Research Note 86-40

0D

r1% DOING BUSINESS WITH WORDS

to PERFORMATIVE ASPECTS OF DEONTIC SYSTEMS "- DTIC

Ronald K. Stamper ELECTE

London School of Economics MAY 19 05

aSdAY I 9

Ronald M. Lee :;..

University of Texas at Austin D .

for

ARI Scientific Coordination Office, London

Michael Kaplan, Chief

BASIC RESEARCH

Milton S. Katz, Director

U. S. Army t -

Research Institute for the Behavioral and Social Sciences

April 1986

Approved for public release; distribution unlimited.

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Research accomplished under contract for

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Technical review by

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Doing Business with Words Final Report

Performative Aspects of Deontic Systems G. PERFORMING ORG. REPORT NUMBER

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Ronald K Stamper DAJA45-84-M-0277

Ronald M Lee (University of Texas)

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(A modified version of this paper will appear in Knowledge Representation and

Organisational Theory, edited by Ronald Lee and Patrick Humphreys)

19. KEY WORDS (Continue on reveree aide It neceseary nd identify by block nurnber) -speech act, communication-'decision support, norm, computer,

rule, business,'deontic system, performatives, contract,

authorisation documents, economic governance, markets,

bureaucracy, markets,' organisational knowledge. -

20. ABSTRACT (Continue on reverie side It necesery and identity by block number)

The data-processing approach to business applications of computers is

being displaced by an IKBS paradigm. It is argued that an even better approach

will account for the ways in which the reality of business is actually created

by the information system. This new view arises from the study of decision

support systems and among its key concepts are performatives and deontic

structures.

Deontic systems are systems of obligations such as one finds in social

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' ARI Research Note 86-40 (20. Continued)

-systems in general and business systems in particular. Perforratives are ways

of signifying changes that people want to make in the deontic structure. In

business, very often there are special documents to function as performatives. The mechanical transmission of signals from one machine to another is -

quite different from the communication of intentions that takes place between

persons. A communication act consists of a meaningful utterance (an

illocution) and an intention to change the obligations or expectations of

others (a performative). These concepts are introduced in the context of an

examination of the governance of economic transactions among organizations.

Of special practical use is the possibility of using rules to represent

organizational knowledge quite independently of the application programs that

normally, today, contain a confusing mixture of computational and business

factors. 1 ,6

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DOING BUSINESS WITH WORDS:

PEFORMATIVE ASPECTS OF DEON'TIC SYSM£MSI'E

Ronald Stamper

tondon School of Economics

Ronald M. Lee

University of Texas in Austin .'

The thesis of this paper is that business is essentially done

through the use of words. The words we use in our business

camr-nications have a simple standard structure of which the

performative part is the signal for same specific business

action. The action performed in nearly all cases makes no

physical difference to the world but it does change the social

world, a world of interlocking obligations. That is where the

term deontic- comes in; a deontic system is a system of

obligations. We shall make a preliminary study of how.-

performatives alter decritic structures.

Three Paradigm

Three radically different paradigms can inform the thinking of \

the analyst-designer working on the application of computers to

organisational tasks. one is long established among the r

traditional data-processing ccxmnnity. The second is the height

of fashion among the new IKBS fraternity. The third, about 0

which we shall write, is emerging from the thinking among the

scientists working on decision support systems.

,tity Codes

I "'.i i, and/or

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V

A paradigm is broader than a theory; it is a way of thinking. A

paradigm may not have evolved one unifying scientific theory but

it way incorporate several conflicting theories, as economiucs k

does today. Sometimes all the workers in a field subscribe to a

single unifying theory and their energies are devoted to applying

the threory and resolving sane well defined residual problems. A

paradigm also incorporates a host of assumptions that are seldom

articulated and discussed explicitly (as theories are), but

without these assumptions the theories would not stand up.

Generally a paradigm has a long tradition which transmits, from

one generation of thinkers to the next, sets of values about what

is relevant to the field of enquiry, what constitutes a

satisfactory resolution of a problem, what methods of enquiry are

acceptable, and so forth. (See Kuhn 1962.) A paradigm helps

one to think within the field but it tends also to confine its

adherents in mental straitjackets.

To shift from one paradigm to another cannot be done rationally;

emtions are involved. Deductive reasoning about a class of

problems works when the participants in the discussion share the

same world-view. However, when someone raises the unspoken

assumptions behind the theory (the irrational part of the

paradigm), a very different kind of discussion ensues. This

chapter introduces a new paradigm which has been emerging f ran

the work being done on decision support systems.

2
The DP Paradigmn

%ben carputers were first put to use in business and

administration, they were seen as devices to autanate the work

that we were accustomed to do with pen and paper. By encoding

words and numbers mechanically as holes in cards or rragnetic

signals, we could campare, sort, and do arithmetic very

efficiently. This helped us to reduce the costs of our

bureaucratic activities.

7b analyse and design systemrs for this purpose, we had only to

observe what documents or other forms of messages had to be

transmitted or held in files, what numbers or words within them

had to be transcribed onto other documents with or without

rearrangement or arithmretical operations being carried out.

Fran a strict theoretical point of view, it was not necessary to

know the meanings of the records, messages, data items or the

operations upon them. of course, it helped one to understand a

system described in this way to talk of "stock requisition"

instead of "message type 123" and to refer to the "quantity

required" rather than to "field no.4". An adequate theory of

data-processing need only account for a world comprising

locations between which messages would be transmitted, the

messages themselves and their constituent parts, and a repertoire

of operations on numbers and character strings. Notice what a

simple world this is, how limited is its ontology, its inherent

assumptions about what exists in the world of data-processing.

To understand a paradigm, it is usually helpful to check whether

3
W. Wu ,:.... '

it imposes sane ontological assumptions that force one to think

of the world in a limited way. The traditional world of DP is

limited indeed.

The standard systems analysis methododologies embody the DP

paradigm. (See the works of De Marco and of Lundeberg, for

example.)

The IKBS Paradigm

Several ideas led to a shift in favour of another paradigm. One

idea is that much of the data in an organisation could be shared

by all users. This led to the separation of file-handling frcm

the processing of the data; by itself this does not take our

thinking outside the DP paradigm - it is just like adopting the

ancient concept of a central registry for files that have to be

booked out to each user in turn. The next step was the search

for a way of organising the data to suit all the different users;

the database management system was the result. The natural way

to organise the data was to regard the database as a model of the

real world and to structure its contents in line with our

intuitions about the structure of the world. At the same time

our ideas about programming had changed: functional or

declarative programs could be written to state what the processes

should accanplish without specifying the sequence of operations ,Cto be employed. Cnce again, it was helpful in programming this

way to think in terms of the real world and constraints that

4
- --- ~ . -- . - aw - - - -- -7-

would have to be obeyed by our representations of it. The new

paradigm of intelligent knwledge bases had evolved.

The IKBS paradigm goes far beyond the DP paradigm in

acknowledging explicitly same of the assumptions that we have

tended to make without really admitting it. Wbereas the DP

practitioner is concerned explicitly with manipulating records

containing strings of sybols, but implicitly with modelling an

objective reality, we find that the IKBS practitioner makes

explicit ontological assumptions about a world beyond the

messages. There has to be a semantic theory to account for the

relationships between the messages and what they stand for.

Logic programming typifies this advance. (See Lee and Stamper

1985.) It deals with a universe of discourse, that is, a

collection of discrete and identifiable individuals about which

propositions can be asserted. Properties and relationships are

represented using one-place and many-place predicates. These

can represent the real world with which the people in the

organisation deal in their messages and records. In this new

IKBS paradigm we have employed the concept of an objective world,

independe.t of the many people in the organisation, represented

as a consistent body of knowledge which everyone can share.

The Need for a New Paradigm

The IKBS paradigm has been adopted as the basis of huge

programmes of investnent in Japan, Europe, the USA and the UK.

