The Legal Environments of Organizations

Abstract

Sociology has recently witnessed a rapprochement between research on organizations and research on law. This essay reviews a number of central developments and tendencies in this emerging literature, with a particular emphasis on the characteristics of law as an element of the organizational environment. We begin by distinguishing two metatheoretical perspectives on law and organizations: the materialist perspective, which portrays organizations as rational wealth-maximizers and sees the law as a system of substantive incentives and penalties; and the cultural perspective, which portrays organizations as cultural rule-followers and sees the law as a system of moral principles, scripted roles, and sacred symbols. Within each of these traditions, we examine three distinct facets of organizations' legal environments: the facilitative environment, in which law passively provides an arena for organizational action; the regulatory environment, in which law actively seeks to control organizational behavior; and the constitutive environment, in which law defines the basic building blocks of organizational forms and interorganizational relations. Finally, we distinguish between literature that sees law as an independent variable, determining organizational behavior; literature that sees law as a dependent variable, determined by organizational behavior; and a growing literature that discusses the endogeneity between law and organizations. Although any taxonomy tends to depict clear lines where they are in fact murky, we think that this approach not only provides a means of categorizing the literature on law and organizations, it also calls attention to the many different ways in which law and organizations are dynamically intertwined.