Commitment And The Covenantal Organization

Commitment And The Covenantal OrganizationAuthor(s): Jill W. Graham and Dennis W. OrganSource: Journal of Managerial Issues, Vol. 5, No. 4 (Winter 1993), pp. 483-502Published by: Pittsburg State UniversityStable URL: http://www.jstor.org/stable/40603999 .

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JOURNAL OF MANAGERIAL ISSUES Vol. V Number 4 Winter 1993 .483-502

Commitment And The Covenantal Organization

Jill W. Graham Associate Professor of Management Loyola University of Chicago

Dennis W. Organ Professor of Business Administration

Indiana University Managers become committed to what they

are doing. Project directors advance their pet projects. Employees become committed to one an-

other. . . . Commitment pervades organizations. Cur-

rent conceptions of organizational commitment are too restrictive (Salancik, 1977: 3).

One doubts that Salancik could maintain in 1993 that conceptions of organizational commitment "are too restrictive." The voluminous, indeed sprawling, literature that has appeared since Salancik's ob- servation has given expression to myriad conceptions of commitment. One reads of calculative as well as affective commitment, commitment as an attitude or as a behavior or simply as a force on behavior, not to mention the array of targets of commitment. Well over a hundred studies of commitment have been conducted (Ma- thieu and Zajac, 1990), and one is hard pressed to find therein any simple pattern of causes and effects. Thus, one might suppose that current conceptions of commit-

ment are too polymorphous rather than too restrictive.

But it is precisely because "commitment pervades organizations," because it is ubiquitous and takes so many forms, that we are quite right to tolerate varied conceptions of its nature. What we propose in this essay is that the nature and sig- nificance of organizational commitment depend, among other considerations, on the form of agreement that unites the various parties as an organized entity in the first place. We propose three organizational types differing in the character of that agreement, with corresponding implications for the meaning of commitment.

In order to provide continuity and clarity to the discussion, we shall follow the lead of Salancik (1977) and designate as the essence of commitment a 'Tending to acts." Commitment - whatever else it rep- resents - means that behavior in one situation has implications for behavior in other situations. Like Salancik, we understand the degree of commitment - the strength of

JOURNAL OF MANAGERIAL ISSUES Vol. V Number 4 Winter 1993

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484 Graham and Organ

prior behavior's implications for subsequent behavior - to depend on the explicitness, revokability, voluntary character, and public performance of the prior behavior. The behavior-generating implications that we examine are those arising from the agreement or ac- cord among the parties constituting the organization.

ORGANIZATIONS AS SOCIAL CONTRACTS

Keeley (1988) has presented an eloquent case for why we should understand organizations from the metaphor of a social contract, as opposed to that of biological or- ganisms or autonomous goal-seek- ing entities. The social contract metaphor emphasizes both the de- scriptive and normative relevance of voluntarism, some degree of which is essential in order to gen- erate commitment.

What we should keep in mind, though, is that Keeley's notion of social contract is an extremely broad one, signifying no more than the requisite condition that individuals enter into an agreement with others understanding that some kind of reciprocal exchange will take place among them. MacNeil (1974) has described the essence of contract as the projection of exchange into the future, that is, a present action or communication that constrains choices which would otherwise be available in the future. He notes that the most familiar form of the projection of exchange into the future is "promise," a man- ifestation of intention to act or re- frain from acting in a specified way. But promises are not the only

way in which exchange is projected into the future; social roles, status, kinship, religious obligations, habit, and other internalizations also represent actions or communications that constrain future choices. In essence, MacNeil defines contract as a continuum, from the transactional at one extreme, where very precise terms of exchange are specified, to the relational, where agreements are based on diffuse obligations understood in general terms that evolve out of the relationship among the contracting parties.

We propose a typology of organizations based on the type of contract that binds organizational participants. We argue that the type of contractual agreement gives rise to a particular form of commitment, with correlated differences in various dimensions of organizational experience. Tfye typology consists of three organizational types: transactional, social exchange, and covenantal. Table 1 presents an overview of the con- trasting characteristics of these organizational types.

THE TRANSACTIONAL ORGANIZATION

One form of agreement by which individuals attach to an organization is that which we are most likely to signify as a "real" contract, that is, one which signifies economic exchange. Blau (1964) describes economic exchange as characterized by an explicit enumeration of quid pro quo, in terms enforcible by law or appeal to some formal authority, contained within a specific and bounded period of time, and in-




Commitment And The Covenantal Organization 485

TABLE 1 Comparison and Contrast of Transactional, Social Exchange, and

Covenantal Organizations on Selected Dimensions

Transactional Social Exchange Covenantal

Motivational Expectancy Equity /Fairness Fealty to Paradigm Theory Values

Degree of Narrowly Broadly Holistic Inclusiveness Segmental Segmental

Expected Short Term Intermediate Long Term Duration

Culture Weak Moderate Intensive

Cost of Exit Low Moderate Substantial

Propensity Low Moderate Strong to Voice

eluding provisions by which any party may terminate the agreement upon noncompliance by one or more other parties.