It has hardly begun to displace the traditional DP paradigm in

5

-- _-..-. . -- ..
everyday camputer applications. There are good reasons to

suggest that it should not be allowed to do so, because its own

unstated assumptions about the world beg too many questions about .4

the nature of organisational behaviour. Work in the realm of

decision support systems suggests that a further paradigm shift

is required. (See Methlie and Sprague 1985.)

Actual business decisions are not made by manipulating the

contents of sane agreed body of knowledge according to

established objective functions. That only happens in the realm

of applied mathematics. The techniques of formal, logical and

mathematical models do became useful once agreement has been

reached about the nature of the problem and the priorities to be

adopted. The difficulty of making a decision is to arrive at

that consensus. Formal methods applied to an apparent consensus --

may be of more use in exposing hidden disagreements than in .-.

camputing optimal decision variables. Workers in the DSS field %

have increasingly been trying to help decision-makers to form the

kind of consensus that the IKBS paradigm takes for granted; they

can sense the need for a new theory.

The World of Business Reality is Socially Constructed

The IKBS paradigm will serve us well in those spheres where we

already have a well-formed view of the world, for example in same ..

carefully circumscribed domains of maintenance engineering or *

medical diagnosis. In such areas there is no need to introduce

6

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*- - '-%.'t ,L Lr .

extra problems. However, in business, where the central task is

to forr. an agreed view of the world, the IKBS paradigm should be

treated with scepticism.

Reasoning from an agreed knowledge base full of logically

consistent premises cannot begin until those concerned accept its

contents. People will state their personal views of the

situation probably objecting to soe of the views of other

people. They will concede sane points but insist upon their

opinions being approved elsewhere. Often they will hypothesise

an intermediate view of the facts on which the protagonists can

campromise. Facts ray be limited and they will say what they

believe and offer their judgements. After much discussion they

will declare what they intend to do promising each other to

perform different parts of the task. They will order their

staff to do parts of the work and support their car ands with

threats and persuasion. Vhen things go well they will

congratulate one another: when things go badly, one party may

blame the other who may feel he has to excuse himself and explain

what has happened. Eventually, the custamer will declare

hirself satisfied with the work and payment will be requested.

The knowledge base in a business system cannot be an objective

picture of the world because it is riddled with uncertainties and

reservations that are hinted at by the words emphasised in this

paragraph.

Those words are indicative of "performatives", cmiu=nications

that enable language to change to social world, the world of

7 I. .
i W. P. . i o~-

interrelated obligations. These cblications can often be

structured in such a way as to give rise to abstract objects that

have no place in the physical world, for example, copyrights,

bonds, debts, and contracts, that may even change ownership as

though they were household chattels. Evidently much of the

world that a businessman deals with is socially constructed. It

cannot, therefore, be treated as objective, a reality standing

alone upon which a database can pronounce the truth; it can only

be regarded as an out-growth frar, the business use of

inforrration. our purpose is now to explain how performatives

are used to do business with words, by forming and reforming the

social world.

Doing business

Buying or selling a house is a familiar enough business activity

to most of us to serve as a useful illustration of how we use

words to get things done. It introduces all the concepts we

shall discuss.

Big changes occur when you buy a house, yet the house stays put

and you an3 the vendor do not alter. The whole business is

accomplished through the exchange of messages which have social

consequences affecting the behaviour of people towards you and

the vendor in relation to the house. The focus of our attention

will be upon the rressages that are exchanged. We shall ask how

to classify them according to the functions they perform; we

8

.; . a . . . . . .
shall want to know how exactly they have be to constructed and

employed in order to effect the kind of change involved in

transactions such as buying a house.

After a business transaction has been performed, people behave

differently towards one another, often in relation to sane object

or other. The pattern of mutual obligaticns changes. Informa- .. .

tion systems that acccaplish this are called (after Bing 1980)

'deontic" systems, fran the Greek 'deon'='duty'. The concept

includes the patterns of rights, privileges, powers, immunities,

and so on, as well as duties. These systems seem to contrast

strongly with those that merely 'inform', such as a viewdata

system of travel information or advice fram a consumer testing

body. Systems that convey knowledge without affecting mutual

obligations do not exist, except as an approximation, just the

approximation made by the IKBS paradigm. Frcn a design or

analysis point of view, these 'information' systems are simpler

than deontic systems and there is a tendency in the cnputer

world to think of all systems in that way. However, business

systems are always deontic because they are concerned with the

making, changing and managing of patterns of social behaviour.

Wnen conveying the ownership of a house, the vendor and purchaser

enploy carefully drawn-up documents. But, no matter how well

prepared they are, these documents do not take effect of

themselves, they have to be used in a manner that unequivocally

marks the termination of old and the initiation of new patterns

of obligations. In feudal times this act involved far more

9
cermoy tanit does today; from a ritual performed on the land

and property themselves, we moved to one involving a representative object, part of the physical estate, which could be brought

to the office of the the vendor's agent, to be handed to the

purchaser as a token of his new tenure; finally, the verbal

description of the property in the deeds came to suffice, especially now that it is backed by carefully authenticated records in

the Land Registry. The careful construction of the contract

docmrents, their signing and witnessing and sealing are part of a

ritual (like a wedding) which enables the document to do the job

of changing relationships. We must note that two very

different kinds of information are being produced.

The Structure of Human Corrunications

At one level, information is being signalled in a way that might

readily be automnated: this is the level of:

(1) the 'utterance'- that is carried on the documents drawn

up by the lawyers acting for the parties. It has two imp~ortant

features. In the first place, it can be reproduced as many 7

tines as may be necessary without limit, ten copies will not lead

to the making of ten transactions. Secondly, the words on the

document signify a possibility, a proposed course of action, and

whilst making reference to actual land and buildings, actual

people and local governments, in its constituent expressions, the

draft contract, as a whole, is a kind of plan which the vendor

and purchaser can put into effect if they wish.

10
i - - -: - . . -. '%A ; '. ,, ; - ,_ .. . __ __ . __, _ _ ___. __ __________________. . _

Then, at a second level, information is being ccruanicated

between people. The social consequences depend upon acts

carried out at the level of:

(2) the 'performative', the ritual which involves specific

copies of the document in a manner that leads to the planned

exchange of ownership being performed. The key feature of the

ritual is that is is a sign of the intentions of the parties to

perform the transaction. Notice also that the specific tokens,

the actual documents employed, are crucial to resolving any

dispute about the transaction having taken place. The docuients -

will be placed in secure 'deed' boxes held in safe places, perhaps the fire- and burglar-proof vaults of a bank. Today, in

the UK, transactions will also be recorded by the Land Registry.

The legal field is a wonderful source of examples, like the

above, of business procedures taking place in slow motion.

Here we may find exhibited all the important steps typical of

those which mark an adjustment in the pattern of obligations

relating people doing business together. Information

(documents, signatures, seals, and so on ) is used not to convey

knowledge but actually to change the social world. (See

Kimbrough, lee and Ness 1984.)

Notice how important a performative ritual is. The whole legal

rigmarole is pretty canplex and unlikely to take place by

accident and without due consideration. Just imagine the parties

involved getting drunk in a bar and one saying to the other, "I

V.

-. ii "7
:-- -. V 777 7 1-7 7.

shay, Bill, I'll buy your house for £100,000". "OK, Frank," says

Bill. "Done!" The change of ownership would not have taken

place in this case, although for a more trivial transaction this

protection may not be there. The most important changes of

social status call for even more elaborate rituals. Giving

people their names, making and unmaking marriages, are good

examples of mediui-scale performative rituals, but for the

grandest you can turn to the crowning of a monarch or the opening

of a Parliame-nt which in Britain involve the kind of ritual that

cannot be missed, and that tends to draw huge crowds of

spectators for whom the change is significant. This point is

important: one of the functions of the ritual is to be noticed,

so that the deontic transaction is announced to all those with an

interest in it.

