The Negative Effects of Social Capital in Organizations: A Review and Extension

• Author: Gurumurthy Kalyanaram,Kishore Gopalakrishna Pillai,Smitha R. Nair,Gerard P. Hodgkinson
• DOI: http://doi.org/10.1111/ijmr.12085
• Date: 01 January 2017
• Published date: 01 January 2017

International Journal of Management Reviews, Vol. 19, 97–124 (2017)

DOI: 10.1111/ijmr.12085

The Negative Effects of Social Capital in

Organizations: A Review and Extension

Kishore Gopalakrishna Pillai, Gerard P. Hodgkinson,1

Gurumurthy Kalyanaram2,3 and Smitha R. Nair4

Bradford University School of Management, Bradford, BD9 4JL, UK, 1WarwickBusiness School, University of

Warwick, Coventry, CV4 7AL, UK, 2City University of New York, USA, 3Tata Institute of Social Sciences, Mumbai,

India, and 4Sheffield University Management School, University of Sheffield,UK

Corresponding author email: Kgopala1@bradford.ac.uk

Numerous studies have examined the positive effects of social capital in organizations,

whereasthe possible negative effects haveattracted considerably less scholarly attention.

Torectify this imbalance, this paper first undertakes a rigorous review of the published

scholarly empirical evidence pertaining to the negative effects of social capital in or-

ganizations through a search of Web of Knowledge and Scopus, and then enumerates

six potentially negative effects arising from increased levels of social capital. The re-

view focuses on negative effects arising from bonding social capital and those arising

from dense networks and closure, advancing new theory to elucidate the generative

mechanisms that give rise to the proposed negativeeffects. Finally, the authors identify

potential moderators of the negativeeffects thus theorized. Using the lens of social iden-

tification theory, the authors argue that dysfunctional identification processes restrict

the processing of information and stimulate over-commitment to established relation-

ships, diluting in turn the dialectical process, and inhibiting individual learning within

organizations, culminating in groupthink, the postponement of structural adjustments,

the non-rational escalation of commitment, and the blurring of firms’ boundaries. This

review thus furthers the agenda of a more balanced inquiry into the effects of social

capital in organizations.

Introduction

The notion of social capital (SC), brought to promi-

nence through the work of sociologists such as

Bourdieu (1986) and Coleman (1988), has attracted

significant scholarly attention in recent years. The

core insight of this body of work is that net-

works of relationships and connections constitute

an important resource for the conduct of social af-

fairs (Burt 1997; Kostova and Roth 2003; Nahapiet

and Ghoshal 1998; Portes 1998; Uzzi 1996), af-

fording their members ‘collectivity-owned capital,

a “credential” which entitles them to credit, in the

The authors thank Akbar Zaheer for helpful comments and

suggestions on earlier versions of this paper.

[The article has been changed on 15 July 2016 since first

publication.]

various senses of the word’ (Bourdieu 1986, p.

249). An impressive volume of evidence supports

SC theory’scentral predictions (for recent overviews,

see Kwon and Adler 2014; Lee 2009; Portes and

Vickstrom 2011). Inter alia,higherlevelsofSC

have been associated with: (a) greater career success

and executive compensation (Belliveau et al. 1996),

(b) knowledge access, inter-unit resource exchange

and product innovation (Huggins 2010; Maurer

et al. 2011; Pittaway et al. 2004; Tsai and Ghoshal

1998; Zheng 2010) and intellectual capital creation

(Nahapiet and Ghoshal 1998), (c) the effectiveness of

workgroups (Oh et al. 2004), and (d) superior man-

agerial (Moran 2005) and organizational (Acquaah

2007; Batjargal 2003) performance.