According to this notion, an individual enters into a binding agreement with an organization (or, more practically, legitimate representatives of that organization), specifying what contributions will be rendered, what amounts and forms of compensation will be forthcoming in exchange for those contributions, and the specific rights and privileges of the contracting parties within the context of the agreement. As Grover (1982) has noted, such a contractarian perspective has accorded well with Western post-Renaissance views of the individual as an autonomous agent, acting from self-interest and with freedom of rational choice.

The nature of such agreements, however, is that they require of the individual "alert preparedness unencumbered by sentiment" (Bromley and Busching, 1988). The assumed and appropriate de- meanor on the part of the contracting parties is prudence, rather than trust; the momentum is one toward reductionism rather than holistic involvement. Some might not see "commitment" here, but since specific contributions are explicit in an agreement voluntarily entered into, and since explicitness and volition involve a "binding to acts," there is a commitment, albeit a delimited one. There simply is no reason to assume or expect that an individual entering into such an agreement will feel committed to what is not in the contract.





The extreme form of a transactional organization would leave nothing to chance, trust, loyalty, identification with transcendent values, or self-sacrifice. As MacNeil notes, "in a transaction it is clear enough that parties do not expect altruism nor do they think it oc- curs" (1974: 798). All expected contributions would be noted, monitored, and recompensed ac- cordingly. Each party would of ne- cessity assume some degree of "opportunism" (Ouchi, 1980) on the part of the others. Thus, in such a context, contributions not mandated by contract and not di- rectly recompensable - what Organ (1988) terms "organizational citizenship behavior" - would not be taken for granted.

Referring to Table 1, we would expect the motivation of participants in such organizations to con- form to an expectancy-theory framework. Actions of individuals would be guided by the criterion of what maximizes their personal outcomes, given the explicitly stated terms of the contingencies in the contract. Persons would choose behaviors which, in their thinking, are most likely to lead to outcomes that qualify for largesse.

Additionally, the nature of such contracts is one of limited inclusion; the relevance of each contracting party is limited to those skills or attributes that are instru- mentally related to outcomes sought by another party. We would expect that the contracting parties would entertain only a temporary time horizon since it is in each individual's self-interest to continu- ally monitor the "market" for the possibility of better transactional

terms of exchange. There would be little need, moreover, for a distinctive organizational culture - since what is considered important is already spelled out, not requiring social norms or traditions to guide behavior - nor would we expect much of a chance for culture to evolve, given the narrow inclusion of contracting parties and the ten- dency to focus on the short term.

With minimum sunk costs in the relationship, there would be a cor- respondingly low cost of exit if individuals perceived a "market signal" to obtain better transactional terms. Thus, there would be scant incentive to exercise "voice" (Hirschman, 1970). The individual would have no obvious channel of appeal for dissatisfaction with outcomes, since the terms of agreement are explicit and are voluntarily entered into. And because of the explicitly justified criterion of self-interest and narrowly segmental inclusion, there would be little reason to speak out for the good of the larger organization. In- deed, the only occasion for activat- ing voice would seem to be some blatant form of reneging by the other parties to the contract.

Rousseau (1990) found evidence among some graduating Μ Β As of a transactional mindset with respect to their relationship with employers. These new hires were described as "careerist." They interpreted their relationship with employers as short term and as consisting of specific outcomes (such as highly competitive salaries and work assignments that accel- erated personal career progress) for immediate deployment of specific skills. They assumed no bur-





den of loyalty to the employer, no investment of time to acquire site- specific skills, and by the same to- ken assumed no obligation of the employer "to take care of them." Similar findings were reported in a recent survey of a nationally rep- resentative sample of all wage and salaried workers (Shellenbarger, 1993). Compared to a parallel study in the late 1970s, loyalty to employers has weakened and job security has declined.

We should not assume that a transactional organization can't work just because it leaves no scope for sentiment or sacrifice. To the extent that "success" is defined in terms of the economic self-interest of the parties involved; to the extent that all forms of contributions requisite to that success are contractually explicit; and to the extent that the prototypical terms of agreement compete favorably with individual marketplace alternatives (thus securing a sufficient number and quality of bound parties), there is no reason to think that such organizations could not be successful. As Salancik notes,

It is possible in many circumstances to develop support through . . . instru- mentalities and extrinsic pressures. In- deed it may be to an organization's advantage to do so. Explicit instrumental exchanges set definite boundaries to a relationship .... The advantages of such bounded relations are that when one is not getting what one wants, it is easier to sever the relation [sic] (1977: 42).