Camunication Acts

The early work on performatives dwelt mainly on 'speech acts ',

but in business the need to establish unequivocal responsibilty

leads to written performatives being favoured. Concrete

evidence used to supply this accountability has normally depended

upon written documents. We shall need a general theory of

ccrmmnication acts' for all modes of expression.

obviously sane of the features of an act performed with spoken or

written words, gestures, and even public pageant, may be changed

in the light of new methods of expressing them, recording them

m . 12 ,---. 
and broadcasting them. Information technology invites us to

think of new ways of comunicating in business, but the special

requirements of performatives introduce difficulties that do not

affect the simple 'information' systems. We shall examine later

these problems raised by deontic systems.

The Oxford philosopher, Austin, in his William James Lectures at

Harvard in 1955, "How to do things with words", first gave an

analltical treatment of communication acts (or 'speech acts', to

use the rather narrower expression favoured by Searle 1969. See

also Andersson 1975 and Sesonske 1965.) Austin was

particularly concerned with those sentences that effect changes,

such as "I do" pronounced in the course of a wedding ceremony.

He cal led these Iperformatives' and treated those sentences

which convey a truth, such as "the lady is 21 years old," as

essentially different in character, calling them 'constatives'.

Later, he treated them as a subcategory of performatives. He

distingushed five canponents of the whole comrnication act:

(1) the phonetic act - producing the utterance, the sound

(or, extending this to the conveyancing example, the written

document which functions as a sign);

(2) the phatic act - shaping the sign to conform with the

rules of grammar, so that it is capable of definite meaning;

(3) the locutionary act - using the well-formed utterance

with more or less definite sense or reference;

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*'*-S"-""i".:-".?..-- -"-"...-.. .- ' .. .-..-.- ..- -- "---.. -. . . . .......... .. . . .'.-. ... 
(4) the illocutionary act - adding to the propositional 0

utterance a performative (signalled by a special verb such as

"promise" or by devices ranging from a tone of voice to a

conventional ritual) with the intention of causing a social

change;

(5) the perlocutionary act - of effecting a social change

among the recipients of the message comprising utterance and

performative.

Performatives and their Illocutionary Force

Austin discussed the verbs that we custamarily use in ordinary

speech to announce the 'illocutionary force' with which we wish

to endow the words we are uttering. These he called

'performative verbs' and they include words such as 'ask',

'assert', suppose', 'order', 'claim', 'premise' 'appoint',and so

on. These verbs are not the only means we have to signal the

illocutionary force of our utterances, indeed asking, asserting,

supposing and ordering are all signalled by the mood of the

propositional verb in the sentence: interrogative, indicative,

subjunctive and imperative. This embedding of the performative

in the syntactic structure of a sentence represents another but

extremely econcical way we have of marking the social intention

of our camunication acts. Besides syntax and performative

verbs, the other devices we use are tone of voice (very

econorical), and ritual, often of a public kind (often

expensive).

r 14

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Now let us begin to apply these ideas to the analysis of deontic

systems in business. A computer can be a help in constructing,

reproducing and storing utterances, in the sense given to that

term above. The computer can decide whether the utterance is

syntactically properly constructed, but it cannot ensure that it

is a meaningful proposition, that step requires human judgement.

(This distinction of Austin s second act into two components.

helps us to disentangle the tasks involved in using the computer

in business. See Stamper 1985a.) Moreover, the computer cannot

communicate, in the sense introduced above, which necessarily

involves changing the social world, without involving people in

adding the performative signal. We must always be clear who is

responsible for the illocutionary act. It must be intentional

and the act of a person or group with the right authority. A

computer may be enployed to utter messages of a performative kind

but not without many safeguards. Generally a computer would

only be used in this way in routine situations, such as the

issuing of invoices or pay checks. Such systems would have to

be subject to careful managerial control to ensure that their

routine derands for money or payments do represent managerial

intentions. Consider how strange it would be to have a

computer declare "You are hereby appointed Vice-Chancellor of

London University." %buld there be any point in designing

procedures to ensure that such a message from the computer

genuinely expressed the intention of the people with the power to

perform such acts? When messages purporting to be performatives

come from a computer, they will not be treated as such unless the

15

. . . . . . . . . . . . . .-..-..
N V.. L

circamstances make it reasonable to do so. One of the problems

of extending the use of computers in business is that of being

able to assure people that the messages should be taken

seriously. It is a problem of finding technically based but 'j

socially acceptable replacements for the rituals and ceremony

surrounding our early forms of public carmunication act, or

replacements for direct, face-to-face assurance in our personal

carn .nication acts.

We must not assume that the simpler systems used to inform the

business man set the pattern for all kinds of camputer usage.

Deontic systems need different treatment. Within them,

information does more than convey propositions; each

camrtinication provokes a social change. The econcmry of the

ccnputer is lost if it cannot be used to effect the desired

social changes.

%at is it that Performatives Perform?

Consider a typical servo-mechanism. It receives signals from an

engine (say); these signals tell it what is happening in the

part of the world it is interested in - the sensing device is the

"eye" of the regulator. It then calculates what should be done

to keep the engine running at the desired speed and it sends a

signal to perhaps a snall motor which does what the regulator

wants; the smal motor is its 'hand'. (Notice how

anthropomorphic this explanation is. The machines merely

16

-" - . .- - -- " " - • - * . . .- . . - ..- -- b o -. -. .- - ---- . -- . -.-. , -. -,
* exchange signals in a cause-and-effect chain.) When we use

information what happens is rather similar: either the sender

describes some thing that he can observe although the recipient

cannot, or, the sender prescribes some course of action which he

intends the recipient to perform in his stead. (Notice the role

of human intentions in this situation. While the machines are

wired up to produce their cause-and-effect sequence, people can

only intend to have the effect of their illocutionary acts, their

success depends upon the dispostion of the receiver to perform

the appropriate perlocutionary act. We have to explain these

dispositions as a part of our account of what performatives

perform.)

Of course, people act as they do on account of their likes and

dislikes. They canmicate their value judgements to one

another and use that knowledge to make it worth while to act on

behalf of one another.

W of Signifying

The kinds of information that get things done in business may be

classified using a double dichotomy based upon these two

distictions (Stamper 1973). The first is the descriptiveprescriptive distinction between verbal eyes and verbal hands.

The second is the denotative-affective distinction between the

information relating to the external world of inter-subjective

reality and that relating to the internal world of personal

feelings. The resulting four-fold classification may be

17

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-~~~~~~7 -.- - - --

depicted as in Figure 1.

A single utterance may be, and most often is, used with all these

four significations simultaneously to different degrees. Thus

an angry school master might say to a pupil, "Jones, I should

stop talking some time before this lesson is over," thereby

describing what is happening, recording his low evaluation of it,

directing what Jones should do, and implying a measure of threat

to induce conformity. You might like to try the same kind of

analysis on a typical business carmmunication such as, "Mr. Jones,

you should take out some travel insurance with this flight

ticket," spoken by the travel agent.

DESCRIPTIVE PRESCRIPTIVE

DENOTATIVE Designations Directives

AFFECTIVE Evaluations Inducements

Figure 1: Four categories of signification

Part of the camplexity of natural camiunications lies in the

subtle way we manage to combine many different significations in

one sign. Wen we design computer systems for business use we

should be careful not to lose any of these necessary significations. We can help ourselves to recognise the various conbinations by using Austin's classification of performatives. Each

performative verb signals a particular blend of the four significatiors. His major categories are: 2.-

18

";'- -
() exc~osit-ives "0

e.g. affirming, denying, stating, describing, reporting,

agreeing, testifying;

(2) caTTnissives

e.g. pramising, betting, vowing, adopting, consenting;

(3) verdicatives

e.g. acquitting, assessing, judging, diagnosing;

(4) exercitives

e.g. appointing, demoting, sentencing, dismissing, vetoing;

(5) behabitives

e.g. apologising, thanking, congratulating.

