1. Public vs. Private Governance
-Julie Rada
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Analytical Study:
Public Governance vs. Private Governance
The Separation of Powers
Julie Rada
December 7, 2010
PUB503 PR

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-Julie Rada
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Public Administrative Theory and the Separation of Powers discusses the application of
public administration management theory looking at divergent methods involving the executive,
legislative, and judicial functions in governance (Rosenbloom, (1983) 2004). Addressing the
argument that there has been a collapse in the separation of powers, Rosenbloom notes that a
system of checks and balances has devolved to the practice of governance, incorporating each of
the three theoretical methods. Each approach may be more or less relevant to different agencies,
administrative functions, and policy areas. Administrative actions are circumscribed by internal
considerations of checks, balances, and administrative and political pressures. Public
administrators are often called upon to integrate these three approaches to public administration.
Management in the private sector is not subject to the constraints inherent with separation
of powers. Increased attention is being focused on private governance in the wake of the recent
financial collapse, government bailouts, and attendant scandals relating to fraudulent
bookkeeping and excessive manager compensation (Benz & Frey, 2007). Academic public
administration curriculum typically includes scholarly work focused on what the discipline can
learn from management practices in the private sector. Indeed, disciples of public management
transformation extol the virtues of entrepreneurial spirit. Benz and Frey make a case for the
adoption of certain public sector approaches as a means to improve governance in the private
sector. “The public governance perspective offers a distinct set of theoretical ideas on corporate
governance … (and includes) mechanisms that differ substantially from what is currently
practiced” in the corporate world (p. 92).
Benz and Frey acknowledge that democratic public administration is not ideal – it is, in
fact, known to be inefficient, and suffers from scandals, as well as distortions due to rent-seeking
activities. They believe that each can learn from the other. Approaching the topic from the

3. Public vs. Private Governance
-Julie Rada
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economic analysis of political institutions, they propose that four cornerstones of public
governance can inform corporate governance. First, realignment of managers‟ compensation
with the prevalent practice in the public sector, i.e. fixed compensation as opposed to
remuneration based on pay-for-performance. Second, consideration of the advantages separation
of powers may have in application to the private sector. Third, the potential advantage to the
corporate arena through application of rules of succession followed in the political sphere.
Fourth, by relying on “institutionalized competition in core areas of the firm” (p. 93).
Fixed compensation is the norm in public governance because it is intended to militate
against an environment conducive to self-interested manipulation of evaluation criteria by public
officials, politicians and judges. Defining performance in the public sector is not easy, and often
not measurable. During the 1990s, private sector managers were afforded pay-for-performance
opportunities, with corresponding incentives and opportunities for criteria manipulation in order
to enhance their pay packages. Managers were thus induced to focus on ways in which to
influence their variable income, finding it easier and less demanding than seeking higher income
through increased efforts. Evidence of distortion and falsification of figures is plentiful.
Accumulation of power and uncontrolled discretion by individuals in leading positions
has long been an issue in both public and private institutions. In the democratic political arena
the most effective means of restricting this power is through the separation of powers. It is
common practice in business and industry for the chief executive officer to be chairperson of the
board, and thus the chair of shareholders meetings, simultaneously. Recently enacted legislation,
e.g. the Sarbanes-Oxley Act, requires clear separation of executive and auditing functions of the
corporation. “This is an area where corporate governance has co-opted institutions applied in
public governance, but only after having incurred huge costs” (p.95). Benz and Frey suggest that

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-Julie Rada
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the shareholder voting process of corporations should be revamped to more closely reflect the
political process. Elections resulting in free choice among real options by those whose interests
are being represented would be an aspiration.
Next, Benz and Frey address the issue of rules of succession. The posit that restricted
terms of office, restrictions on reelection, and position rotation might have practical application
relative to top executives. While term limits can have dysfunctional effects, they believe that
there are advantages. First, is the renewal of incentive to develop a long-term business view.
Second, it leads to increased job security and permits more investment in firm-specific human
capital that, in turn, benefits shareholders. Third, is the incentive it provides to carefully select a
top manager.
Institutionalized competition translated to the corporate world includes voting rights, the
competitive election process, and voting rules. Unlike the democratic political process,
shareholder voting can be affected by privileged shares and/or nonvoting shares. These
mechanisms are implemented in attempts to forestall hostile takeover. The competitive election
process goes to the concept of providing real choice to the parties in interest. Voting rules
touches on consideration of new voting mechanisms such as voting by veto.
Benz and Frey wrap up their treatise by discussing differences from other corporate
governance theories. The dominant approach, agency theory, is control-based, which they state is
similar to public governance approach in that they both place emphasis on controlling
managerial self-interested behavior. Concrete mechanisms of the two views, however, differ
substantially. “The distinctive feature of the public governance perspective may be summarized
in one fundamental question: „Who has the actual rights to decide over what?‟” (p. 100).

