman James C. Miller I11 attempted to can corporations had been drastically under- eliminate the FTC's antitrust arm entirely), and mined. The firm-as-portfolio model had weak- at the Justice Department (where William F. ened corporate financial performance, the Baxter, assistant attorney general for antitrust, regulatory regime that had promoted and sus- required that any proposed antitrust investiga- tained the model was gone, and the financial tions and cases be cleared with the house barriers to outside challengers were reduced. THE DEINSTITUTIONALIZATION OF CONGLOMERATE FIRMS 555

Nonetheless, fundamental change in the strate- best, meaningless at worst, leaving corpora- gies and structures that prevail across a large tions to be financial tinker toys rather than organizational field is not a trivial matter, par- bounded social structures (Gordon 1991). In ticularly when these practices have been cham- short, widespread deconglomeration chal- pioned by powerful actors. Voluntary change lenges some of the most fundamental aspects under such circumstances is unlikely, as insti- of organizations as institutions. tutional theorists point out (DiMaggio and The tensions we have outlined between the Powell 1983). Indeed, by some accounts one firm-as-portfolio model and pressures for mar- of the defining features of an institution is that ket performance drove much of the evolution powerful actors take an active role in its repro- of the field of the largest U.S. corporations dur- duction (Stinchcombe 1968). Firms had con- ing the 1980s. We now examine four types of tinued to make unrelated acquisitions long af- evidence regarding changes in these firms' ter they had solid reasons to doubt their profit- structures and practices: (1) the degree to ability, which some have argued indicates that which diversified firms experienced a greater unrelated corporate diversification flowed from risk of being taken over, (2) the prevalence of managerial discretion (Amihud and Lev 198 1). conglomerate (and other) acquisition strategies An alternative route to widespread change during the late 1980s, (3) changes in the preva- would entail ousting the individuals who ran lence of the conglomerate form between 1980 the largest American firms and who had' as- and 1990, and (4) changes in business rhetoric sembled the conglomerates in the first place regarding appropriate organizational structures through hostile takeovers. The last time un- and practices. wanted takeovers had threatened the position of the corporate elite on a large scale, the call THE TAKEOVER RISK OF for federal protection was swift and effective, DIVERSlFIED FIRMS culminating in the Williams Act of 1968 (Hirsch 1986), and by some accounts the Bust-up takeovers of diversified firms received Reagan Administration was uniquely indebted a great deal of attention in the media, but de- to the corporate elite for its election (Useem spite research documenting the extent to which 1990). No such protection was forthcoming takeovers were followed by sell-offs (Bhagat during the 1980s, however, as Reagan-era et al. 1990; Ravenscraft and Scherer 1987), no policy was guided by a free market stance that previous research has documented whether di- ruled out regulation of the so-called "market versified firms faced a systematically greater for corporate control" (Roe. 1993). Appeals by risk of takeover than undiversified firms in the the powerful would not be sufficient to save 1980s. Our first task, then, is to determine the firm-as-portfolio model. whether this was the case. We examine the ef- Perhaps the only remaining barrier to wide- fect that a firm's degree of diversification had spread abandonment of the firm-as-portfolio on its risk for takeover using dynamic analyses model was its status as an institution, which by covering all takeovers of firms in the 1980 For- definition provides a buffer against challenges tune 500 over the course of the 1980s. Based that arise out of instrumental or pecuniary con- on prior research on the factors that lead to cerns alone (Douglas 1986). Institutionalized takeover (Palepu 1986; Morck, Shleifer, and organizations are, in Selznick's phrase, "in- Vishny 1989; Davis and Stout 1992), we con- fused with value" not reducible to economic trol for size (sales), performance (market-to- measures (Selznick 1957), which helps account book ratio), age, growth rate, debt structure, for the vigorous efforts put forth by members ownership by financial institutions, and of chronically underperforming organizations whether the CEO came from a background in to prevent their (economically sensible) demise finance. (Meyer and Zucker 1989). For external actors to compare parts of organizations to market al- Data and Variables ternatives and to buy and bust up those that fail the market test is to undermine the notion that Because we were interested in assessing corporations as organizations can carry non- changes affecting large U.S. corporations in economic value (Meyer 1991). Bust-ups ren- general, we focused on an entire population der organizational boundaries provisional at rather than on a sample. Thus, we tracked the AMERICAN SOCIOLOGICAL REVIEW

1980 Fortune 500 from January 1, 1980 to De- popular in the 1970s (see Palepu 1985 for a dis- cember 3 1, 1990. Ofinterest to us was whether cussion of the properties and merits of the en- a firm became subject to a takeover attempt, tropy measure). For firms that operate in only successful or otherwise, during this time pe- a single industry, ln(l/l)= 0 and therefore DT riod. Because firms can only be taken over if = 0. Among the 1980 Fortune 500, the median their stock is publicly traded, we excluded any firm's level of diversification was DT = 1.0; nonpublic firms, such as foreign subsidiaries, Minnesota Mining and Manufacturing was the joint ventures, and agricultural cooperatives. most diversified, with DT = 2.2, followed by We were left with an effective sample size of Beatrice, AMF, US Industries, and ITT. 467 firms before exclusions for missing data. Size is measured by sales. Peqormance is Under the Williams Act, anyone offering to measured using the market-to-book ratio, that buy 5 percent or more of a firm's shares is re- is, the ratio of the stock market value of the quired to immediately disclose the details of firm's equity to its book (accounting) value. A the offer by filing Form 14D-1 with the Secu- high market-to-book value indicates that the rities and Exchange Commission. The dates of stock market values the firm more highly than these filings are available in the SEC Bulletin its reported value, and consequently, that the and, for the years after 1985, on Compact Dis- firm cannot be bought at a bargain price. Age is closure. Using these sources, we determined. the number of years between the year of incor- the date on which any firm in our population poration and 1980. Growth rate is the yearly was first subject to a takeover bid. Details of percentage increase (decrease)in the size of the the offers, including whether they ultimately firm's work force. Debt structure is the ratio of ended with a takeover, were compiled using the the long-term debt of the firm to its market Wall Street Journal Index. In 10 cases the first value. A higher value on this measure implies bid was a "friendly" offer initiated by the that the firm is financed more through debt than firm's own management (i.e., a management equity. Institutional ownership is measured as buyout attempt). These were not considered to the percentage of the firm's equity held by fi- be takeover attempts, but rather censoring nancial institutions (primarily banks, insurance events which removed the firms from the companies, pension funds, and mutual funds). population at risk for takeover. Finance CEO is a dummy variable indicating Data on diversification were acquired from whether the CEO's educational and departmen- Standard and Poor's Compustat service for tal background was primarily in finance or in 1980. Firms are required annually to disclose another functional area. Annual data on size, accounting data from operations .at the level of performance, growth, and debt for 1979 the business segment on Form 10-K filed with through 1989 (inclusively) were taken from the SEC. Compustat reports sales and other data Standard and Poor's Compustat. Dates of origi- by segment as well as classifying segments into nal incorporation were taken from Standard industries using up to two 4-digit SIC codes for and Poor's Stock Market Encyclopedia (vari- each segment. Using these data, we calculated ous years b) and Moody's Industrial Manual the entropy measure of diversification for each (Moody's various years). Institutional owner- firm (Jacquemin and Berry 1979). The entropy ship data came from the Spectrum 3 13(f) Insti- measure of total diversification (DT) taps the tutional Stockholding Survey (Computer Direc- extent to which a firm operates in a number of tions Advisors, Inc. 1980). CEO functional industries using a weighted average of the pro- backgrounds were coded from annual surveys portion of a firm's sales made in each of the of executive compensation in large corpora- industry segments in which it operates: tions published by Forbes (1980, 1981). The Forbes sample of firms covered only about DT = CP~~~(~IP,), three-quarters of the firms in the Fortune 500; where P, is the proportion of the firm's sales thus, we ran two sets of models, with and with- made in segment i. An advantage of this mea- out this indicator. sure is that it is continuous: Rather than crudely classifying firms as "diversified" or "undi- Method versified," this measure captures the degree of diversification, which gives it more subtlety Because we had data on the exact dates of all than the categorical measures of diversification takeover attempts for all firms in our popula- THE DEINSTITUTIONALIZATION OF CONGLOMERATE FIRMS 557

