Governance Form and Organizational Adaptation: Lessons from the Savings and Loan Industry in the 1980s

Abstract

This paper explores how governance form affects the organizational capacity for adaptation. We make a general case about the importance of governance in adaptation, and we identify three mechanisms through which governance form may affect organizations' ability to manage the competency and failure traps that often frustrate the process. We look for evidence of these mechanisms through a study of the U.S. Savings and Loan (S&L) industry in the 1980s. This is an apt context because S&Ls were confronted by severe environmental changes that suggested a need for change of a relatively radical sort during this decade and because the industry contains a mix of governance forms (stock form firms and mutual associations). We examine whether mutuals and stocks differed in their propensity to move away from their traditional business and mission of residential mortgage lending in response to the challenges of the 1980s. We also consider whether stocks and mutuals differed in their performance outcomes during this decade. Results indicate that mutuals were slightly less prone toward change but were in no sense inertial. They also show that mutuals performed better overall and appeared to change more successfully than did stock firms. The overall pattern of results suggests that mutual governance was a resource that allowed S&Ls to better balance exploration and exploitation in the face of a changing and ambiguous environment. We consider the broader implications of these findings for research on organizational adaptation, governance form, and governance more generally.

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