Middle Managers in the Theory of the Firm

29 May 2008 at 9:32 am Peter G. Klein Leave a comment

| Peter Klein |

The current issue of Knowledge@Wharton features a piece on the challenges facing middle managers. The middle-management role is typically high in responsibility and low in authority — middle managers are accountable for the performance of their subordinates but selective intervention from above makes it difficult for them to commit to particular incentive schemes. Moreover:

[T]op reasons for dissatisfaction among middle managers include micromanagement by senior managers and lack of respect, says [author David] Sirota. “And sometimes the senior leader is just really ineffective; middle managers don’t want to be in a company that is run by that type of person.” . . .

Navigating the various relationships upward, downward and horizontally can be an emotional management challenge, adds Wharton management professor Sigal Barsade. “This is particularly noticeable with organizational change. If you are a middle manager, there may be a change that you didn’t have much to do with, but you need to translate it to your people and make them feel protected and valued. However, you are also someone being impacted by the change. Because you didn’t design the change, you might be left feeling like you don’t know what to do yourself, but you still need to comfort, protect and inspire your people.”

A more colorful description is provided by Chef Shuna Fish Lydon who blogs on all things culinary at eggbeater. Here she is on the role of the sous chef:

When you are a sous chef you are Middle Management. You are between a rock and a hard place. You have a little power, but not all of it. You have a dash of authority, and maybe a pinch, but rarely an armloadful. Sometimes your chef will back you, and sometimes not. {But your job is to back your chef, no matter what. At least in front of the kitchen. What you discuss or fight about behind closed doors is on you, or the two of you.} The sous chef and chef are to look like a unified front. On everything and everywhere. . . .

The sous chef is the chef when she’s absent. The sous chef is the chef when he’s hungover from the night before. The sous chef is the seer of all things, taster of all mis en place,receptacle of all blame, babysitter, mother and father of all cooks, translator of all languages, orderer of all goods, trainer of all below and herder of all above in rank. The sous chef is therapist, dominatrix, Priest, coach, coxswain and Captain.

The concept is that the sous chef has been in your shoes, could do a better job at filling them than you, but can get you to be as good as her. The sous chef has an eye on the chef’s job, but never lets on. That sous chef, he’s good at being all things to all people.

It’s a hard position.

I like that description for a Department Head or Associate Dean: “therapist, dominatrix, Priest, coach, coxswain and Captain.” How would that look engraved on an office door?

Anyway, organizational economics has tended to focus mainly on relationships between owners and senior managers or between managers and employees, but rarely the entire, multi-level hierarchy from the Board all the way down to the shoproom floor. A few papers look explicitly at middle management (McAfee and McMillan, 1995; Garicano, 2000; Harris and Raviv, 2002; Hart and Moore, 2005), explaining “optimal” hierarchical design in terms of incentive and information problems. Foss, Foss, and Klein (2007) discuss the delegation of entrepreneurial authority but do not look at the overall organizational design problem. Karen Wruck pointed out at the AEI conference on private equity that the agency literature has focused on the relationship between a PE firm’s limited partners and the managers of its portfolio companies, while largely ignoring the potential agency problem between the limited partners and the PE firm’s own general partners (or, in the case of publicly traded PE firms — yes, I know that sounds like a contradiction — the PE firm’s limited partners and its shareholders.) But none of these theories or approaches is as persuasive as the canonical agency-theoretic and TCE explanations for boundaries and internal organization. Perhaps the middle manager is truly the red-headed stepchild of organizational economics . . . ?