Moreover, since such agreements are likely to set time as well as behavioral boundaries, organizations so characterized need not be locked into courses of action; they are free to negotiate future terms of ex-

change so as to adapt to marketplace necessities. Rousseau (1989) interprets the increasing use of temporary employees and independent contractors as represent- ing a concern on the part of some managers to avoid any hint of implied contracts beyond the letter of a formal agreement, including any commitments to organizational participants that would be difficult to keep during periods of economic duress. In sum, the transactional form of organization provides the maximum flexibility in its relationships with participants. But, in these organizational circumstances, "commitment" must be construed only in terms of what has been voluntarily committed to explicit and unambiguous terms of exchange. One could not and should not expect that such agreements would evoke loyalty and devotion.

THE SOCIAL EXCHANGE ORGANIZATION

Agreements among contracting parties need not take the form described above, and they certainly need not be limited to the lands of transactions that Blau (1964) characterized as economic. Many forms of association - such as those among friends, neighbors, colleagues - arise out of social exchange. People enter into social exchange, as they do in economic exchange, expecting to give and to receive. The difference is that the agreement does not provide a precise accounting of quid pro quo, an unambiguous statement of the terms of exchange, nor does it de- limit the agreement temporally. It is not enforcible by appeal to ex-





ternal authority, and does not explicitly provide escape hatches. Instead, a social exchange agreement takes the form of what Rous- seau (1989) described as an "implicit contract," or what Mac- Neil (1974) regarded as a non- promissory "relational contract."

Social exchange agreements rest essentially on the notion of reci- procity - benefits received create diffuse obligations to "return the favor," but neither the form nor the timing of the reciprocating ges- ture is constrained. The exchange is premised on trust and good faith that, over the long run, the parties will be fair to one another, will re- member and appreciate past benefits received, and will demonstrate such appreciation when situations permit. Thus, friends take turns doing favors for each other; neighbors help one another when minor crises arise; colleagues give each other support as needed. But none of this is explicitly bargained nor enforcible by appeal to a disinter- ested external authority.

Quite obviously, few if any em- ploying organizations would oper- ate entirely in the fashion described above. They hire persons to fill designated roles and some expec- tations are quite explicit. Employ- ers differ enormously, however, in the degree to which they spell out the various contributions that will be contractually recompensed. An organization with a strong social exchange flavor will assume that people who are well treated will quite willingly contribute in many ways that go beyond the letter of their job descriptions, in forms that do not "rack up points on the Scoreboard," even in fashions that

could not be foreseen as valid contributions. Conversely, employees of such firms will assume that a corporate memory of sorts appre- ciates contributions in many and varied forms and acknowledges the debt.

Such an organization may seem, at first glance, to extract the minimum of commitment, since the minimum has been made explicit. What such agreements lack in explicit binding acts, however, they make up for in another sense. Any contribution a person renders beyond what was explicitly and minimally contracted must be attributed to choice, since no promise of extrinsic reward could have accounted for it. Interestingly, recurrent contributions of a more or less spontaneous nature become, in themselves, binding acts. To be sure, the individual may take some comfort in believing that the long term dynamic of fairness will prevail, but only in a gross, probabilistic, indirect sense. No specific quid pro quo can be assumed.

In social exchange organizations, organizational citizenship behavior (Organ, 1988) is critical. The organization has not sought to make explicit all forms of necessary contributions, so those that are rendered voluntarily are forms of citizenship behavior. Examples include helping co-workers, protecting the organization's resources from harm, "going beyond the letter of the law" in matters of internal housekeeping and governance, offering sugges- tions for how to improve operations, or even making short-term personal sacrifices in a sportsmanlike, un- grudging manner.

As Blau (1964) noted, and Cook and Emerson (1978) demonstrated





experimentally, social exchange - unlike transactional exchange - gives rise to "sentiments" such as feelings of loyalty and devotion. Behaviorally, social exchange rein- forces attachment as well. On the one hand, numerous voluntary contributions constitute investments or "side-bets" in the relationship. On the other hand, receipt of benefits beyond those promised places a burden of even- tual reciprocation on the benefici- ary, and one can seldom know when the scales have been bal- anced. Thus, Eisenberger et al. found that:

[The] individual's perception of being valued and cared about by the organization is positively related to (a) consci- entiousness in carrying out conventional job responsibilities, (b) expressed affective and calculative involvements in the organization, and (c) innovation on be- half of the organization in the absence of anticipated direct reward or personal recognition (1990: 57). As shown in Table 1, then, the

motivational paradigm in the social exchange organization is fairness or equity theory (Adams, 1965), rather than the outcome maximi- zation motif of expectancy theory. In the absence of a market-driven system to put explicit values on contributions and inducements, some self-restraint is predicated on a general norm of fairness. It is expected that those who have been given much should render much (at some time), and that those who have rendered much in various forms, even some not readily mea- sureable, have a just claim on a proportional share of outcomes at some unspecified time in the future.