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-Julie Rada
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Ownership and funding are often cited as key factors in differentiating between public
and private sectors (Solomon, 1986). User fees sometimes finance some organizations, however,
and there are private companies that rely primarily on government contracts. While management
functions in both sectors are conceptually similar, “effectiveness depends on matching the
internal organizational structure to the demands of the task environment” (p. 247). In addition to
funding sources and ownership, other differences between the two impacting structure and
practices include political and legal environments, and criteria for accountability and control.
Sources of funding and degree of market exposure are among the most frequently cited
environmental factors that differentially affect organizations in the two sectors.
With profitability as the ultimate criterion for success, private sector managers operate in
a competitive and dynamic marketplace. Responsiveness to market and customer demands is
expected, as is the implementation of organizational policies that foster rational economic action
and efficiency. The private sector is profit-driven. Public sector managers must maintain
constituencies, deal with multiple goals, and must navigate through an appropriation process
susceptible to political influences to obtain funding. The culture of the public environment is one
of conflicting values, with often competing objectives, and not conducive to productivity and
efficiency. There is a constant tension between accountability and efficiency and the
expectations on public managers to meet demands of public responsiveness.
“In the private sector, the extent to which certain actions will be encouraged and
rewarded is generally determined by the degree to which they help meet the goals of increased
efficiency. Conversely, the public sector, facing multiple and competing goals and additional
constraints, might assign a lower priority to policies that reward efficiency, yielding more to the
vagaries of the political climate” (p. 248). In evaluating job satisfaction among top managers in

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-Julie Rada
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both sectors, Solomon found that the largest differences between sectors occurred in the area of
reward systems. Satisfaction with performance contingent rewards was significantly higher in the
private sector. Public sector service organizations expressed greatest dissatisfaction with rewards
systems.
A recent study on perceptions of flexibility and red tape in personnel practices found that
the non-profit sector aligned more closely with the private sector than the public sector in their
responses (Feeney & Rainey, 2009). This study involved respondents in both Georgia and
Illinois. In their discussion and conclusion Feeney and Rainey reveal that there were differences
in perception between the two states as well, suggesting that union presence in Illinois and recent
personnel reforms in Georgia may have influenced perceptions. They suggest such factors should
be considered in future studies. These differences in administrative culture might provide further
evidence pointing to the impact of separation of powers in public governance.
Another feature of public administration borne out of the separation of powers involves
the use of private litigation to influence statutory policy (Farhang, 2007, Fahrang, 2008). As a
means of ensuring longevity of policies, congress has adopted a practice of inserting litigation
provisions into the legislation that it enacts. This is particularly the case when Congress desires
to ensure that what it intended at policy initiation is not subverted at the agency level, to forestall
adverse judicial interpretation, and to safeguard against future legislative action by a Congress
comprised of members with political views that compete with those in place at the time of
enactment. The purpose is to utilize the energies and resource of private actors to control agency
policy-making. “The oversight literature concerns the mobilization of private resources to
control, for example, the Environmental Projection (sic) Agency and the Department of Labor,
not to directly control Chevron‟s emissions or Wal-Mart‟s labor practices by suing them. The