Apparently (1) has most to do with descriptive signs, (2),(3) and

(4) with prescriptive signs whilst (5) relates most to the

affective use of signs. Although this is not the place to .*-,

attempt it, we could probably characterise each performative in

terms of the more rudimentary four-fold classification of significations introduced above.

Information Performs a Social Function

Before moving on to look at the eccnamical design of performative

transactions in business, let us put to rest one particular

misunderstanding. Austin, in his original account of the

subject, differentiated what he cal led "constatives' from

performtives", the former being meaningful utterances that have

truth values, unlike the performatives, such as, "I promise you

£4," which is neither true nor false. Austin found this

distinction unsatisfactory, as may be seen from the first of his

19

. . - 7..... .. " '.". -
classes listed above; the expositives are used to give an

utterance a constative role as a proposition that is asserted.

"To assert" is a performative verb, one of the expositives, and

we should note its social effect. We need to trust other

people's assertions otherwise we shall lose one of the major

advantanges of society: the ability to perceive accurately a

world far larger than any that we individually can observe

unaided. The law recognises this clearly enough when goods are

sold on the basis of description; in these circumstances, a

misleading description generates a liability to damages resulting

from a false description. Informally, we should all regard as

potentially culpable anyone who makes assertions that lead others

into danger, with some allowance for the responsibility anyone

has to check his information. When the informant is a

professional person or a business engaged in selling services or

goods, we expect the assertions they make to be trustworthy. In

our example of house purchase, the assertions made by the vendor

about his property will make him liable to damages if they are

false. In the terminology we have chosen, this requires us to

subsume systems that simply inform as a su bcategor of deontic

systems.

Our interest is now directed more specifically at the camunications that affect business relationships ( see Sesonske 1965 and

Anderson 1975). The broader discussion encompasses oral car un---

ications but in the business ontext we usually require concrete

evidence for purposes of accountability and cases of litigation,

20
hence the emphasis on acts of conmunication employing writing.

The notion of a performative is just the same whether speech or

writing is used to encode the utterance involved. When we use

documents or other concrete representations, we have the opportunity to account more certainly for the transactions performed.

The Acts Accomplished Socially

The illocutionary force which a performative sign gives to an

utterance is used to make a social change. It changes the

deontic structure, the systen of interlocking obligations,

rights, privileges, powers, and so on.

To simplify the discussion, we limit our attention to the kinds

of directives that are exchanged between one person to another in

an organisation, or those exchanged between the parties to a

contract.

A fundamental concept here is that of an obligation which imposes

restrictions on one's conduct. Cbligations, presumably, are at

odds with the self interest of the individual; e.g. there is no

need to oblige pleasurable behaviour. obligation is used as the

basis for so-called "deontic' logic to model ethical and legal

systems (see von Wright 1968, Hilpinen 1981a & b). It is

interesting to note the logical interrelationship of such concepts as obligation, prohibition, permission and waiver. TO

account for the effects of perforrratives, we are looking for a

21

-7-
-~~17 - ,W--.- . u

method of describing the deontic structures which they change. -

One possible solution uould be to erploy deontic logic. These

are its special, basic constructs:

o p = action D is obligatory

0 -p =not doing action p is obligatory

i.e. doing p is forbidden

-0 -p = it is not obligatory not to do p

i.e. p is permitted

-0 p = it is not obligatory to do p

i.e. p is waived (there is immunity from doing p)

A deontic system employs these concepts: typically they are

included in sets of laws, rules or regulations. The rules and

procedures of a business firm thus constitute a deontic system in

this sense. Many of the norms involved in business are inforral but still involve a notion of obligation to support them.

Many other norms are made explicit and are what we call 'rules -.

The degree of rationalisation of the system depends upon the

extent to which the norms are made explicit in this way.

Bureaucracies are characterised by a high level of rationality in

this sense.

The degree of rationalization is an iportant dimension in

current organizational theory (e.g. Galbraith 1973 & 1977). In

a business firm the maLn function of its deontic system is to

facilitate coordination. Increased rationalization is therefore a ,'

device for coordinating highly corplex tasks, e.g. operating an

automobile plant. However, the degree of rationalisation

depends upon stz iiity of the situation in which people work

together.

22

" II

° .. ,
Orthogonal to the dimension of task ccnplexity, the environment

of the organization may vary along a dimension of uncertainty,

i.e. the incidence of surprising or unpredictable events that

require adaptation. As uncertainty increases, the usefulness of

rationalization declines, since the procedures must be continually revised during the task execution.

We shall return, later in this chapter, to the study of how to

fit the deontic structure to the levels of complexity and uncertainty. For the moment, vie shall look at two basic performatives

- the promise and the contract.

Promises and Contracts

Let us first look at promising'. This is not a business transaction because it is quite one-sided. We may analyse it in the

four-fold frarework introduced above:

PRCMISE description prescription

of circumstances of the promised

leading to the behaviour

prescribed behaviour

evaluation inducerrent

is positive for the to keep the promise

receiver of the can be little more than

prcmise and negative a general sense of

for the giver social obligation

(Notice that a promise may be transposed into a threat if the

evaluation conditions are reversed.) With this basic device

23

I "-~ H i . n i , . [ " _ , . .
available we can now evolve a more powerful kind of transaction

that is basic to business - the contract.

The ccrmon form of contract involves two mutually interlocking

promises. On the one side, party A provides some good or a

service fcr a 'consideration' due frcm B, in exchange. Thus:

CON TAC.

PRU1SE BY A TO B PRCMISE BY B TO A

description: prescription: description: prescription:

of consideration of supply of supply of consideration

evaluation: inducement: evaluation: inducement:

consideration own evaluation supply worth own evaluation

worth more than plus legal more than plus legal

supply and market consideration and market

sanctions sanctions

This simple deontic structure will help us to understand the 16'

process of evolution in business transactions. With its aid we

can see how a variety of performatives is used to construct the

desired systen of mutual obligations and how, gradually, we have

evolved a repertoire of performative tokens to make it more

efficient to alter the deontic structures relating people.

The simplest business transaction is probably barter. Face-toface, with the goods to hand, this entails little ccmrunication.

The goods do not need to be described, although they may need to

be demonstrated or have their virtues displayed so that the

parties to the transaction can make evaluations of them that

ensure the negotiations will proceed. If and when they have

24
- ..--... ~ .. -J-'J1' -- J.U7Y..

formed the pattern of evaluations and inducerents shown in the

above table for a contract, the goods will change hands. 16

(In a more sophisticated kind of barter transaction, the parties

have to describe the goods or services to one another well enough

for the potential recipient to judge the value of what he might

receive. In the present state of our abililty to make accurate

and trustworthy descriptions this is difficalt, so transactions

of this kind are rare, confined to parts of the alternative

society or the hidden economy, and to same East-West barter

deals. The difficulty of barter is that of matching requirements.)

Obliaations and Rights Abstracted from Peole to Things

Gradually certain commodities became recognised as in sufficient

demand on a regular basis that it would generally be safe to make

them one side of any transaction. There existed, as it were, a

guarantee that somewhere in the society one could trade in this

proto-money for bundles of goods and services that one might

actually consume. There existed, in such ccmodities, a de

facto right to have its value restored in concrete terms. We

see here the growth of a right in rm which inheres in an object,

unlike the more elementary right that inheres in a relationship

with another person (in personam). The evolution of other

means of abstracting rights from personal relationships so that

they are carried by objects (the ownership of which confers

rights upon the owner in relation to any other person), has been

25
%. .~

vital to the efficiency of business transactions and the growth

of personal freedom (or licence, depending upon your point of

view).

Note carefully what is happening at this stage of evolution in

information terms. Certain ccrmndities become recognised as

widely valued in a society. If one of these is employed in a

barter transaction the information needed to arrive 'at the

--.

necessary evaluation/inducement structure will be reduced to I--

almost half because one party will know exactly what he is being

offered and he can translate it into a second transaction for a

specific good that he wants. In this manner, quite informally,

the norms of the society confer upon these readily exchangeable

carodities the power to encode value signals more economically

than before. We are begining to see the early shape of objects

that appear to carry a bundle of privileges along with them.