Because many forms of contribution (some not specified) are val-

ued in a social-exchange organization, a basis exists for a greater degree of inclusion of participants. Many personal characteristics may be considered relevant and ulti- mately recompensable. At the same time, for this broader inclusion to become manifest, the individual must countenance a longer relationship with the organization than found in the transactional type. Time is needed for people to discover the various ways in which they have an ability to contribute, for trust to develop, and for parties on all sides to find ways of reciprocating benefits from each other.

Cultural development is made possible by longer-term relationships. Culture is needed in order to form and sustain a social con- sensus about how "fairness" is defined and operationalized across many forms of interaction. While fairness to some extent is a uni- versal norm, a local cultural ethos must arise to articulate how the interests of various parties are har- monized in the long run.

In a social exchange organization, exit can be costly because some forms of contributing - especially those of a "good citizen" nature - are "front-ended," meaning they are investments for which no return is realized until some later period. Costly exit, in turn, gives participants an incentive to exercise voice should disagree- ments arise about the fairness or unfairness of managerial decisions (Hirschman, 1970). To accommo- date such "fairness maintenance" activity, this type of organization is likely to provide formal or informal channels of appeal that are not costly for members to access.





The comparative advantage of the social exchange form of organization over the transactional type is one of securing a broader array of contributions, including intan- gible ones such as loyalty. Further- more, because obligations are diffuse, the social exchange type in- curs much less in the form of transaction costs (Ouchi, 1980). Thus, one would expect fewer burdens of planning (MacNeil, 1974). On the other hand, social exchange organizations willingly acknowledge other burdens, notably "good faith" obligations to recognize such things as loyalty, long-term service, and sunk-cost investments made by individuals who learn site-specific skills and accept transfers to locales where their services are needed.

What some organization leaders seem surprised to find is that they can't have it both ways. They con- sider their obligations to the rank and file defined only by explicit contracts, yet expect those same rank and file to display commitment of a much more diffuse sort. Noel Tichy, in an interview with The Wall Street Journal (O'Boyle, 1985) described this as a "paradox of eliminating people, and at the same time, retaining commitment among those who remain. It's a tough problem." The problem, it seems, is the violation of trust - participants having been led to believe that the relationship was one of social exchange and implicit obligations, only to find their trust in fair play is scorned and that organizational authorities are playing by a different set of rules (Farn- ham, 1989).

Thus, we hear that employee commitment is on the wane. In the

mid-1980s, Business Week had a cover story on 'The End of Cor- porate Loyalty" (Nussbaum, 1986); at the end of the decade Fortune featured the "Trust Gap" (Farn- ham, 1989); and The Wall Street Journal reported that "sweet revenge is souring the office" (Wi- nokur, 1990). Mitchell and Scott (1990) attribute these and other problems to an "ethic of personal advantage" based on short-sighted, calculated individualism. What in essence is occurring is that the rank and file are adjusting their conceptions of the exchange to the tran- sactionalism practiced (but not advertised) by power elites of organizations (DeMeuse and Tornow, 1990).

THE COVENANTAL ORGANIZATION

In response to a trend of "increasing hegemony of contracts" (Bromley and Busching, 1988), some writers advocate a rediscovery of the covenantal basis of organization (DePree, 1989; Graham, 1991). A covenantal agreement commits the respective parties to the welfare of each other, some- what like the social exchange type, but also to a transcendent set of values (the term "values" is used here in a broad sense, to include an overarching mission, the fur- therance of a distinctive concept, or a vision of some idealized future state or condition). Like the social exchange type, the covenantal agreement is open-ended and does not describe specific obligations. But, unlike the social exchange type, the covenantal agreement takes those obligations beyond self-





interest (Barber, 1983), even self- interest over a relatively long span of time constrained by fairness.

Historical Development of the Covenantal Concept

Elazar characterizes covenant as "one of two or three 'mother' world views shared by humanity, parallel to the hierarchical and organic world views and their corresponding perceptions of human relationships" (1980: 4). According to Grover (1982), the origins of the covenant date back to the second millenium, B.C. when Hittite ar- chives distinguished between two types of treaties. One type, the forerunner of our transactional type, was a reciprocal agreement of bilateral obligations, made to advance the interests of both parties and which could be terminated at will. A different kind of agreement, called a "suzerainty covenant" by scholars, specified an obligation of gratitude by a lesser to a greater power. The obligation was indefi- nite and open-ended, a perpetual reaffirmation of the greater power's protection.

From this same era, and upon virtually the same grounds, the Is- raelites developed a more distinctive notion of covenant. The Sinai covenant bound the Children of Is- rael to each other, collectively to God, and to the dissemination of certain (then radical) ethical, social, and theocratic precepts. In the un- folding chronicle of Israel as a people, the Old Testament features the covenant as a recurring theme. From time to time prophets came forth to reaffirm covenantal ties, to

decry the infidelity of the people to the values that defined them and to express outrage at the exploi- tation by unscrupulous leaders of the people's commitment to the covenant.