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-Julie Rada
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oversight literature is about „how to regulate the regulators,‟ and „not how to regulate society‟”
(Farhang, 2007, p. 3). Through passage of the Civil Rights Amendment of 1991, Congress
utilized economic incentives as a policy tool with the express purpose of mobilizing private
enforcers. It sought to correct under-enforcement of civil rights laws. Civil rights interest groups
and their Congressional allies “were spurred to action by Supreme Court interpretations of Title
VII that did not comport with their preferences” (p. 36). The ensuing rise in litigation relating to
Title VII reflects the impact of how a Congressional majority dealt with an ideological conflict
with the Supreme Court.
“Ideological conflict between Congress and the president, most simply measured as
divided government, is a statistically significant, consistent, and substantively powerful predictor
of congressional enactment of incentives to mobilize private litigants. These findings link long-
run historical patterns of divided government and legislative-executive polarization, which
increased in frequency and intensity starting in the late 1960s, with the coincident growth of the
role of litigation and courts in the implementation and elaboration of federal statutory policy.
Higher levels of risk of electoral losses by the majority party, Democratic control of Congress,
and demand by issue-oriented interest groups are also significant predictors of congressional
enactment of such incentives” (Fahrang, 2008, p. 821).
Farhang‟s 2008 report covers the years 1887 to 2004. Suits initiated by interest groups
represented only two percent of total litigation, and litigation to enjoin or revise policy decisions
comprised five percent of cases filed from 1960 to 2004. Over ninety percent of private litigation
enforcing statutes involved a decentralized array of private plaintiffs and their private attorneys
in pursuit of private interests.

8. Public vs. Private Governance
-Julie Rada
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Bureaucratic implementation of agency policy typically empowers the administrator with
both articulation and enforcement of rules. Private enforcement as enabled through litigation
divides the two powers. Courts articulate the rules, and private plaintiffs and their attorneys
execute rule enforcement functions. Other potential causes for enactment of private legislative
enforcement include: the rent-seeking lawyer hypothesis, the issue group hypothesis, the budget
constraint hypothesis, and party alignment hypothesis.
Private enforcement as contemplated in this study results in even greater inefficiencies
and has significant impact on agency management. It “produce(s) inconsistency and uncertainty
…mobilize(s) less policy expertise … (is) needlessly adversarial, subverting cooperation and
voluntary compliance … (is) extremely costly; and … painfully slow and cumbersome”
(Fahrang, 2008). Federal regulation including fee shifts and damages enhancement span the
spectrum of policy domain. A breakdown of the distribution of enhancements is as follows:
Property – predominantly intellectual (12%), Civil Rights (9%), Consumer (9%), Labor (9%),
Public Health and Safety (8%), Banking (6%), Environmental (6%), Interstate Commerce (6%),
Security and Commodities Exchange (6%), Housing (5%), Antitrust (4%), Bankruptcy (2%),
Communications (2%), Elections (2%), Other (14%).
Subsequent to Congress‟ enactment of private enforcement legislation, the rate of federal
statutory litigation filed by private parties at the end of the 1960s rose sharply. “This growth in
private statutory enforcement litigation far outstripped the growth in other types of litigation in
the federal system, such as tort and contract claims brought under diversity jurisdiction” (p.
836). It has grown from a relatively minor share of the federal civil docket to the dominant one.
Compared with 18% in 1965, they averaged more than 163,000 per year during the five-year
period preceding this study, accounting for an average of 63% of the federal civil docket.

9. Public vs. Private Governance
-Julie Rada
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As a prelude to his discussion of the differences between public and private management,
Graham Allison constructed a table of the functions of general management (Allison, (1979)
2004). The table is divided into three parts: strategy, managing internal components, and
managing external constituencies. Strategy includes establishing objectives and priorities, and
devising operational plans to achieve those objectives. Internal components consist of organizing
and staffing, directing personnel and personnel management systems, and controlling
performance. External constituencies reflect dealings with: other units within the organization;
independent organizations, i.e. agencies from other branches, interest groups, and private
enterprises; and the press and public.
“While there is a level of generality at which management is management, whether
public or private, functions that bear identical labels take on rather different meaning in public
and private settings” (p. 399). In addressing the differences, Allison looks to individuals who
have been general managers in both sectors, and who are generally unanimous in their
conclusions. Included are the reflections of George Schultz, Donald Rumsfeld, Michael
Blumenthal, Roy Ash, Lyman Hamilton, and George Romney. All deem that management differs
between the two sectors, and that it is more difficult in the public sector.
Allison‟s summary of his literature review lists the main points of consensus regarding
the attributes of a public organization, relative to those of a private organization. Four topics are
addressed under the heading of environmental factors: degree of market exposure, legal, formal
constraints, and political influences. Less market exposure negatively impacts incentive cost
reduction, effective performance, and operating efficiency. It also results in lower allocational
efficiency, which can be affected by consumer preferences, and issues concerning proportioning
supply to demand, for example. Additionally, less market exposure reduces availability of