Table 1. Event History Analysis of Takeover Bids for 1980 Fortune 500 Firms, 1980 to 1990

All Bids All Successful Bids Variable Model 1 Model 2 Model 3 Model 4

Sales

Growth rate

Debt structure

Institutional ownership

Diversification

Finance CEO

Number of cases x2 d.f.

*p< .05 (two-tailed test) Note: Numbers in parentheses are t-values tion, we were able to use event history tech- firms had fewer years of data. Level of diversi- niques to determine the effects of the co- fication, age, institutional ownership, and fi- variates on the firms' risks of takeover over nance CEO were measured as of 1980; the time. We used a Cox model with time-chang- other measures were updated annually. ing covariates, where a firm's risk of takeover depended on its prior level of diversification, Results and Discussion size, and so on (Cox 1972; Tuma and Hannan 1984:chap. 8). Roughly 30 percent of the firms The results of our analysis are presented in at risk for takeover (i.e., publicly traded) were Table 1. The first two columns present results subject to a takeover attempt during our time when the outcome is defined as the initiation frame. The others were considered censored of an outside takeover bid (that is, a tender of- cases. Firms in these models were deleted after fer not initiated by management). The third and the first takeover attempt; that is, a takeover fourth columns present results when the out- attempt was considered a fatal event. A second come is defined as the initiation of an outside set of models included only successful take- takeover bid that ultimately ended in the firm over attempts, that is, nonmanagement tender being acquired (i.e., a "successful" bid). Con- offers that ended with the firm being acquired. sistent with previous research, firms with a In these models, firms not taken over were con- high market-to-book ratio and firms with sub- sidered censored cases. stantial debt faced a significantly lower risk of The data were divided into up to 11 spells becoming takeover targets in all four models. (firm-years). Firms that were not subject to an Firms owned proportionally more by institu- outside takeover attempt and did not leave the tional investors were significantly less likely to population for other reasons (such as bank- be subject to successful takeover attempts in ruptcy or a management buyout) had 11 years Models 3 and 4, but this effect was only mar- of data, while those that were taken over or ginally significant (p < .lo) when all bids were otherwise left the population of publicly-traded included (Models 1 and 2). Growing firms 558 AMERICAN SOCIOLOGICAL REVIEW