Largely from the inspiration of the Old Testament, the covenantal concept was taken up by the West- ern world, often by self-conscious analogy to the Israelites. Perhaps the most notable example in U.S. history can be found in the experience of the Puritans of New Eng- land in the early 17th century. Their public statements - as re- corded in sermons and written documents - bound this group of believers to each other for the good of the colony, "solemnly and mu- tually in the presence of God/' in the hope of becoming a "new Is- rael" that would provide a light to guide the Old World to a New Age (as quoted in Elazar, 1980: 22). The Puritans articulated a divinely- appointed mission and destiny, one that provided the basis for their relationship to each other, and one that has been invoked repeatedly by Presidents. In the early 18th century, the various attempts at founding Utopian communes (as described in Tyler's Freedom's Fer- ment, 1965) gave further expression of the covenantal form.

Examples of covenantal agreements also can be found among modern day corporations. Herman Miller, Inc. has been described by its Chairman Max DePree as a system of "covenantal relationships between top management and all employees" (Labich, 1989). DePree prizes "intimacy" among Herman Miller staffers, feeling





[Intimacy is] betrayed by politics . . . short-term measurements ... an orientation toward self rather than toward the good of the group .... [A] legal contract almost always breaks down under the inevitable duress of conflict and change .... [C]ovenantal relationships tolerate risk and forgive errors .... They are an expression of the sacred nature of relationships (DePree, 1989: 47-51).

IBM has been described as generating "loyalty so intense that ob- servers liken it to a religious order" (O'Boyle, 1985), suggesting a strong dimension of values in the bonds uniting its participants (al- though recent steps taken by IBM in its downsizing program might lead one to question whether the covenantal tradition will continue). Meredith Corp.'s James Autry states that "work can provide an opportunity for spiritual and personal, as well as financial, growth. Good management is largely a mat- ter of love ... a calling ... a sacred trust" (1991: 33).

Under the long tutelage of Irwin Miller, Cummins Engine appears to have developed covenantal characteristics. Cummins is noted for its exceptionally strong values con- cerning corporate responsibility for support of the community. Cum- mins also acts out of a sense of obligation to provide stable employment for its work force, even though employment in its industry is traditionally volatile in response to the business cycle. Interestingly, Cummins draws criticism from Wall Street analysts when adhering to these values negatively affects short-term financial performance. This suggests that the values in the Cummins covenant are not widely shared by the financial community.

Development of the Covenantal Form

Historically, covenantal agreements have frequently appeared during times of crisis or on the fron- tier (Elazar, 1980). In many such in- stances, as with the Utopian communes, organizational character is covenantal at the outset. But organizations can also evolve from either transactional or social exchange forms toward a covenantal form. The precondition for such a trans- formation appears to be the presence of a charismatic leader. Such a leader is able to articulate a com- pelling vision or set of values (House, 1977). The values themselves may already have been held privately by participants as a function of selection and attrition, or as attributes favoring the organization's survival in a different environment. Or the values may emerge from the leader's own ethos. Such appears to have been the case with Cummins Engine under Irwin Miller, described as possessing the "energy of a proselytizer, angst and curiosity of a Jesuit, and the ethics of an early Christian," and combining "noblesse oblige and the Protestant Work Ethic" (Dowling, 1975: 32).

For the covenantal form to out- last the charismatic who gave it expression, however, charisma must become institutionalized. Trice and Beyer (1986) provide an instructive comparison between Alcoholics Anonymous (AA) and the National Council on Alcoholism (NCA). Both were founded by charismatic leaders with a strong sense of mission that drew others to their cause. Both organizations survive to this





day, but with markedly different corporate forms. AA developed a set of rites, rituals, and ceremonies to diffuse the charisma of the foun- der throughout the membership, and began a strong oral and written tradition to keep the charismatic message alive. Because AA refuses to accept large individual donations, it avoided having its values watered down by powerful outside interests. It has maintained the emphasis on self-help and group support by keeping its message and mission direct and unembroidered ("one day at a time' and "keep it simple"). Its decentralized structure is made possible because little co- ordination is necessary beyond the indoctrination of the members into the mission and methods of the organization.

The NCA began with much the same theme as AA and with an equally . charismatic leader. How- ever the original NCA leader was succeeded by an individual touted for his administrative experience in voluntary health organizations, but with little knowledge of alcoholism or proven commitment to NCA' s mission. Also, the NCA failed to incorporate any distinctive rituals. Instead, its mission became more diffuse and decidedly more secular and less spiritual as it developed more of a scientific and medical ra- tionale for alcoholism. It also developed a much more elaborate and centralized structure than AA, and permitted the penetration of its task environment (for example, the NCA's Board of Directors has included representatives of the dis- tilled spirits industry). All this is not to deny the importance of the NCA, nor its contribution to soci-

ety, but to point out that its organizational form, stretched across many interest groups and thor- oughly rational/secular in its am- bience, is much less covenantal today than is AA's.