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-Julie Rada
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market indicators and information. Legal and formal constraints mean less autonomy of
managers in making decisions due to constraints on procedures and spheres of operation. The
tendency to promulgate formal specifications and controls is greater. There are more external
sources of formal influences, greater fragmentation of those sources. Political influences include
diverse and intense external informal influences such as bargaining, public opinion, and interest
group reaction. There is a greater need for constituency support.
The first topic listed under organization-environment transactions is coerciveness. As
previously discussed, government has unique sanctions and coercive power. Second is breadth of
impact. Government has broader impact and a wider scope of concern, i.e. public interest.
Actions of public administrators have greater symbolic significance. Third, there is greater public
scrutiny of public officials and their actions. Fourth, public expectations are greater that public
officials will act with more fairness, responsiveness, accountability and honesty.
With regard to internal structures and processes, public managers face greater multiplicity
and diversity of objectives and criteria. These are more likely to be vague and intangible than in
the private sector, and there is a greater tendency for conflicting goals in the public sector. Public
administrators have less decision-making autonomy and flexibility in personnel matters.
Authority over subordinates and lower levels is weaker and more fragmented. There is a higher
degree of reluctance to delegate, more levels of review, and greater use of formal regulations
than in private business and industry. Comparison of organizational performance indicates
greater cautiousness, rigidity, and less innovativeness on the part of the public administrator. Due
to elections and political appointments, there is more frequent turnover of top leaders, and
greater disruption of plan implementation. Public managers experience greater difficulty in
devising incentives for effective and efficient performance, and public employees place lower

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-Julie Rada
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value on pecuniary incentives. Finally, Allison cites results of individual empirical studies that
indicate public employees exhibit personal characteristics with a variety of traits and needs.
These include the need on the part of government managers for higher dominance and flexibility,
or a need for higher achievement. Work satisfaction and organization commitment are also lower
than in the public sector.
Allison offers, “public and private management are at least as different as they are
similar, and that the differences are more important than the similarities” (p. 410). In his
concluding remarks he offers six postulates. One, it is right to demand efficient performance in
government, and the perception that performance in the public lags private business is correct.
The notion that private management practices and skills can produce significant improvements if
directly transferred to the public sector is wrong. Two, substantial improvement to public
management will come through recognition of and consciousness about the public management
function. Three, private management rules of thumb, such as the 80/20 rule do not have wide
application in the public sector. Four, accounting functions are tied to operational tasks. Some
accounting rules may be transferrable directly to public sector problems, however, accounting
categories, rules, and measures yet to be imagined can be created by dedicated attention to
specific management functions. Five, it is possible to learn from experience. Six, development of
the field of public management should begin with problems faced by public managers.

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-Julie Rada
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Works Cited
Allison, G. T. ((1979) 2004). Public and private management: are they findamentally alike in all
unimportant respects? In J. M. Shafritz, A. C. Hyde, & S. J. Parkes, Classics of public
Administration (Fifth ed., pp. 396-413). Redmond, CA: Thomson Wadsworth.
Benz, M., & Frey, B. S. (2007). Corporate governance: whata can we learn from public
governance? Academy of management review , 32 (1), 92-104.
Fahrang, S. (2008). Public regulation and private lawsuits in the American separation of powers
system. American journal of political science , 52 (4), 821-839.
Farhang, S. (2007, Sep. 14). Congressional mobilization of private litigants: evidence from the
civil rights act of 1991. JSP/Center for the Study of Law and Society Faculty Working
Papers , 44.
Feeney, M. K., & Rainey, H. G. (2009). Personnel flexibility and red tape in public and nonprofit
organizations: distinctions due to institutional and political accountability. Journal of
pubic administration research , 20, 801-826.
Rosenbloom, D. H. ((1983) 2004). Public administrative theory and the separation of powers. In
J. M. Shafritz, A. C. Hyde, & S. J. Parkes, Classics of public administration (Fifth ed., pp.
446-457). Belmont, CA: Thomson Wadswoorth.
Solomon, E. E. (1986). Private and public sector managers: an empirical investigation of job
characteristics and organizational climate. Journal of applied psychology , 71 (2), 247-
259.