Number of Segments Outside Core Industry, 1980

Figure 1. Effect of Corporate Diversification on Risk for Successful Takeover: 1980 Fortune 500 Firms, 1980 to 1990 were less likely to become subject to a take- dent on our measure of diversification: identi- over attempt (Model I), but this effect was not cal results were obtained when a simpler mea- statistically discernible in Model 2 when the sure-the raw number of business segments in Finance CEO variable was included, or in which a firm operated-was substituted. Fig- Models 3 and 4 when only successful bids ure 1 shows the effect that the number of seg- were considered. Finally, firms with finance ments in which a firm o~eratedhad on the CEOs were significantly more likely to be- firm's risk of being successfully taken over us- come targets (Model 2), but were no more ing a model that substitutes number of segments likely to be taken over successfully (Model 4). for the entropy measure of diversification in the Controlling for all these other factors, firms third column of Table 1. As the figure shows, faced a significantly greater risk of takeover to firms operating in the largest number of busi- the extent that they were diversified in all mod- ness segments in 1980 were taken over at more els (p< .05).To interpret the effect of diversifi- than four times the rate of firms operating in cation on takeover risk, we exponentiated its only one business segment. Thus, net of other estimated coefficient, which gives the multi- variables and using different measures, the plier of the rate of takeover that firms in this more diversified a firm was, the higher the rate population experienced. The estimated multi- at which it was subjected to takeover attempts plier effect of diversification is about 1.92 in and the more likely it was to be taken over. Model 1; thus, firms at the median level of di- The finding that diversified firms were sub- versification (DT = 1.0) were subject to take- stantially more likely to be taken over than fo- over attempts at a rate 92 percent higher than cused firms differs markedly from the results comparable firms operating in a single industry of a study of takeovers of Fortune 500 firms (DT = 0), while firms at the 75th percentile of during the previous merger wave in the 1960s. diversification (DT = 1.36)faced 2.6 times the Using similar measures and statistical analyses risk of takeover. These results are not depen- for a parallel sample over the years 1963 THE DEINSTITUTIONALIZATION OF CONGLOMERATE FIRMS 559 through 1968, Palmer et al. (1993) failed to cused on the effects of acquisitions on the ac- uncover any significant relation between a quiring firm's share price, rather than on pro- firm's level of diversification (measured as the viding a "census of acquisitions" (e.g., Lewel- number of 2-digit SIC industries in which the len, Loderer, and Rosenfeld 1985; Mitchell and firm operated) and its risk of being taken over. Lehn 1990; Morck, Shleifer, and Vishny 1990). The effect of diversification on takeovers thus Thus, to characterize broad trends in the preva- appears to have been new in the 1980s. lence of different acquisition practices, we col- Although we cannot directly address the sub- lected data on all significant acquisitions by sequent fate of the firms in our sample that Fortune 500 firms for the five years from 1986 were taken over, other researchers have done to 1990, inclusively. so for the middle years of our sample period. Bhagat et al. (1990) analyzed the outcomes of Data and Variables all hostile takeover bids between 1984 and 1986 that involved a purchase price of $50 mil- Our population included all firms listed in the lion or more; these data encompass all hostile 1986 Fortune 500. Again, firms were excluded bids in our sample for those years. Bhagat et if they were not publicly-traded corporations. al. found that 72 percent of the acquired assets This left us with an effective sample size of ended up by being owned by corporations in 437 firms, after exclusions for missing data. To the same businesses. In over one-fourth of the allow for the construction of a takeover market cases, the proceeds from selling off parts of a to have an effect on firms' acquisition patterns, firm after an acquisition amounted to at least our time frame began in 1986 and ended in 50 percent of the purchase price. "By and large, 1990; thus, we had five complete years of data then, bustups fit very closely into the picture on acquisitions. of strategic acquisitions. Either the original For acquisitions prior to 1980, the Federal buyer in a hostile takeover keeps the parts it Trade Commission published data on merger wants, often selling the others to strategic buy- activity in the United States, breaking mergers ers as well; or the company is broken up and into horizontal, vertical, product extension, sold off largely to strategic buyers" (Bhagat et market extension, and pure conglomerate. Un- al. 199051). In combination with our results, fortunately, this service was discontinued and this indicates that conglomerates were substan- no replacement has been implemented. Thus, tially more likely to be taken over than focused we compiled comparable data for the years of firms and that the individuals or firms which our study by (1) determining all significant ac- bought them busted them up in whole or in quisitions made by the firms in our sample and part, keeping the divisions that were in related (2) coding each acquisition using a scheme lines of business and selling the unrelated parts comparable to the one used by the FTC. Data to other related buyers. on acquisitions were drawn from Mergers and Acquisitions (1986-1990), which contains compendia widely acknowledged to be the ACQUISITIONS IN THE LATE 1980s most complete sources of information on It is now clear that the firms that had previously merger activity in the United States (Golbe and pursued diversification were at a substantially White 1988). We included only full acquisi- greater risk of takeover during the 1980s than tions that were large enough to be considered the firms which had shunned conglomerate significant. We used a purchase price of $25 growth. It is less evident, however, whether the million as a minimum cutoff, for comparison firms that remained independent recognized the purposes, the annual sales of the smallest firm implication of this increased risk, or whether in the 1.986 Fortune 500 was $424 million. For the firm-as-portfolio model maintained influ- each acquisition, a 4-digit SIC code for the ence over the growth strategies of large firms. business was assigned from Standard and Research on patterns of acquisitions during the Poor's Register of Corporations (Standard and 1980s has been somewhat limited, and no prior Poor's various years a). In cases where Stan- study has systematically examined the preva- dard and Poor's had no data on the acquired lence of different types of acquisitions during business, SIC codes were assigned based on this time period. Much of the relevant literature the description of the business in Mergers and has been in financial economics and has fo- Acquisitions (1986-1990). AMERICAN SOCIOLOGICAL REVIEW