The State is in a position to generate objects of this kind by

providing explicitly the guarantee of value (which arises informally for substances such as gold) by pranising to make a suitable exchange whenever the owner desires; we see this, as discussed later, in the creation of paper and other symbolic forms

of money.

This story could be continued to show how we have evolved many

and varied legal, social, and organisational abstractions that

function as though they were objects carrying rights, privileges

and duties. We have just looked at money but we should not

26

.4 . . 4 . 4 4 . .. .4 .. .4 .4 . .4 . . .. . ." - .°. .- 

.4 .. . . . . . . . .. . . . . o.. 
forget copyrights and patents, nor the roles in state and

organisation (president, chairman, ccmnander-in-chief, etc.) to

which people are appointed (performative verb). All these

abstractions have the value of simplifying changes in the deontic

structure. Wien they change hands we alter at a single stroke a

mutiplicity of direct interpersonal relationships of obligation. ..J

P.

Money: An Instrument for Conveying Rights

As a prime example of a token with a clear performative role, we Uk

can usefully trace very briefly the history of money. On being

transmitted to another person, money confers on him certain

rights. Informal culture associates these rights with natural

objects, or at least ones in camTin denand in a society. On the

other hand, an institution with sufficient power can endow any

suitable kind of sign with the property of money.

one of the signs required to construct a well-f ormed caunication act is a particularly important one: it is a token with

guaranteed individuality and identity, which signals the unequivocal intention of the commrunicator. Cbjects that function as

money can act as such tokens. Others are often called 'nearmoney' and include cheques and negotiable securities, which

amount to highly reliable pramises for money. So-called 'funny

money', the money of account used within organizations, also has

this character in that it is a derivative of budgeting schemes

which impose restrictions on the transaction activities of

departments. Accounting procedures which employ books of

27

" _ .... . ,- .
account in lieu of monetary objects have the job of ensuring that -% .%"

the performative signs maintain their identity and integrity, so V..

that they can take the place of clumsier physical tokens.

Money evolved naturally in barter econonies as goods that had

widely recognized ,alues that served as a useful intermediate

storage of value in crcss-tenporal transactions. In Homeric

times, cattle were cften used. Salt was employed in Abyssinia,

while cO'rie shells were used in India, the Middle East and

China; dried cod in Newfoundland; tobacco in Virginia; and

sugar in the West Indies. It would be interesting to investigate the extent to which present day crodity exchanges appear

to play a role analogous to that of the money market.

"Coinage evolved as a certification of a unit of weight and

purity. Mwile coins were convenient for small transactions, they

were too cumbersome for more substantial trading. Banks evolved

to facilitate these transactins by storing the coins and maintaining accounts. Larger transactiors could be accomplished by

directing the bank to transfer money from one account to another." (Ada.. Smith 1776, p23)

"This gradual realisation, that anything can be money as long as

people have confidence in it as a medium of exchange, is the

basis for our current conception of money." (Morgan 1965, pp 22-

23)

28

4 .................................
Scherran (1936) expressed his strong suspicions about the gradual

replacement of gold and silver coinage by unique, identifiable k .

records of pramises for money. Scherman was concerned about the

reliabilty of these pramises, and had a deep distrust of governments in this regard. He cites the dangers of so-called 'fiat

money', consisting of paper pramises issued by governments, with- I

out backing of gold and silver coin. In a chapter entitled

"How Paper Mzney Originated for the Fraud of Rulers", he cites

numerous examples of monetary collapse caused by insufficiently

backed paper money.

Money that is Socially Engineered

However, fiat money may not be so unworkable as Scherman claims.

Indeed, it seems to fulfill the various desiderata cited by Adam

&mith earlier. The major difference is that its supply is

controlled by an artificial scarcity rather than a natural one,

as for gold and silver. In that, we are dependent on the trustworthiness of the issuing government (which, as Scherman notes,

is often doubtful). The reality of money is rooted not in the

physical world but in the system of norms that ensure that the

chosen tokens are a stable encoding of the values in the society

- gold is a good monetary token because it is widely believed to

be readily exchanged for other goods and that expectation is

U buttressed by the popularity of gold as a personal ornament and

6vice versa. A government, having the power to create norms can,

provided that it does so in a stable, reliable manner, substitute

any other token for gold. Uether fiat money works or not

29

S"- .- . . -
LOW, - -

depends upon the deontic system that gives it meaning.

Another 

symbolic. 

important 

Clearly, 

feature 

paper 

of 

and 

fiat 

ink 

money 

have 

is 

little 

that it 

to do 

is essentially 

with artiU

ficial scarcity. It is here that money intersects our concerns

with performatives needed to execute comniTnication acts using

compater technology. Fiat money is a highly generalised form of

performative sign. It is a unit of purchasing power, i.e. a

right (in rem) to the acquisition of goods and services in the

marketplace. In that sense it functions just like the money of

account used within organisations, but within the larger governance structure of contract law. Just as 'funny money' seldom

has a physical existence as uniquely identifiable tokens, neither

is this necessary for fiat money.

One continuing factor in each innovation of money in its long

evolution has been a reduction of transaction costs. Oxen were

no doubt a useful store of value in Homeric times, but they were

certainly clumsy currency. The evolution of coinage brought a

simplicity in measuring the value of currency. Money substitutes, such as bank notes, offered greater portability of money.

It could even be transferred via postal letters.

We are now open to the possibility of even further reductions in

transaction cost in the vehicle of electronic money. Aside frm

the tendency of gcvernments to over-issue fiat money, electronic

money presents us with additional control problems. These are

30

._ . . .. . . - - .2' .
similar to the problems of managing other perforative signs in

electronic form: preventing forgeries and loss. But the nature

of money, as an entity in which rights inhere directly,

generalising the notion of rights in relation to just one other

person, creates special problems. Contract-signing protocols

will not work here since money, by its definition as a medium of

exchange, is a right not to any specific party , but to whomever

happens to be the posssessor at that moment.

The Root of the Technological Problems of Performatives

Money is one of the key examples of those numerous devices for

encoding the performatives that alter the relationships among

people who are doing business. Contract documents are others;

the parties to such linguistic acts become at that moment obligated to perform their respective duties as set forth in the

contract text or according to the established practice. Other

common performative ccamrnxications in business include purchase

orders, bills of lading, insurance policies, mortgages, deeds,

licences, leases, cheques, bonds, stock certificates and so on.

Carimunications internal to an organisation may also be performative. A key example is the corporate charter itself; others

are job tickets, duty rosters and the paperwork associated with

interdepartmental transfers of material or labour. Indeed much

of the 'red tape' encountered in bureaucratic organisations

arises from the need to construct fool-proof systems of performative commnunications. (See Lee, 1984 and also Flores, 1980,

Ly-tinen, 1984, and Kimborough, Lee & Ness, 1984, for further

31

k'i7".- "-* • ".'. ."................-...........-L..."................. . . ". . . .'". .".". "" .".".".".. ."". .".. . ".". .'. .
examples of business performatives.)

It would be interesting to trace, for each of these examples, how

they cause changes in social relationships - creating, abrogating

and transferring obligations, rights, privileges and duties.

Our examples of pro.aises and contracts will have to suffice.

For our present purposes, what concern us most are smer conmon

properties of performatives that are generally supplied by wellconstructed documents of a conventional kind.

When in business we make ccrmrrnications that significantly change

the obligations that people have, we take precautions to ensure

that there can be no confusion about the source of the message,

and that it is made with serious intention and the right authority. Informal conmunications of this kind are acceptable only p

where the protagonists are well known to one another and they

understand the circtmistances well. That works within tightlyknit teams or in specially constituted financial markets where

the members all know one another. Generally, however, documents

are necessary to guarantee accountability. Simple announcements

of facts can be printed repeatedly but the essential feature of

the key performatives is that they are unique and unequivocally

made intentionally. They usually carry a signature of the responsible person to symbolise the exercise of the relevant authority. Even the majority of simple statements of fact (expositive

performatives) carry the name of a person responsible for printing or publication (at least this is a legal requirement in the

32

.......................
W- w -

UK). Comr,.-_cations that alter the deontic structure take

effect from the time of their first being deliberately expres- :%'

sed; copies of the original coimunication have the status of

being about the perforrative but they can never be regarded as

the performative itself. Accountability is their essence.

