Wednesday, June 10, 2009

Rast's Law

I propose, and have rather immodestly named, a new law of business. I call it Rast's Law. It states, "Every successful corporation, if it lasts long enough, eventually turns into the Department of Motor Vehicles."

This insight occurred to me while reading an essay by Robert Jackdall on how bureaucracy shapes the morality of the people who work in it.

Many of the moral dilemmas discussed in business ethics texts are not drawn from small, entrepreneurial business organizations; they are drawn from large, bureaucratic business organizations, almost always publicly traded corporations and often government contractors. Why?

Because big bureaucratic organizations are precisely where great ethical dilemmas occur, where the temptation to serve oneself is greater than the reward 0f serving others. This is true whether the bureaucracy in question is a publicly traded corporation, a university department, or a government agency.

Consider the following business life cycle. An entrepreneur creates a new idea or tries a new way to deal with old problems. He is motivated by his reward for serving others. If he is successful, he will attract those professionals who are skilled at institutionalizing successful ideas, i.e. managers. Managers give the idea an efficient, orderly, and useful life by building a bureaucracy around it.

But ultimately, bureaucracy is the free radical of a successful organization. The larger the bureaucracy, the greater the chance that managers will use the organization for their own purposes, not necessarily consistent with the goal of the original entrepreneur or the organization itself.

Bureaucracy appears as a benefit; it finishes as a liability. The amount of time between the two depends on many things, but the path seems sure. Without the spirit of the entrepreneur to disrupt the organizational status quo, even successful organizational bureaucracies are destined to evolve into something that looks and acts like the DMV.

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