Commitment in the Covenant

Mowday, Porter, and Steers (1982) defined commitment as including the acceptance of organizational goals and values. Scholl, in trying to give commitment a more distinctive psychological basis, chose to view it as a "force sustain- ing the direction of behavior when expectancy/equity reason are dis- confirmed" (1982: 596). In other words, work behavior can be a function of a calculative motivational force (as in expectancy and, to some extent, in equity theory), but also a normative, value-based motivational force (Etzioni, 1988; Shamir, 1990). Thus, as indicated in Table 1, we would expect the motivational basis of behavior in the covenantal form to consist of the desire to further or realize a set of values or idealized future state. Self-interest is obviously not absent, but it is a form of self-interest in which boundaries between self or ego and others are blurred, and rational economic gain, while not ruled out, is set within strong normative constraints. Values such as "honesty, harmony, productivity, efficiency, justice, and creativity" are among those capable of ce- menting covenantal ties in the workplace (Haughey, 1989: 76-77).

Inclusion in covenantal organizations is holistic, rather than segmen- tai, because attitudes anchored around transcendent values take on





an "ego expressive" function (Katz, 1960). In other words, ego-identity is suffused and (at least partly) defined by those values (Shamir, 1990). Psychologically, the parties to a covenant find it impracticable to constrain organizational relevance to a limited aspect of each person. Ho- listic involvement not only includes the sort of routine role behaviors defined by a division of labor, but also requires of the covenantor any form of contribution, any reasonable ex- ertion of effort, and any tolerable sacrifice that preserves the covenant, sustains the welfare of the parties thereunto, and promotes the reali- zation of transcendent values. In fact, a clearcut distinction between in-role and extra-role behavior is no longer feasible. Organizational citizenship, understood as "extra-role discretionary behavior" (Organ, 1988), is replaced by "responsibilities of citizenship" in a holistic sense. These responsibilities include obe- dience, loyalty, and responsible participation in governance (Graham, 1991; Inkeles, 1969).

Empirical support for a link between convenantal organization and a variety of forms of employee citizenship behavior was recently reported by Moorman et al. (1993), who invoke a group value model of procedural justice (in contrast to a self-interest model) to account for the relationship between justice and citizenship. In the group value model, organizational procedures are deemed fair because they demonstrate respect for the dignity and worth of all group members, and respect for individual dignity is a covenantal value.

It is difficult to conceive of a covenantal agreement without mem-

bers contemplating a long-term tenure, provided, of course, that the organization retains its covenantal form. The very basis of the relationship is essentially one of "betrothal/* and normative constraints sustain membership through intervals of hardship and sacrifice. Initiation into the covenant might also require the land of public rites of passage that, at least psychologically, represent sunk costs that are difficult to retract.

Holistic inclusion and long-term membership make possible the grounding of a distinctive culture. Culture, in turn, becomes essential as a means of reaffirming the defining values of the covenant. As with AA, rites, rituals, and ceremonies diffuse and preserve the charisma of the leader who forged the original covenant.

For the covenantal member, cost of exit becomes nigh unto prohibitive. In practical terms, long-term involvement in a distinctive culture most likely means the investment of learning many specific ways of doing things that are not easily trans- ferable to another organization. If that involvement has meant recurrent forms of material sacrifice in the service of certain ideals, exit would be even more painful to con- template. At the extreme, exit would entail a surgical removal of part of the "phenomenological self."

The prohibitive cost of exit provides an overwhelming incentive to exercise voice. Indeed, a party to a covenant is morally bound to speak out when sensing implicit violation of the bonding values. Such "good citizen" efforts at constructive re-





form represent voice motivated by organizational loyalty (Graham and Keeley, 1992; Hirschman, 1970).

Survival Advantages of the Covenantal Form

Even more so than the social exchange form of agreement, covenants minimize transaction costs that arise from equity considerations and the high price paid in surveillance mechanisms when so- phisticated technologies are cou- pled with the self-interest of opportunism (Ouchi, 1980). If parties internalize the defining values of the covenant, they are freed from overweening concern with self-interest, in part because the various parties are pledged to each other's welfare, and in part because self-interests are made concordant by well-defined values. As a result, much of the organizational maintenance machinery of other forms is obviated.

Because the covenantal form captures "the whole person,

" the person's entire set of attributes are potential contributors to the organization. Contributions are not limited to a particular role, even broadly defined. As Irwin Miller put it, "I'd rather have people in the company who view their role in terms of the Old Testament phrase, 'Do what comes to your hand to be done" (Dowling, 1975: 34).