Forgery ' .

Thus, forgeries are problematic for performative documents. If

successful, the forgery of a cheque or an order will result in

the usurpation of authority. For this reason, in addition to a

signature, performative documents usually are made on special

paper or with a seal that is difficult to copy, for example the

special paper and magnetic encoding of bank cheques, or the

imprint stamp used by a notary. Conventional documents offer

many forms of subtle redundancy that makes them difficult to

forge.

It is the control of forgeries that makes performative camnunicaticns difficult to automate: the flawless copy is fundamental

to computer technology. Data are never moved, as we move

paper; rather they are copied and the original images later

erased. Indeed, with virtual memory systems and distributed

databases, the notion of data having a specific location is

totally lost from the user s standpoint. The autanated performative needs to have carefully constructed redundancy to ensure

its uniqueness and accountability, for (remeber) possession of

many performative tokens signifies possession of a bundle of

33

S. . . . . . . . .-
rights and privileges.

Our usual concept of possession, hoever, is a very physical one.

have yet to find its analogue in the ephemeral quality of data

in caputer networks. Some of the problems can be grasped by

looking at the ex&mples of commnunication acts which have been

cited earlier. They all change social relationships when someone

has acted with clear intention and right authority. The comunication can be analysed into three signs:

1. a locution + 2. a performative + 3. a 'signature'

to define what to supply the to define the

should be done illocutionary force authority

The camituication tends to be built up in that order. First the

locutions is created to express the objectives of the transaction. For example the details of a contract tray be negotiated.

Next a performative sign is attached to the chosed course of

action; that will be the locution transcribed onto the special

performative document ready for the third step of signing it.

Only then is a complete comnunication act performed.

The whole act is unique and the uniqueness is accountable so that

the agent may be clearly responsible for his act and so that the

posessor of the performative token, where relevant, may have his

entitleuent to the rights it conveys established and open to

trial.

The easiest way of constructing such a unique token is to make

34 Iq.

.. -. - .

. .. . . .. . . . . . . . . . . . . . . . . . .
7-7:

the camminication in public so that it is widely recognised or

remembered as signifying the intention of the ccmmanicator. We

set up a ritual that involves enough people doing rather special

things that it could not possibly happen by accident or be

reproduced. This clhrsy method suits pre-literate societies. '.-

Today we supply the ritual, unique element in our everyday transactions, bv using special paper, often with uniquely nnbered

sheets, adding signatures of the canmiicator and of witnesses to

* his signature, even in some cases embellishing the document with

. seals and starping it with marks that car, be traced back to an

instrument that is kept under close control. Somewhere on this

document which has been made unmistakably unique by all this

paraphernalia, there will be the locutionary sign, which can

exist harmlessly in multiple copies before and after the camriunication act is made. How can we, using elecronic devices, signify

reliably this kind of deliberate exercise of authority?

The problem of forgery does not involve the locutionary sign

which can be reproduced endlessly without trouble; it is a

problem of the performative sign conjoined with the signature or

other token of the deliberate, and intentional act of the agent.

If successful, the forgery results in a social change (a new

pattern of indebtedness by a forged cheque), without the intention of anyone authorised to cause . t.

35

*-n *.
Autc-a-ainc Co,-m=.icat on Acts

"en we try to autamate communication acts, as opposed to acts of

signalling that are proper to cmputers, we are tempted to reduce

the sign structure to an instantiation of the locutionary sign

type. This kind of solution will work only in some very

restricted situations where access is rigidly controlled and the

use of the syster is rmnitored by manual procedures that can be

audited. Perhaps the only situation where these safeguards can

be dropped is in the case of a system for playing with fictions

or hypotheses that are denied by their illocutionary force fran

causing social changes. Computers raise no problems in the

handling of locutions but how do we enable them to handle the

performatives and 'signatures'?

Iok at the performative docurents we have mentioned. How can

we achieve the integrity and redundancy that mark the clear

intention of the ccamunicator? Data in a caputer never belong

to a specific physical location.

If we do not have the possibility of preserving an object, a

perforrative doc-arent, that represents the ccrmunication act, we

shall have tc find radically different methods. One approach

that seerts pranising uses an application of public key cryptography to enforce contract-signing protocols between two parties.

It is based on the notion that a signature is actually a public

secret; it is (supposedly) readable by everyone, but only the

original authcr is able to reproduce it. In a recent paper of

36

-Ii
theirs, Even, Goldreich and L-empel (1985) show how to simulate

this electonically. They assume a situation in which each party

has N pairs of secrets (encrypted bit strings), which only the

author can decode. The two parties exchange their secrets, one

pair at a tine, through a 'coin-flip' mechanism that randcMly

selects one item of each pair belonging to each party. Thus, at

the end of the transfer, each party will have N of his/her counterpart's secrets, but the sender will not know which N of the

2**N possible sequences was actually sent. Each party accepts .

ccrmitment to the contract if the other can supply the solutions

to a consecutive pair of encryption puzzles based on the transmitted secrets. Subsidiary protocols enable cheating to be

detected with a high degree of probability. Nbtice that an

elaborate ritual is involved, with a high level of redundancy,

resulting in each party holding a memory of the event that cannot

easily be falsified.

Electronically, some of the informational features of the old

i fashioned performatives have been reproduced. The nearest parallel is perhaps with the mediaeval device of the 'indenture' in

which a document torn apart along a deliberately very jagged,

irregular, saw-toothed line (hence the name), carries in the

rich redundancy of the tear what amounts to a mechanical 'signature'.

The electronic approach of Even, Goldreich and Lempel will not be

suitable for money. It is appropriate for a transaction invol37

.'*.**.. -. *.-. * /K-
ving two parties between whom obligations are created, that is

for rights in personem whereas money confers rights in rem. o ..

which are transmitted allong with the token to whomsoever has

legal title to it. Somehow we need to provide a similar kind of

redundancy which is not open to public scrutiny to serve as the". '

.

electronic equivalent of the rich redundancy obtainable through

traditional performative docnents or rituals.

The Deontic Structures of Markets Compared with Organisations

So far we have examined perfonatives in the very limited deontic

situation of the contractual relationship between two parties.

Such relationships are the foundation of market mechanisms.

Deontic systems also play a fundamental role in our understanding

of econaric organisation more generally. Williamson (1975 and

1979), considers the factors which determine when a society

allocates its resources via market mechanisms or through organisational hierarchies. The principal difference between these

two is that they offer alternative form of 'governance structures', to use Williamson's expression, or in our terminology,

'deontic systems'. A market system operates under a general

purpose deontic structure of contract law whereas organisations

may construct specialised deontic systems. Key factors influencing which of these alternatives is the more appropriate are the

idiosyncrasy and frequency of transactions between suppliers and

consumers. A highly idiosyncratic transaction is one where

there are few alternative suppliers or consumers. The converse

38
case is that of routine transactions where there are many alternative parties. A third factor, the uncertainty surrounding the L%

activity, may also influence the choice of deontic structure. In

general, where one encounters transactions which are frequent and

uncertain and idiosycratic, there one will find the greatest .'

need for organisation.

Market governance is most appropriate for non-specific transactions of either low or high frequency. Idiosyncratic transactions of low frequency are best supported by a 'ti-lateral

governance , involving an intermediate agent to arbitrate between

the parties, e.g. and architect in construction contracts. "Bilateral governance' involving long-term two-party contracts (e.g.