We classified acquisitions as horizontal, re- Table 2. Percentage Distribution of Acquisitions by lated, vertical, and conglomerate using a 1986 Fortune 500 Firms, 1986 to 1990 modified version of Ravenscraft and Scherer's Type of Acquisition (1987) scheme. Horizontal acquisitions were Number of Hori- Conglo- those where the acquiring and target firms Acquisitions zontal Vertical Related merate shared a 4-digit SIC code; related acquisitions were those where the acquiring and target firms shared a 2-digit SIC code, but not a 4- digit code; and vertical acquisitions were those where the acquiring firm and target firm operated in industries with significant buyer- supplier relationships (that is, where 5 percent or more of the dollar value of the acquiring firm's industry's inputs came from, or outputs went to, the target firm's industry, according to the Bureau of Economic Analysis's [I9911 6-digit Industry Input-Output matrix for 1982). Conglomerate (unrelated) acquisitions Number 436 436 436 436 were those that did not fit any of the above of firms categories. Categorizing mergers posed unique prob- Tercentages may not add to 100.0 because of round- lems, because most firms in this population ing errors. were already somewhat diversified. Thus, for example, imagine a vertically-integrated auto Results and Discussion manufacturer that generates 75 percent of its sales in its auto division and 25 percent in its Table 2 presents distributions of acquisitions steel division. Acquisition of a steel company by type. Perhaps most striking is the fact that could be classified as vertical (for the auto di- less than 15 percent of the firms in our popula- vision) or horizontal (for the steel division). tion made any conglomerate acquisitions at all, We overcame this by using business segment and less than 4 percent made more than one. A data for the acquiring firm for 1985 from small handful were quite active, however. If we Standard and Poor's Cornpustat, Moody's In- define a diversification program as completing dustrial Manual (1985), and annual reports. three or more unrelated acquisitions within a For each business segment we had the per- five-year period, then only four firms among centage of the firm's sales and a primary and the Fortune 500-General Motors, General secondary 4-digit SIC code pertaining to the Electric, Ford, and International Paper-en- segment. Firms report financial information gaged in such a program during the late 1980s. on up to 10 segments; thus, an acquirer could Put another way, four large firms were respon- have up to 20 SIC codes. Using these data, we sible for almost one-quarter of the conglomer- broke acquisitions into three size classes, per- ate acquisitions completed by all Fortune 500 taining to matches with segments composing firms during the second half of the 1980s. 70 percent or more of the acquirer's sales, 20 Three of the four most active conglomerate percent to 70 percent, or below 20 percent. An acquirers-GM, Ford, and GE-were, in 1986, acquisition's final categorization was deter- also among the four largest industrial firms in mined by the largest of the three classes to the United States in terms of employment lev- which it could be assigned. Thus, in our hypo- els and were three of the five largest non-oil thetical example, the steel company acquisi- companies in terms of sales. tion would be classified as vertical for the first The results provide a fairly consistent por- size class and horizontal for the second size trait of corporate acquisitions in the late 1980s. class; therefore, we would categorize it as a Firms clearly made the best of the lax antitrust vertical acq~isition.~ enforcement of the 1980s-the incidence of horizontal acquisition increased substantially Details of our classification procedure are avail- compared to the 1970s (Scherer 1980), while able upon request from the authors. the vast majority of firms rejected the strategy THE DEINSTITUTIONALIZATION OF CONGLOMERATE FIRMS 561 of growth through unrelated acquisition, and Table 3. Median Levels of Diversification Among For- virtually all avoided vertical integration. The tune 500 Firms: 1980, 1985, and 1990 results are most striking when put in historical Variable 1980 1985 1990 context. Mueller (1980) tracked acquisitions by large U.S. firms from 1962 to 1972, during Total diversification 1.00 .90 .67 which time horizontal and vertical mergers (4-digit SIC segments) were extremely rare and conglomerate acquisi- Unrelated diversification .63 .59 .35 tions were most common. He reported that the (2-digit SIC segments) eight firms responsible for the most acquisi- Number of firms 468 453 448 tions were Litton, ITT, Teledyne, Beatrice, Note: Level of total diversification is calculated using Gulf+Western, Occidental, Boise Cascade, and the entropy measure, DT=CPiln(l/P,), where Pi is the pro- TRW-acquisitive conglomerates intent on portion of a firm's sales made in industry segment i. In- growth through acquisition. In contrast, during dustry segments are defined at the 4-digit SIC level. Un- the 1980s the most active conglomerate ac- related diversification is calculated in the same manner, except that segments are defined at the 2-digit SIC level; quirers were a small number of enormous cor- that is, the measure is calculated after first summing sales porations that had established themselves long across 2-digit SIC categories. See Palepu (1986) for an before. General Electric, General Motors, and explication of this measure and its properties. Ford, three of the most active acquirers, each expanded their domain by buying financial and business service firms. GM and GE, the two almost exclusively by firms that were already most active acquirers, had already established enormous. Ironically, the most active conglom- a substantial presence in the financial services erates all ended the decade with fewer employ- sectors with General Motors Acceptance Cor- ees than they started it, suggesting that their poration and General Electric Capital Corpo- growth was of a curious type. ration, and GM's purchase of Electronic Data Services in 1984 had established it in the busi- AGGREGATE CHANGES IN ness services sector as well. These acquisitions CORPORATE FORM were part of a larger program of expansion into the service sector by these industrial giants. We have demonstrated that diversified firms Ironically, their expansion was occurring at were taken over at higher rates than focused precisely the point when some of the older con- firms in the 1980s and that during the second glomerates were abandoning the service sec- half of the decade very few firms pursued con- tor-Ford purchased The Associates, the third- glomerate growth. Next, we assess the impact largest independent finance company, from that the events of the decade had on the overall Paramount Communications (formerly Gulf+ level of diversification in the population of the Western) in 1989, at which point Paramount largest corporations. Although roughly one- was moving to spin off unrelated divisions in quarter of the 1980 Fortune 500 firms disap- order to focus on its core movie and publish- peared through takeover during the 1980s ing businesses. (largely as a consequence of being diversified), Although we do not have direct evidence on it is possible that the new firms that joined the this point, the findings of Bhagat et al. (1990) population of the largest U.S. industrial corpo- indicate that conglomerate acquisitions during rations were themselves highly diversified, as the 1980s were often made with the explicit in- was the case during the 1960s (Fligstein 1990). tent of selling off divisions in unrelated indus- Conversely, many diversified firms went tries to buyers in those industries and hanging through deconglomeration programs by selling on to divisions in related industries. That is, off divisions and seeking to focus on a "core when firms in our population made conglom- competence." Thus, changes in aggregate lev- erate acquisitions, it is possible or even likely els of diversification are indeterminate given that they subsequently divested those parts of the results we have presented. However, we can the acquired firm that-werenot in their core in- compare levels of diversification between 1980 dustries. Where previously conglomerate ac- and 1990 using data on business segments. quisitions were used to achieve rapid growth Table 3 compares the median level of diversi- by integrating the acquired firm into the ac- fication using the entropy measure (calculated quirer's portfolio, in the 1980s they were used at the 4-digit and 2-digit SIC industry levels) 562 AMERICAN7 SOCIOLOGICAL REVIEW 1990 Fortune 500 Firms

1 2 3 4 5 6 7 8 9 10 Number of 2-Digit SIC Industries in Which Firm Operated

Figure 2. Frequency Distribution of Unrelated Diversification: Fortune 500 Firms, 1980 and 1990 for the Fortune 500 companies in 1980, 1985, so in 1990. To the extent that large firms were and 1990. Note that the Fortune 500 is defined diversified in 1990, diversification tended to be as the 500 U.S. industrial firms with the largest into closely related industries. Moreover, large sales in the previous year; thus, although there firms that started the decade highly diversified is a fair degree of overlap among the firms ap- overwhelmingly ended the decade more fo- pearing on this list over time, they are not iden- cused: Among the largest firms in 1980 that tical. The level of total diversification (i.e., cal- were not acquired, 76 percent of those that culated at the 4-digit SIC level) among firms in were above the median level of unrelated di- this population dropped from 1.0 in 1980, to versification in 1980 were less diversified in .90 in 1985, and to .67 in 1990-a one-third 1990. It is particularly instructive to look at the drop over a decade. Even more dramatic is the fate of the so-called acquisitive conglomerates decline in the level of unrelated diversification of the late 1960s and early 1970s. Of the 10 (i.e., calculated at the 2-digit SIC level), which firms Rumelt (1974) classified as acquisitive declined from .63 in 1980, to .59 in 1985, and conglomerates for which data were available in to .35 in 1990-a 44 percent drop. Figure 2 1980, three (Bangor Punta, Colt Industries, and shows the distribution of firms across 2-digit Lear Siegler) were bought out, and one (Bruns- industries in 1980 and 1990. Whereas roughly wick) fended off a hostile takeover bid. Of the 25 percent of the largest firms in 1980 operated 7 firms still operating independently in 1990 in only a single 2-digit industry, 42 percent of (Brunswick, FMC, General Host, W. R. Grace, the largest firms in 1990 did so. LTV, Litton Industries, and Whittaker), all but Thus, there was a marked migration toward one (FMC) were less diversified. more focused organizational forms over the The results suggest that, in general, highly course of the decade-the median large indus- diversified firms were either taken over or vol- trial corporation looked quite different in 1990 untarily restructured to be more focused. The compared to 1980. The majority (52 percent) aggregate effect was that the population of the of large firms operated in three or more 2-digit largest firms was considerably more diversified industries in 1980, while only 30 percent did before the 1980s than after. THE DEINSTITUTIONALEATION OF CONGLOMERATE FIRMS 563