These achievements notwithstanding, the central

message of the present paper is that the contribu-

tion of SC theory to the analysis of behavior in

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98 K.G. Pillai et al.

organizations needs rethinking; for, in parallel to the

above advances, scholars have also identified a num-

ber of potentially serious negative effects (see, e.g.,

Adler and Kwon 2002; Kwon and Adler 2014; Locke

1999). However, this antithetical work has lacked the-

oretical depth, relative to the substantial body of work

examining the positive effects of SC. Accordingly, in

this paper we set out to advance a more balanced ac-

count of SC, through a deeper consideration of its po-

tential negative effects within and between organiza-

tions. Our analysis identifies six such effects, namely:

(1) dilution of the dialectical process; (2) inhibition

of individual learning; (3) groupthink; (4) post-

ponement of structural adjustments; (5) non-rational

escalation of commitment; and (6) blurring of firms’

boundaries. We maintain that these negative effects

arise from fundamental (dysfunctional) processes of

social identification (Ashforth and Mael 1989), re-

stricting in turn the processing of new information by

directing attention inward to selected aspects of the

information environment. Our analysis thus deepens

understanding of the generative mechanisms under-

pinning the potentially deleterious consequences of

SC for organizations and, in so doing, responds to

recent calls to deepen understanding of the processes

underpinning its development (Jordan and Munasib

2006).

For the purposes of this review, we adopt Inkpen

and Tsang’s (2005, p. 151) definition of SC:

‘[the]aggregate of resources embedded within, avail-

able through, and derived from, the network of re-

lationships possessed by an individual or organiza-

tion.’ Within the confines of this definition, SC is

characterized by a number of attributes, which, fol-

lowing Nahapiet and Ghoshal (1998), can be analyzed

convenientlyalong three major dimensions, reflecting

its structural, relational and cognitive properties. The

structural dimension refers to the overall pattern of

connections between a given group of actors (Na-

hapiet and Ghoshal 1998). The relational dimension,

in contrast, distinguishes the varieties of personal re-

lationships identified by researchers and consists of

trust, reciprocity, expectations, and obligations (Lee

2009; Nahapiet and Ghoshal 1998; Tsai and Ghoshal

1998). The cognitive dimension differentiates the re-

sources that variously provide, ‘shared representa-

tions, interpretations, and systems of meaning among

parties’ (Nahapiet and Ghoshal 1998, p. 244). The

bulk of recent work on SC in organization studies

has been based on this three-dimensional conceptu-

alization (see, e.g., Inkpen and Tsang 2005; Tsai and

Ghoshal 1998).

Scholars addressing the structural dimension dis-

tinguish between the notions of closure (Coleman

1990) and structural holes (Burt 1992), highlighting,

respectively, the value of close ties and intercon-

nections among actors (often measured as network

density) and the brokerage benefits derived from the

bridging of gaps in the focal network. In a similar

vein, Putnam (2000) distinguishes between bonding

and bridging SC, the former referring to ties among

actors who are members of the focal network, the

latter to ties that interconnect actors from otherwise

separate networks.

Recent research has sought to reconcile these dif-

fering views by demonstrating that the closure and

structural holes perspectives are complementary, and

the benefits arising from the membership of dense

networks are enhanced in the context of seeking to

bridge structural holes (Rost 2011). The present re-

view, however, focuses on the negative effects aris-

ing from dense networks and closure. Hence, we do

not address the structural holes perspective. In terms

of Putnam’s (2000) distinction between bridging and

bonding SC, our focus is mainly on the latter. Higher

levels of SC, as used subsequentlyin this paper, imply

greater density and closure.

Prior research has documented evidence of a se-

ries of ‘dark side’ effects (e.g. Edelman et al.

2004; Locke 1999; Tura and Harmaakorpi 2005;

Westlund and Bolton 2003) and several alternative

perspectives, reviewed in the next section, have been

advanced to account for them. Like Jordan and

Munasib (2006), we maintain that the underlying pro-

cesses that manifest these effects need better explica-

tion, and wefur ther this agenda using the lens of social

identification theory (Ashforth and Mael 1989).

Social identification is said to occur whenever

actors internalize a particular social identity; it entails

the perception of being psychologically intertwined

with the fate of the pertinent social unit(s) (e.g. group,

organization, profession, industry and/or country)

with which the actor identifies (Ashforth and Mael

1989). Social identification promotes self-definition

in terms of the social unit of identification (cf.

Ashforth and Mael 1989). Identity researchers have

conjectured that social identification can be thought

of as a particularly potent form of SC (Haslam et al.

2003). Social capital theorists have observed that

social identification is an important facet of relational

SC (Nahapiet and Ghoshal 1998). Frequent interac-

tions and being embedded in a dense, high-closure

network can also facilitate identification processes

(Ibarra et al. 2005). Potentially, therefore, all three

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