OE4 arrangements), is most appropriate when there is a high

transaction frequency but only medium idiosyncrasy, and the 'unified-governance' of a vertically integrated organisation is most

appropriate for high frequency, highly idiosyncratic transactions, especially if they are uncertain.

Williamson argues this case in terms of the transaction costs

that arise in each situation. One systematic way of examining

these costs is in terms of the simple deontic structure for a

contract suggested above. We may identify the information

needed to conduct the transaction by using that framework:

denotative information This must point at both the goods and

39
sevices to be supplied and at the consideration to be offered in

return.

affective information This must be sufficient to allow each ..

side to evaluate what the other is offering and to appreciate the

pressures inducing them to adhere to the contract.

Routine transactions have the virtue that they are easy to

denote. Of course, the consideration is normally money in same

form, and that side of the bargain is usually relatively easy to

describe even though it may be not simply cash-on-the-nail but a

more or less complex arragement of extended payrrents. This kind

of routine cammunication calls for relatively little investment.

Even that can be reduced by using information technology, including cmpiter systems to facilitate the searching of lists of

suppliers and their catalogues. A market place, where many

buyers and sellers have established a well-understood terminology

for the description of this range of standard goods and services,

will have accunulated the collective investments needed to solve

those key parts of the information problem.

The idiosyncratic transactions occupy the other pole. They are

peculiar to the purchaser although they may be either occasional

or recurrent. In both cases, these specialist supplies will be

relatively expensive to describe. This part of the transaction

cost can be lessened by employing those who are specialists in

the relevant field, such as architects or consulting engineers,

to create the descriptions and arbitrate on their interpretation.

40

- - .- . -- ,- . .. . - . .. . . . .

* - - . . . . . -. * - * - . * *
the use of third parties or brokers is mo~re appropriate when

these idiosyncratic transactions are occasional. Once they

becane relatively frequently recurring, it becomres possible to

econcmnise further by incorporating the two sides into a single

organisation.

Let us now consider what affects the relative efficiency of

evaluative information gathering in various circumnstance. The

dimension of routine to idiosyncratic requirements is mrost relevant. A market in goods and services that are widely used and

understood can supply evaluative information very cheaply indeed

through the price mrechanism. Supplarentary evaluative information

is also available through consumer reports and trade intelligence, which can share the experiences of a population of even

relatively infrequent purchasers who need not be seriously disadvantaged carpared with the regular purchaser. Where the

requirement is idiosyncratic, there is a risk of opportunism on

the part of the supplier. Again, the defence against this is

either to employ a trustworthy broker for occasional transactions

or to link supplier and customer in a vertical organisation to

exclude the m-arket and administer the transactions. Thus canplexity also makes evaluative information costly and favours

administration compared with the market.

Finally, we should look at the role of the inforation that

induces the participants to a contract to meet their obligations.

In a coherent and stable market structure with standard products

41
ar.' larce n ziers of buyers and sellers ha-.".g access infor ally

or formally to market intelligence, reputations are easily recognised and adjusted or made and lost. The opporturist has greatest incentive to take excessive profits when there can be no

readily available channel of information through which the buyers

can transmit powerful inducements. This is more serious when

the transactions are occasional than when they are recurrent and

the continuance of the business relationship is at stake. An

organisation, with its internal hierarchy of authority and its

elaborate system of rewards and sanctions is far better adapted

to the supply of inducements for the regulation of ccmplex,

idiosyncratic transactions than a market.

Contracts are not formed by the two parties in isolation. The

rules they make for one another are made in a framework of norms -*

established by the wider caruiunty. A market can do most of the

relevant norm formation quite informally, especially if there is

adequate market intelligence availlable to all participants.

Close physical proximity among participants is conducive to this

kind of exchange and to the dynamic making and remaking of informal custam and practice. This important aspect of a market s

efficiency can be improved by government regulations about the

publication of information and by institutions which provide a

framework for voluntary regulation. But rules are very difficult

to make informally when there is little regularity. In these

cases there is a stronger need for legal and institutional norms.

to make contract formation effective. The extre version of

this is the organisation that provides a firm deontic structure

42
upcn whilh the performative transactions can bring about subtle

changes of mutual obligations among a whole team of people.

Performatives in Contractual Situations M

It my appear that we have forgotten the performatives which are

the main subject of this paper. In fact, the whole of the above

analysis of the costs of contractual transactions was structured

according to the classification of the information required by

the performatives that would be employed in its expression.

A contract will be constructed in phases that are signalled by

the illocutionary force of the communication act employed.

First, the buyer will enquire about the possibility of his

requirement being met. This will camplete the denotative part

of the structure leaving the participants with an understanding

of what would result fromr the capletion of the contract. In an

even simpler first step, the vendor will offer a familiar article

for sale. But in a very complex first step, the customer and

supplier will negotiate at length with the aid of professional

brokers about the nature of the goods or services. The second

step will be for both sides to say that they agree to the

hypothetical description. Next, the buyer and seller will each

assess or value or price the goods or services in order to form a

picture of his own side of the bargain. Depending upon the

custom and practice in the market, they may ask or offer a variety of prices and, at the fourth step agree what the consideration ,