CHANGES IN BUSINESS RHETORIC that kind of diversity" (quoted in Morgello DURING THE 1980s 1989:83). Thus, he reorganized the firm and sold off its financial arm (The Associates, re- Our analyses show a substantial decline in the sponsible for almost 40 percent of Gulf+ prevalence of the form and practice of the firm- Western's earnings) to focus on entertainment as-portfolio model in the United States during and publishing, changing Gulf+Western's the 1980s, but they do not speak directly to the name to Paramount Communications in 1988. issue of deinstitutionalization as a cognitive Textron, an acquisitive conglomerate in the phenomenon. Reports in the business press and 1960s, reversed course by selling off 24 busi- pronouncements from corporate leaders and nesses, "from flatware to foundries," between Wall Street, however, indicate both a re-evalu- 1985 and 1990. When the firm bought Cessna ation of the firm-as-portfolio model and a sup- Aircraft in 1992, however, Textron's CEO felt port for new models of strategy and structure. compelled to argue that Cessna was closely re- While there is less agreement about the specif- lated to its core aerospace businesses in re- ics of a new model, there is virtually universal sponse to critics on Wall Street, who had agreement that the firm-as-portfolio model, charged that the repentant conglomerate had and the conglomerate merger movement it fa- fallen off the wagon (Putka 1992). cilitated, have been discredited. "The [con- No clear-cut alternative has arisen to replace glomerate] mergers of the 1960s were almost the firm-as-portfolio model, but broad outlines certainly the biggest collective error ever made indicate that the logic defining what is appro- by American business. . . . Synergies from di- priate to bring within a single organizational versification did not exist. . . . This was a co- boundary has gone from being exceptionally lossal mistake, made by the managers, for the broad (the conglomerate) to strikingly narrow, managers," according to The Economist (1991: encompassing ever more specialized compo- 44). This collective error had substantial con- nents of production processes. In contrast to sequences for the American economy: "[Tlhe the firm-as-portfolio model, which supported lesson of Britain and America in the 1960s and bringing virtually any type of business within 1970s is that conglomerates are a short-sighted the organization's boundary, rhetoric around way out. . . . Corporate America's sluggish re- appropriate business practices during the late sponse to oil crises, Japanese competition, and 1980s and early 1990s has suggested extreme other changes had much to do with its con- specialization and contracting for any aspects glomerate tangles of the 1960s" (Economist of production outside of the firm's "core com- 1992:18). "The 'portfolio' or 'holding com- petence." "Business schools and management pany' approach . . . has been increasingly dis- consultants preach a unanimous gospel: make credited" (Kanter 1991:69). Two articles in the it lean, mean and centred on a core business" Haward Business Review, the most prominent (Economist 1989:75). Under such circum- quasi-academic business journal, provide a stances, producing complete products often en- stark comparison of changing evaluations of tails forming temporary alliances with several the firm-as-portfolio model: Philippe other specialists and results in a network, or Haspeslagh (1982) concludes his review by "virtual corporation," composed of formally stating, "[P]ortfolio planning is here to stay and separate entities rather than a single bounded represents an important improvement in man- organization. "In a leap of industrial evolution, agement practice" (p. 73), while five years later many companies are shunning vertical integra- strategy guru Michael Porter (1987) pro- tion for a lean, nimble structure centered on nounced, "In most countries, the days when what they do best. The idea is to nurture a few portfolio management was a valid concept of core activities . . . and let outside specialists corporate strategy are past" (p. 51). make the parts, handle deliveries, or do the ac- This changing evaluation of corporate con- counting" (Tully 1993: 106). "Today's joint glomeration influenced the rationales offered ventures and strategic alliances may be an early by business executives for their strategies. For glimpse of the business organization of the fu- example, Martin Davis, appointed CEO of ven- ture: The Virtual Corporation. It's a temporary erable conglomerate Gulf+Western in 1983, network of companies that come together to concluded, "[C]onglomeration is dead. It exploit fast-changing opportunities. . . . It will doesn't make any sense. . . .You can't manage have neither central office nor organization AMERICAN SOCIOLOGICAL REVIEW