One might also view the covenant in terms used by MacKenzie (1991) to describe the holographic organization. Such a form, based on the hologram as metaphor,

has essential characteristics ... as a whole which are also present in each of

its units. Wherever one goes in the organization, one can always find the same characteristics and processes. . . . [It] requires minimum effort to direct, control, and coordinate its units . . ., can store information about itself effi- ciently . . ., is resistant to uncertainty and 'noise* in the maintenance of its essential properties . . ., [and] is intolerant of leaders who are not able to live according to its principles (1991: 11-12).

Correlated Features of the Covenantal Form

Certain regularities emerge from a comparison of firms acting out something like a covenantal agreement, such as those cited above. First, they make it a practice (some would say they have the luxury) to have rather strict selection criteria, since they demand not only ability and effort but commitment to par- amount values. An organization that cannot afford to do so would probably eschew the covenantal idea and think either in terms of transactional exchange or social exchange.

Second, they are generally characterized by a high level of involvement of people at all levels in various forms of governance. Graham (1991) describes this as a form of organizational citizenship behavior that is akin to responsible political participation. This participation, however, does not assume or require pure democracy, since, as DePree notes, "Having a say differs from having a vote" (1989: 23).

Third, they go to considerable lengths to stabilize employment. Nucor, for example, prefers to cut back on weekly hours and earnings and drop division managers'* pay up to 60% rather than resort to





layoffs. This commitment by management is reciprocated by a loyalty reflected in a three percent turnover rate and very little absenteeism (Stubbart and Schroeder, 1990). Similarly, Lincoln Electrics guaranteed minimum of thirty hours of work per week to all employees with more than one year of service (a no-layoff pledge which has been maintained since 1958 (Serrin, 1984)) combines with near- zero turnover and productivity twice that of competing firms (Sharplin, 1990).

Fourth, status distinctions are minimized. Ken Iverson, president of Nucor, is notorious for his casual style, spartan office, and using a nearby delicatessen as the "executive dining room." The company has no executive parking spaces, no executive restroom, no company cars, and all managers fly coach class. Herman Miller, Inc. has a formal policy that the CEO can never have a salary more than twenty times that of the lowest-paid full time employee (in many U.S. corporations, the ratio is 100 or more (Labich, 1989)). Irwin Miller stated that he didn't "believe any- thing will be gained by identifying a person as a crown prince," and encouraged managers "at reasona- bly frequent intervals ... to ride a truck or a bulldozer" (Dowling, 1975: 34, 44). To the extent that differences in resource allotments or perquisites exist, they derive not from "outcomes proportional to in- puts" (Adams, 1965), but more like Deutsch's (1985) inversion of the usual equity rendering: allocation of resources according to the ability and need to use them to contribute to others and to the common goal.

Reversion to Other Types

A social exchange relationship can be abrogated (or redefined as a pure transactional relationship) upon sensing sytematic violation of fairness by other parties, and a transactional relationship is either terminated or penalties are as- sessed on the erring performer when explicit terms of exchange are not met (Grover, 1982). In contrast, a covenantal relationship - since it incorporates transcendent values independent of other agents - implies a greater sense of responsibility not absolvable by occasional infidelities on the part of other principals. Included in this responsibility is the call to confess one's own errors and to forgive those of others. As noted by Daniel Elazar, "The partners in a covenantal relationship do not auto- matically live happily ever after, but they are bound by covenant toward such an end" (1980: 10).

Nonetheless, the covenantal charter of an organization can be compromised, eroded or de- stroyed. Errors at the selection stage comprise one threat to covenants, as parties not really bound by covenantal values come into the fold. This need not be fatal. The covenant of the New England Pu- ritans included only the "true believers" who shared a conversion experience, but it allowed for an "external civil contract" with those not sharing such an experience (Grover, 1982). In today's terms, the analogy might be an essentially covenantal firm with a "core group" of long-term, highly involved participants who contract with "outsiders" as needed for es-





sential forms of expertise or for temporary expansion of productive capacity (Atchison, 1991; Handy, 1989). The experts and temporary workers would not be required to subscribe to covenantal values, nor to sacrifice in personal terms, but also would not have the same claim of protection or security. But as Grover notes, "this will work only so long as the spirit of the internal covenant largely prevails in those who steer the ship of state" (1982: 300).

The abiding requisite, then, for a covenantal organization to survive as such is leadership and/or practices that maintain the covenantal traditions - by rituals, metaphors, example, and most of all by hon- oring the mutual obligations of parties to each other. Leadership must adhere to core values even during adversity. If these are compromised in order to gain resources from the external environment or to cut costs, the organization might well survive, but with a discernibly different perception by participants that the relationship has moved in the direction of the social exchange or transactional type. Overemphasis on rational means-ends considerations will negate the spiritual or mystical quality that seems to be a sine qua non for covenantal agreements. Recent steps taken by IBM, for example, suggest that its leadership would rather survive as a profitable social exchange or transactional type than fight to the death with its heretofore covenantal form.

