The Financialization of the Firm

The Financialization of the Firm

Managerial and Social Implications

Alexander Styhre

The term ‘financialization’ denotes the general tendency in the advanced Western economies to allow a substantial proportion of taxable profits to accumulate in the finance industry. Alexander Styhre discusses the financialization of the firm in the period after 1980 and stresses how key managerial activities have been redefined on the basis of finance theory and free-market ideologies. This book critically examines the literature and the implications of financialization for organizations and the economy as a whole.

Chapter 5: Managerial control, auditing, and accountability

Alexander Styhre

Subjects: business and management, corporate governance, organisation studies, social policy and sociology, sociology and sociological theory


In 1978, Pfeffer and Salancik published their influential The External Control of Organizations, a treatise wherein they elaborated on the idea that all organizations are bound up with its environment and need to effectively manage these external relations to thrive and survive. Then again, organizations cannot effectively respond to all impulses and stimuli from the outside but must rather, as Daft and Weick (1984) put it, enact their own environment, that is, determine what environmental factors to recognize and respond to. As part of this external control of the corporation, Pfeffer and Salancik (1978) introduced the concept of external standards, meaning the performance parameters being used to evaluate the organization’s performance that are commonly established outside of the firm. Say Pfeffer and Salancik (1978): The most important aspects of [external standards] is that the acceptability of the organization and its activities is ultimately judged by those outside the organization . . . This does not imply that the organization is at the mercy of outsiders. The organization can and do manipulate, influence and create acceptability for itself and its activities. (Pfeffer and Salancik, 1978: 11). Albeit being written in the decade of great economic turbulence and at the very threshold of the new regime of financialization beginning in the 1980s, Pfeffer and Salancik (1978) here anticipate what Michael Power (1996) would refer to as the audit explosion, the sharp growth in auditing practices in the new regime of managerial control.

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