chart. It will have no hierarchy, no vertical in- the period beginning around the 1960s" (p. 66). tegration" (Byrne 1993:98-99). "Companies Two recumng themes in the writings on new are replacing vertical hierarchies with horizon- organizational forms, both in the business press tal networks; linking together traditional func- and in academic discourse, are (1) that organi- tions through interfunctional teams; and form- zational boundaries are increasingly blurred or ing strategic alliances with suppliers, custom- irrelevant and (2) that the appropriate model of ers, and even competitors. . . . For many ex- the organizational structures that prevail now ecutives, a single metaphor has come to em- is not the bounded body, but the (unbounded) body this managerial challenge and to capture network. the kind of organization they want to create: the 'corporation without boundaries"' (Hirsch- DISCUSSION horn and Gilmore 1992:104).~Unfortunately, by their very nature it is difficult to track the Conglomerates were prevalent in 1980; many prevalence of network forms of organization: were taken over and broken up; most of those Because they do not have stable boundaries that remained became more focused through and are composed of shifting arrays of special- voluntary restructuring and sell-offs; and the ized elements, they cannot be readily counted firms that joined the set of the largest U.S. in- in the same manner as bounded actor-organi- dustrials were less diversified than the ones zations. Their prevalence in business rhetoric, they replaced, leaving the largest firms in 1990 however, is clear. roughly half as diversified in the aggregate as As with the firm-as-portfolio model in the their predecessors. With few exceptions, firms 1970s, academics have provided rationales for rejected both vertical integration and growth the firm-as-network model. Sabel (1991) calls through conglomerate acquisition. Business such production structures "Moebius-strip or- rhetoric tracked the trend away from the firm- ganizations because, as with a looped ribbon as-portfolio model. The business press de- twisted once, it is impossible to distinguish nounced the conglomerate merger movement their insides from their outsides. . . . [This form as a bout of collective madness on the part of of organization] hedges its risks not through American businesses and announced the com- portfolio diversification into unrelated activi- ing of a firm-as-network model to replace the ties but by learning to move rapidly from de- now-discredited firm-as-portfolio model. Thus, clining markets or market segments into pros- what firms did and how they looked-their perous ones in the same or related industries. practices and structures-as well as how mem- [The consequence of this strategy] is the open- bers of the business community talked about ing of the borders between corporations and corporate practices and structures reflected a between the economy and local society" (pp. mass rejection of the firm-as-portfolio model. 25-26) Kanter (1991) heralds the arrival of a In short, the firm-as-portfolio model was dein- "new model of organization structure. . . . A stitutionalized during the 1980s, and the field key concept guiding the new corporate of the largest corporations was vastly restruc- ideal . . . is focus: maximizing the core busi- tured in a relatively brief period. ness competence. This contrasts sharply with a Although this characterization of the decon- tendency to form diversified conglomerates in glomeration movement of the 1980s is descrip- tively accurate, it raises a fundamental ques- Ironically, the rhetoric of the boundaryless cor- tion for institutional theory: How was organi- poration has crept into the discourse of the one cor- zational change on such a massive level pos- poration that continued to operate businesses in a sible if the firm-as-portfolio model had indeed wide array of unrelated industries and to pursue ac- become institutionalized? Certainly, there was quisitions of unrelated businesses throughout the substantial evidence that diversification re- 1980s: General Electric's Annual Report for 1989 duced corporate performance (Black 1992) and stated, "Our dream for the 1990s is a boundary-less that there was money to be made by buying Company, a Company where we knock down the walls that separate us from each other on the inside conglomerates and busting them up (LeBaron and from our key constituencies on the outside," and Speidell 1987). But not every economi- which "will level its external walls . . . reaching out cally attractive activity is pursued, and not ev- to key suppliers to make them part of a single pro- ery economically questionable practice is aban- cess" (General Electric 19895). doned: Forms and practices (such as bust-ups) THE DEINSTITUTIONALIZATION OF CON(;LOMERATE FIRMS 565 must be cognitively available to a number of tutions. This transition had a precedent in the actors in society for them to achieve preva- French Revolution, during which the model of lence. Bust-up takeovers violated the interests the organization as body was replaced, in legal of powerful actors-the individuals running theory if not social reality, with the Enlighten- diversified firms, who typically ended up un- ment concept of a social compact among free employed following successful takeovers. individuals that was constructed, and could be When the prevailing institutional order is ended, voluntarily. The architects of this shift threatened, the actors who benefit from that or- sought to rest sovereignty only in individuals der have compelling reasons to engage in col- and the state and to explicitly disallow efforts lective action and to seek protection from the to vest sovereignty in an intermediate social state (DiMaggio and Powell 1991). But the structure (Sewell 1980). threat posed by bust-ups and other takeovers We suggest that two factors helped under- generated little collective action by the corpo- mine the sovereignty of organizational bound- rate elite at the federal level, and while states aries and thus allowed bust-ups: the rise to pre- eventually stepped in to regulate takeovers, it dominance of the nexus-of-contracts theory of was too late to save the firm-as-portfolio model the firm and the spread of the conglomerate (Roe 1993). As we have shown, the only firms form. The nexus-of-contracts model maintains clearly able to resist the pressures to abandon that the portfolio model during the 1980s were a . . . most organizations are simply legalfictions handful of enormous corporations at the core which serve as a nexus for a set of contracting of the intercorporate network that were pre- relationships between individuals. . . . Viewed in sumably large enough and powerful enough to this way, it makes little or no sense to try to distin- evade the pressures of takeovers. Our defini- guish those things which are 'inside' the firm (or tion of legitimacy implies the ability of an in- any other organization) from those that are 'out- stitutionalized practice or structure to with- side' of it. There is in a very real sense only a stand challenges based on purely instrumental multitude of complex relationships (i.e., contracts) between the legal fiction (the firm) and theowners grounds (Douglas 1986). But where the firm- of labor, material and capital inputs and the con- as-portfolio model was sustained, it was power, sumers of output. . . . We seldom fall into the trap not legitimacy, that supported it. of characterizing the wheat or stock market as an We suggest that what has been deinsti- individual, but we often make this error by think- tutionalized is not just the firm-as-portfolio ing about organizations as if they were persons model, but also the very idea of the corporation with motivations and intentions. (Jensen and as a bounded social entity analogous to a sover- Meckling 1976:310-11, emphasis in original) eign body. Bust-up takeovers were only the most visible manifestation of a more general By this account, corporations are not actors but institutional process in which the ontological merely "dense patches in networks of relations status of the corporation as a social structure, among economic free agents" (Zukin and including the sovereignty of organizational DiMaggio 1990:7). The convention of viewing boundaries, was directly challenged. Growth the organization as a bounded body is simply through acquisition, such as the conglomerate reification, a cognitive error to be overcome. mergers of the 1960s, could be naturalized with Notably, the natural attraction of thinking about reference to analogous processes-the acquired corporations in these terms is so strong that the firm becomes a member of (is eaten by) a larger analogy requires explicit rejection. The fact corporate body, and is now inside its boundary that "we often make this error" means that the rather than outside. But bust-ups undertaken by analogy needs to be exposed as false. To para- outsiders are unlike natural processes such as phrase Jensen and Meckling (1976), it makes birth, growth, and death-a more gruesome little or no sense to refer to a "corporation with- analogy is dismemberment, with body parts out boundaries" unless one starts from the as- being grafted onto other bodies. Bust-up take- sumption that corporations are otherwise per- overs required the body analogy and the sacro- ceived as having an "inside" and "outside" that sanct status of the organizational boundary to are separated by a boundary. Not only is the be jettisoned. Corporations had to be re-con- boundary of the organization not sacrosanct, ceived as voluntary and impermanent social according to this approach; it is nonexistent. arrangements-as mere conventions, not insti- Thus, there is no sovereignty to be