But it is equally conceivable that covenantal values can be held to so rigidly that a firm, operating in a sometimes turbulent and unforgiv- ing task environment, simply de-

fines away its latitude for corrective action. If its distinctive values have lost appeal, finding replacements for dying or departing personnel becomes more difficult. If commitments to its staff become excessive, cost control might become next to impossible. Indeed, perhaps the purest forms of covenantal organizations in U.S. history have been the Utopian and sectarian communes of the early 19th century, almost all of which either perished or substantially altered their character in order to survive (Kanter, 1972). At the extreme, for an economic enterprise founded as a covenant upholding changelessness as a transcendent value, economic success might even be shunned if attainable only through strategems that require flexibility and innovation. The viability of covenantal organizations as economic enter- prises thus is likely to depend both on the stability of the economic environment and the extent to which innovation (rather than changelessness) is one of the values helping to define the covenant.

DePree (1989) calls leadership an art. Perhaps this is especially true as applied to covenantal organizations. To survive at all, such firms, like any other, must grapple with the forces for change. But to survive as a covenant, adaptation must be effected without dilution or compromise of core values.

CONCLUSION

We have described three prototypical forms of agreements linking individual participants and their organizations. Given the explicitness, revokability, volition, and/or





public performance of behavior es- tablishing the agreement, varieties of organizational commitment are possible in all three cases. In transactional agreements, commitment is to the explicit and enforceable terms of the agreement itself. So- cial exchange agreements involve commitment to an enduring relationship of diffuse mutual obligations which, over the long run, is fair to all parties. Commitment in covenantal agreements involves not only a long-term relationship among the partners, but also inter- nalization and pursuit of transcendent values.

From a management perspective, there are distinctive advantages and disadvantages associated with each form of agreement. Transac- tional agreements offer maximum flexibility because they can be terminated (albeit at some cost) or their terms renegotiated as business conditions change. On the other hand, the parties are unlikely to en- gage in helpful "innovative and spontaneous behavior" (Katz and Kahn, 1978) not specified in the agreement, and are intolerant of occasional lapses in organizational performance. By contrast, the parties to social exchange agreements are likely to volunteer helpful but unrequired behavior, and to be pa- tient and forgiving of organizational shortcomings. On the other hand, they expect the organization to return the favor, that is, to tolerate their occasional mistakes, and to offer them secure employment. The relationship is for the long term irrespective of business conditions. Covenantal partners are even more involved than those in social exchange agreements be-

cause they share responsibility for upholding and/or pursuing transcendent values. This minimizes the need for close supervision or other costly behavioral control sys- tems. The adaptiveness of covenantal organizations, however, depends on the content of the transcendent values. Conservative values may impede an organization's flexibility in adapting quickly to changing business conditions. Technological innovation, con- stantly improving customer service, lifelong learning, and creative flexibility as transcendent values, on the other hand, may improve adaptiveness. Finally, covenantal organizations may be especially prone to principled dissent (Graham, 1986) as a form of employee voice if participants perceive organizational policies or practices which threaten its core values. Dissent may delay decision-making processes, threaten entrenched interests, in- vite outside scrutiny, or otherwise be inconvenient for organizational authorities. It also may help to alert management to organizational decline in time to take corrective action, thereby avoiding mass defections of dissatisfied participants (Graham and Keeley, 1992; Hirschman, 1970).

As an organizational design is- sue, selection of a preferred type of individual-organizational linkage depends on the designers' value preferences, as well as on conditions such as environmental adversity and stability, the feasibility of specifying all role requirements, the adequacy of resources to attract and compensate needed contributions, and the cost of behavioral control mechanisms. While it is





conceivable that analysis of such conditions might lead to different types of agreements with different groups of organizational participants, consistency within type is critical. In particular, expecting social-exchange or covenantal commitments from participants to whom the organization is extend- ing only a transactional agreement is both impractical and unethical. Systematic violation of long-term fairness undermines the basis of social exchange, risks increasingly disruptive principled dissent, and is likely to raise all future transaction costs as a result of a reputation for organizational opportunism.

In contemplating the odds for in- creased prevalence of covenantal forms of economic organization, one must reckon with the chorus

of forecasts of the 1990s and beyond as the great "shakeout" era, a period in which global and technological forces favor corporate agility and attach a risk premium to the kinds of constraints defined by some covenantal bonds. None- theless, if Habits of the Heart is correct, Americans have overshot the mark in their pursuit of fierce individualism and now experience an aching need for communality and commitment (Bellah et al., 1985). Prevalent attitudes about the nature of work and workplace, which Fortune (1991) describes as including a new altruism and spirituality, thus must be added to the list of factors that are relevant to the selection (or evolution) of a type of agreement binding organizational participants.

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Commitment And The Covenantal Organization