Exit and Voice
By Arnold Kling
James Surowiecki contrasts the governance of pirate ships with that of corporations.
Leeson’s analysis of pirate governance focusses mainly on the way in which this system deterred self-dealing. But the pirate system was also based on an important insight: leaders who are great in a battle or some other crisis are not necessarily great managers, and concentrating power in one pair of hands often leads to bad decision-making. Interestingly, although many law firms and Wall Street partnerships have taken this insight to heart—managing partners and top executives are often elected, and power in these organizations is generally more diffuse—most corporations since the mid-nineteenth century have behaved more like the Royal Navy, with C.E.O.s who have close to unlimited power and employees who have no say in who runs the organization or how it’s administered.
My guess is that a pirate’s opportunities to exit are limited. Therefore, a pirate needs voice in order to be able to check the leader. In contrast, when you work in a corporation, if you can’t stand the CEO, you can leave.
I am not sure why law firms or investment banks would be more democratic. Perhaps when you are high up in a law firm or an investment bank, the cost of leaving can be high. In that case, you would need more voice.