violated by AMERICAN SOCIOLOGICAL REVIEW busting up a nexus-of-contracts if it fails to pro- actors both inside and outside the organization duce an adequate return in share price. Begin- could render such judgments. ning in the early 1980s, this approach came to Our interpretation is also consistent with the dominate normative discourse on the corpora- trend in business rhetoric away from the firm- tion, particularly in the courts (Easterbrook and as-portfolio model and toward the "boun- Fischel 1991) and Reagan-era regulatory daryless network model. The repeated refer- policy. Thus, bust-ups that would have been ence to the "corporation without boundaries" considered dismemberment under the body would be meaningless unless the default model analogy were simply the reallocation of assets were a corporation with boundaries. Once the under the nexus-of-contracts model. special status of the organizational boundary Ironically, by turning the corporation into a was repudiated, a range of new social structural portfolio, the spread of the conglomerate form possibilities for regularized economic ex- also facilitated the shift away from the notion change was opened, including the widespread of the corporation as sovereign bounded entity. use of dynamic networks in place of vertical Conglomerates strained the body analogy, be- integration (Miles and Snow 1992), temporary cause they offered no credible basis for a myth employees in place of organizational members of identity. Like a gerrymandered congres- (Pfeffer and Baron 1988), and ultimately the sional district, the lack of contiguity of the "hollow corporation" in which virtually all parts rendered the whole suspect-the parts did functions that do not add sufficient value are not belong together by any "natural" link. For subcontracted rather than brought within the example, Beatrice Foods counted among its firm's "boundary" (e.g., Handy 1989). Con- businesses in the late 1970s various packaged glomerates strained the actor analogy; hollow foods, dairy products, lunch meats, plumbing corporations dispense with it entirely. The supplies, audio equipment, luggage, and travel emerging naturalizing analogy for recurring trailers, among others (see Baker 1992 for a structures of economic activity would seem to history of Beatrice). Such an agglomeration of be the network, which makes possible a broad businesses bore little resemblance to a unit ac- array of new quasi-organizational forms that do tor organization; the only apparent principle not conform to the body analogy, with models linking the businesses together was common emerging from several industries including ownership. Following Douglas's (1986) ac- book publishing, movie production, biotech- count, it is clear that the naturalizing analogy nology, and construction (Powell 1990). It re- of organization as body was strained to the mains to be seen whether the network model breaking point by organizations such as Bea- will diffuse as successfully as the firm-as-port- trice. A few such deviant organizations might folio model that preceded it. not be fatal to the analogy, but when conglom- erates became the modal type of large corpora- CONCLUSION tion, the analogy could not be sustained. With- out an authoritative analogy, conglomerates We have provided the first systematic assess- could not maintain the legitimacy that other- ment of organizational changes in the popula- wise might have prevented them from being tion of the largest American industrial firms in dismembered simply because money could be the 1980s, and we have offered an institutional made by doing so. Conglomerates may have interpretation for a disparate set of findings. resulted from strategies for attaining organiza- Over the course of a decade, the dominant form tional growth, but they inherently undermined of corporate organization in the United States, the notion of the firm as a bounded actor, ca- which had taken decades to evolve and attain pable of growth, and distinct from its environ- its normative status (Fligstein 1991), was ef- ment; and the poor financial performance of fectively deinstitutionalized, while new "boun- conglomerates invited challenges in the form daryless" production structures were advocated of bust-up takeovers. Moreover, once bust-ups as credible quasi-organizational alternatives. were possible, the sovereignty of any organi- This was not a gradual, evolutionary shift in zational boundary was rendered problematic: which one type of organizational form died out Any aspect of what an organization did was a and was replaced with another. It was an abrupt potential candidate for externalization if it change, effected through both voluntary and failed to meet a market test (Meyer 1991), and involuntary processes at political, economic, THE DEINSTITUTIONALIZATION OF CONGLOMERATE FIRMS 567 and cognitive levels. We argue that deconglo- Institutional theory faces these changes from meration manifests an underlying institutional a curious position. On the one hand, the New shift in which the organization-as-body anal- Institutionalism has focused primarily on sec- ogy, which sustained the corporate form for tors, such as schools and mental hospitals, centuries (Coleman 1974), was undermined, where technical ("market") pressures have tra- and that as a result a new range of social struc- ditionally been weak and where the ability to tural arrangements for has emerged adopt organizational practices and forms is pre- to provide alternatives to bounded organiza- sumably less hampered. The application of tions (Sabel 1991). Our findings and interpre- such institutional models to business is more tations raise a number of pressing questions for problematic, and one might argue that our re- institutional theory and for the sociology of or- sults demonstrate that eventually the market ganizations more generally. catches up with institutionalized-but-inefficient It has become a common~lacein social organizational practices. On the other hand, theory that we live in a "society of organiza- business practices are guided to a great degree tions," created by the spread of corporate by analogies and shared norms, as the initial forms to all aspects of social life, and that spread of the conglomerate form demonstrates "natural persons" have been eclipsed by cor- (Fligstein 1991). Moreover, mental models of porate persons which stand between individu- "what Wall Street wants" have come to have a als and the state (Jepperson and Meyer 1991). powerful influence on how top managers of But this imagery faces challenges in the form large corporations choose organizational forms of radical individualist theories about corpora- and practices, and these models were behind tions (Jensen and Meckling 1976) and actual much of the voluntary deconglomeration ob- corporate practices aimed at creating "corpo- served during the 1980s (Useem 1993). "The rations without boundaries" (Kanter 1991). people who pick stocks find it easier to deal Economic theorists of the firm reprise the with simpler corporate structures," according project of the Enlightenment thinkers who in- to the head of strategic planning at Union Car- fluenced the revolutionaries in late eighteenth- bide, which helps explain the increase in share centurv France (Sewell 1980)-to remove the price that results from hints that a company social entitivity of the bounded corporate form will deconglomerate (Fisher 1992:12). Thus, and rest sovereignty in individuals only. Sov- the New Institutionalism, particularly Doug- ereign individuals may voluntarily enter into las's (1986) theory of analogies, may provide contracts with each other, but they cannot in crucial theoretical guidance for understanding principle form a sovereign corporate body at a the production structures that emerge and per- level below the state. sociologists may bristle sist based on their ability to sustain naturaliz- that such methodological individualism re- ing analogies. We have provided initial evi- flects bad social scientific epistemology. Nev- dence for how the inability to sustain such an ertheless, social structures of production in- analogy may have led to the deinstitutionaliza- creasingly resemble the nexus-of-contracts de- tion of the firm-as-portfolio model, and we an- scribed in recent approaches to the firm in ticipate that institutional theory will be able to economics: individualistic, transient, network- clarify the production structures that come into like, with production accomplished by shifting dominance in the future. sets of individuals tied through impermanent contracts. As Demsetz (1991) argues, the rel- GERALDF. DAVISis Associate Professor of Organi- evant cluestion now is not the absolute, "When zatlon Behavior at the Kellogg Graduate School of is a nexus-of-contracts a firm?'but the rela- Management, Northwestern University, Evanston, tive, "When is a nexus-of-contracts more firm- IL. His current research focuses on the moderating role of social and political structures in the trans- like?'(p. 170). Such "firm-like" arrangements formation of the large U.S. corporation in the 1980s create obvious difficulties for organizational and the subsequent rise of institutional investor ac- theories that take for granted that the organi- tivism. He joins the Graduate School of Business at zation is an entity and study analogous pro- Columbia University in the fall of 1994. cesses such as birth, growth, and death, while KRISTINAA. DIEKMANNis a Ph.D, student in the De- they create openings for approaches to social partment of Organization Behavior at Northwest- structure that take the network as a guiding ern University. She is currently completing her dis- analogy. sertation, which examines the trade-off between AMERICAN SOCIOLOGICAL REVIEW

