Organizations and Markets

Decentralization and the Walmart Decision

22 June 2011 at 5:35 pm Peter G. Klein 1 comment

| Peter Klein |

On Monday the US Supreme Court turned refused to hear the class-action discrimination suit against Walmart (technically, the Court denied to certify the plaintiffs as a single class for purposes of a class-action suit). I haven’t followed the case closely enough to have an opinion on the merits (or the role of sociologists). But a main legal issue in the case — whether Walmart’s policy of delegating hiring and promotion decisions to local managers makes the firm itself liable for illegal personnel behavior — raises important questions for organization theory.

According to the decision (no, I didn’t try to read all 42 pages):

Pay and promotion decisions at Wal-Mart are generally committed to local managers’ broad discretion, which is exercised “in a largely subjective manner.” . . . Local store managers may increase the wages of hourly employees (within limits) with only limited corporate oversight. As for salaried employees, such as store managers and their deputies, higher corporate authorities have discretion to set their pay within preestablished ranges.

Promotions work in a similar fashion. Wal-Mart permits store managers to apply their own subjective criteria when selecting candidates as “support managers,” which is the first step on the path to management. Admission to Wal-Mart’s management training program, however, does require that a candidate meet certain objective criteria,including an above-average performance rating, at least one year’s tenure in the applicant’s current position, and a willingness to relocate. But except for those requirements, regional and district managers have discretion to use their own judgment when selecting candidates for management training. Promotion to higher office — e.g., assistant manager, co-manager, or store manager — is similarly at the discretion of the employee’s superiors after prescribed objective factors are satisfied.

The plaintiffs

do not allege that Wal-Mart has any express corporate policy against the advancement of women. Rather, they claim that their local managers’ discretion over pay and promotions is exercised disproportionately in favor of men, leading to an unlawful disparate impact on female employees. . . . And, respondents say, because Wal-Mart is aware of this effect, its refusal to cabin its managers’ authority amounts to disparate treatment.

I’m not a lawyer, and don’t know if this is meant as some kind of respondeat superior claim, but it does seem odd that decentralization per se — presumably an efficient organizational structure for a firm as large and geographically diverse as Walmart — would be taken as evidence for an implicit corporate policy of discrimination. In any case, one commentator thinks the decision “helps correct a pernicious tendency in modern employment law to pressure large employers into maintaining more centralized (and inevitably more bureaucratic) personnel policies.” Hopefully some O&M readers more familiar with the case and/or the relevant parts of US employment law can help us understand the implications of the decision for organizational structure.

Entry filed under: - Klein -, Law and Economics, Management Theory, Public Policy / Political Economy, Strategic Management, Theory of the Firm.