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You have printed the following article: The Decline and Fall of the Conglomerate Firm in the 1980s: The Deinstitutionalization of an Organizational Form Gerald F. Davis; Kristina A. Diekmann; Catherine H. Tinsley American Sociological Review, Vol. 59, No. 4. (Aug., 1994), pp. 547-570. Stable URL: http://links.jstor.org/sici?sici=0003-1224%28199408%2959%3A4%3C547%3ATDAFOT%3E2.0.CO%3B2-G

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References

Risk Reduction as a Managerial Motive for Conglomerate Mergers Yakov Amihud; Baruch Lev The Bell Journal of Economics, Vol. 12, No. 2. (Autumn, 1981), pp. 605-617. Stable URL: http://links.jstor.org/sici?sici=0361-915X%28198123%2912%3A2%3C605%3ARRAAMM%3E2.0.CO%3B2-1

Beatrice: A Study in the Creation and Destruction of Value George P. Baker The Journal of Finance, Vol. 47, No. 3, Papers and Proceedings of the Fifty-Second Annual Meeting of the American Finance Association, New Orleans, Louisiana January 3-5, 1992. (Jul., 1992), pp. 1081-1119. Stable URL: http://links.jstor.org/sici?sici=0022-1082%28199207%2947%3A3%3C1081%3ABASITC%3E2.0.CO%3B2-2

Adoption and Abandonment of Matrix Management Programs: Effects of Organizational Characteristics and Interorganizational Networks Lawton R. Burns; Douglas R. Wholey The Academy of Management Journal, Vol. 36, No. 1. (Feb., 1993), pp. 106-138. Stable URL: http://links.jstor.org/sici?sici=0001-4273%28199302%2936%3A1%3C106%3AAAAOMM%3E2.0.CO%3B2-%23 http://www.jstor.org

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Organization Theory and the Market for Corporate Control: A Dynamic Analysis of the Characteristics of Large Takeover Targets, 1980-1990 Gerald F. Davis; Suzanne K. Stout Administrative Science Quarterly, Vol. 37, No. 4. (Dec., 1992), pp. 605-633. Stable URL: http://links.jstor.org/sici?sici=0001-8392%28199212%2937%3A4%3C605%3AOTATMF%3E2.0.CO%3B2-L

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Entropy Measure of Diversification and Corporate Growth Alexis P. Jacquemin; Charles H. Berry The Journal of Industrial Economics, Vol. 27, No. 4. (Jun., 1979), pp. 359-369. Stable URL: http://links.jstor.org/sici?sici=0022-1821%28197906%2927%3A4%3C359%3AEMODAC%3E2.0.CO%3B2-N

Institutional Change and the Transformation of Interorganizational Fields: An Organizational History of the U.S. Radio Broadcasting Industry Huseyin Leblebici; Gerald R. Salancik; Anne Copay; Tom King Administrative Science Quarterly, Vol. 36, No. 3. (Sep., 1991), pp. 333-363. Stable URL: http://links.jstor.org/sici?sici=0001-8392%28199109%2936%3A3%3C333%3AICATTO%3E2.0.CO%3B2-P

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Do Bad Bidders Become Good Targets? Mark L. Mitchell; Kenneth Lehn The Journal of Political Economy, Vol. 98, No. 2. (Apr., 1990), pp. 372-398. Stable URL: http://links.jstor.org/sici?sici=0022-3808%28199004%2998%3A2%3C372%3ADBBBGT%3E2.0.CO%3B2-O

Alternative Mechanisms for Corporate Control Randall Morck; Andrei Shleifer; Robert W. Vishny The American Economic Review, Vol. 79, No. 4. (Sep., 1989), pp. 842-852. Stable URL: http://links.jstor.org/sici?sici=0002-8282%28198909%2979%3A4%3C842%3AAMFCC%3E2.0.CO%3B2-C

Do Managerial Objectives Drive Bad Acquisitions? Randall Morck; Andrei Shleifer; Robert W. Vishny The Journal of Finance, Vol. 45, No. 1. (Mar., 1990), pp. 31-48. Stable URL: http://links.jstor.org/sici?sici=0022-1082%28199003%2945%3A1%3C31%3ADMODBA%3E2.0.CO%3B2-6

Diversification Strategy, Profit Performance and the Entropy Measure Krishna Palepu Strategic Management Journal, Vol. 6, No. 3. (Jul. - Sep., 1985), pp. 239-255. Stable URL: http://links.jstor.org/sici?sici=0143-2095%28198507%2F09%296%3A3%3C239%3ADSPPAT%3E2.0.CO%3B2-I

Institutional Sources of Change in the Formal Structure of Organizations: The Diffusion of Civil Service Reform, 1880-1935 Pamela S. Tolbert; Lynne G. Zucker Administrative Science Quarterly, Vol. 28, No. 1. (Mar., 1983), pp. 22-39. Stable URL: http://links.jstor.org/sici?sici=0001-8392%28198303%2928%3A1%3C22%3AISOCIT%3E2.0.CO%3B2-I