43

~~~~~~. . . . .. . . ... . l- ....... ' ".....-. . " .. * " ' ' * " "' . - ' '- , -" " " ,". .t-:
r.. V 'V -*- 

will be. Each will respond to the infor.,al, institutional and

legal information about the form which a contract may take and

about the execution of it; all these inducements will be ccmnainicated with the illocutionary force of warring, adovisin, requiring obliging, permitting, allowing and so on. It is the final

stage, when the parties put their signatures to the contract,

that their jointly constructed obligations fall upon them. The

strength of the obligation depends much upon the social inducements of contract law and custan. (Note the deficiency of

deontic logic which treats obligation as given in some mysterious

way.) So we have illustrated how the performatives dictate a

sequence of social changes that culminate in the construction of

a contract, a vital piece of our social reality.

Anyone who is interested in looking further at contracts may like

to consider the use of performatives at the conclusion of the

work. There will be statements of work done, claims for rectifying parts of it, the final acceptance and the request for

payment but much could go wrong and looking at the possibilities

you will find illustrations of many more performative verbs at

work. Sane of these verbs are used to provoke social changes

that only make sense by taking into account the enveloping system

of legal and related norms, those which make it feasible to pay

by money are the most obvious examples. The contract is clearly

just a fragment in a wider system.

Binary contracts, where they are the appropriate basis of cooperation, together with money, provide the key mechanisms of the

44 *- 4--. --

n .V-~ .
* - .- _' W1-V 6-- .r2 4 7

market gcvernance of econcic activity. The obligations they

create are limited and, when they are met, the participants are

free to seek other liasons. This accounts for the flexibility

of markets but it only works that way when the contracts are

relatively sizple. Elaborate contracts will produce long-standing and carplex deontic structures that tend to be anything but

flexible. Alterations to a contract are nearly always resisted

by one side or the other simply because the two sides operate

with different profit incentives. Flexibility and transaction

eccncmy are not always best supplied by markets.

Deontic Structures of Organisations

The structure of a deontic system in an organisation is far more

sophisticated and open to variation than that which governs a

binary contract. It does, itself, entail one important kind of

contract, that of emloyment, in which the organisation obtains

for the financial consideration of a salary, the conformity of an

enployee to its system of norms or rules according to which he

exercises his skills in the performance of some fragment of the

larger enterprise. The simple four-fold contract model, used

above, will also handle the employment contract. But the description of the internal norm structure requires a far richer

set of concepts.

Here we can give only the briefest outline of a general norm

structure. For more detail in a legal context see Stamper 1980.

45

-I..[
It has been derived from a study of legal rcrrts, especially t-hose

which define the tasks performed by certain large organisations,

the departments of government that administer tax, for example.

The same kinds of explicit structures are visible in the laws

governing parastatal bodies and and in the structures of the .

police, armed services and universities. 1'e are interested in

their deontic features that are all independent of the specific

organisational tasks.

A team with a carrrn objective will find its own organisation,m

given long enough. An organisation is also a team of emloyees

and it will also act largely according to informal norms, directing its members'- efforts towards the accanplishment of the

corporate goals. The directors of the organisation will be the

custodians of the goals, sustaining them altering them and interpreting them but maintaining them in accord with the need to

sustain at least some degree of consensus among the team as a

whole. The orgarnisation 's structure will be a means of interpreting the overall goals in a structure of subsidiary goals

which simultaneously direct and coordinate the efforts of subgroups as well as of individuals. It may be sufficient but it

is always necessary to design this goal structure and keep it in

repair; the rest of the organisation can be informal.

As the organisation gains experience, it will encode its knowledge as formal rationality. in addition to having a goal structure, it will gradually discover how best to achieve them. ,

Wherever the tasks and the environment remain reasonably stable,

46
the way to ac.hieve the goals at those suitable levels will be

specified with greater precision. Informal methods will fill

the gaps but they too will usually be governed by a norm structure. There will still be room for ad hoc behaviour where the

unpredictable happens and human conflicts of value arise. The

balance between informality and rationality is a key determinant

of good organisational design - the rationality encodes solutions

and the informality preserves the capacity to find better solutions or solutions to unexpected problems.

The rational structure is the deontic structure. We should

include within it both the explicit norms or 'rules' and the

norms which people obey without their having been stated explicitly. The rules usually emerge from the unwritten norms.

A rule structure will exhibit several different hierarchies and

it is convenient to describe the major characteristics of these

deontic systems in terms of them. The first is a hierarchy of

damains of action which gradually increase in their scope and

importance. The second hierarchy involves the norms that supply

the inducerents to conform to norms at low~r levels; this is the

gubernatorial hierarchy, so called because it deals with the

control of the rest. The third that will be mentioned in this

paper is a procedural hierarchy of norms that tell people how to

cormrnicate information relevant to the other norms. The strucb ture as a whole can help us to explain how our performatives

function.

47
First, let us look at the action hierarchy. We get thing done

through rules basically by formnulating Standing orders which

prescribe certain actions to alter the phyical world in certain O

described situations:

in these circumstances ->do th-is P

(hypothetical description) (prescription)

The norm is general and it takes effect when a specific description fits its condition (on the left) and it then generates a

specific carrand from the expression on the right to a specific

person or group. This is one kind of action rule but organisations depending upon these alone would be very clumsy.

It is necessary to evolve a whole range of organisational or

social abstractions that act as a short hand for ranges of situations deemed equivalent. Thus we can refer to a 'batch' of

good~s regardless of how it is arranged or at what stage it stands -

in the production cycle. we use notionis of 'shift', 'priority',

schedule' and so on, but most Lrrortant of all the notion of a

role' or collection of tasks carried out by the same person but

abstracted from the particular incumbent. The role concept

enables the organisational structure to exist independently of

the shifting population of ernployees. We then make use of another kind of norm which affects not the physical world, but the

status of the world of organisational abstractions. When the

specific conditions are net that trigger these so-called status

48
nor-rs no one dces any-thing, but the social world changes - this

is one of the key funtions of many of the performatives described

above. Status norms have, in the long run, a greater potential

effect than a standing order.

Armed with standing orders and status norms, we should still have

difficulty in constructing a practical and viable deontic structure. We should be faced with the difficulty of making sensitive

use of a vast edifice of rules that all operated at all times.

We normally overcame this problem by using another category of

norms which we call powers of intervention. These are norms

that act upon other norms by making them effective or inhibiting '.

their use. These are powers in the sense that they confer discretion upon some people but not on others. This type of norm

cannot be automated. These powers are exercised using performative verbs such as 'claim', 'withdraw', 'invoke', 'override',

excuse and so on, but with in any bureaucratic system, they

also tend to require clear documentary support from performative

documents.

With standing orders, status norms and powers of intervention, we

could have a large yet sensitive deontic structure but it would

be static. Yet another kind of -action norm is required if we are

not to have an organisation incapable of adapting to changing

circumstances. These are the powers of rule making. Each such

norm gives, to same person or group, the authority to make, amend

or abrogate certain classes of rules but always within constraints. Thus the law of contract is the source of the power to

49
make the rules by which the parties govern themselves, and it

also contains many constraints upon the legitimate forms of

contracts and their interpretation. In any deontic system there

will be, relative to that system, a key power of rule making fram

which all the others are derived, this is its Grundnorm. When

rules are made, the social change is effected by the appropriate

authority making the right comunication acts. These will be

expressed using such performatives as 'direct', 'rule ', 'countermand ', 'amend ', and even words such as 'advise' and 'recam-nd"

can form rules of limited force. Each manager in a company has

the power to make rules within the limits established by higher

authority; the powers of rule-making are crucial to the design

of the organisation.

Finally, the whole edifice of action norms is held together by

structure norms which handle the branches of the hierarchy. The

condition of a structure norm may be like any other condition but

the consequence will always be a list of other norms, either

action norms of any kind or more structure norms that extend the

hierarchy to greater depth. Thus the structure norms create a

tree, rooted in the relative Grundnorm (company charter) and

spreading out its branches of power to every corner of the organisation.

The second hierarchy of norms deals with the formation of inducements. The bottom level consists of the substantive norms, the

ones expressed directly in terms of the men, machines, materials,

50

* . - - . * . . . . . . . . .
etc., that are tne substantive concern of the business. However, just in case they are not obeyed, we have to create another

layer of norms that prescribe sanctions when non-compliance is

observed, or prescribe rewards when the lower norms have been

followed effectively. Similarly, these reward- and sanctiongranting norms themselves may or may not be followed, so we need

yet another layer to ensure that they, in their turn, are obeyed,

and so on. This hierarchy makes the notion of obligation concrete and we call it the gubernatorial hierarchy.

The third hierarchy of norms deals with the communications involved in exercising any of the other kinds of norms. In the

context of our special problem of performatives, these are the

norms which, among other things, would lay down the details of

any ritual or bureaucratic procedure which gives rise to an

effective communication act. Thus to apply for leave in an

organisation, one ray have to use a specific "application form',

caiplete it fully and have it counter-signed by certain other

people. This procedural hierarchy deals with all the subcanponents of a communication act; it may specify the utterance

act by specifying the language or kinds of codes to be used, it 'w

deals with the locution by saying what the comunication must be

about, it prescribes the illocutionary force (claim forms, report forms, order forms, and so on) and it can define precisely

the perlocutionary act by saying which records are to be updated, and which rules are to be applied to the contents of the

comunication. This procedural hierarchy is the exclusive focus

of attention of the conventional data-processing paradigm; it is

51

.4.-
the bureaucratic system.

The deontic structure of an organisation is vastly more canplex

than that of a binary contract. This is both a strength and a

weakness. Simple contracts may only make use of standing orders I

or the even more basic cammands which are not norms but specific

instructions. The surrounding law of contract and the custan of

the market will supply the norms to deal with changes of circumrstances and departures from the terms of the contract. In principle, organisations have flexibility built into them, whilst a

market derives its flexibility from the limited nature of the

individual contracts. Organisations become rigid when they came

to exist for their own sake and not to attain their substantive

goals. A carmn symptom of this organisational rigidity is

growing bureaucratisation, which cannot necessarily be solved by

reverting to market governance. Perhaps one of the quickest

ways to induce crippling bureaucratisation is to impose poorly

designed canputer systems that are difficult to maintain. We

hope that the new, emergent, deontic paradigm will help us to

think more clearly about the form and functioning of

organisations.

The Functions of Performatives in Organisations

Previously, we explained the deontic structure of contracts and

then showed how cammunication acts were able to make and use this

relatively simple deontic structure. We have thus outlined the

52

,: I

V ', .,: , .'.. ,; '...' , ,! ..: ..:.. ' ', .: . ., .. .-..,, .. . .. , , .. .... V .....
rich deontic structure of an organisation, so we should nox use

this idea to explain the functions of performatives that give our

comnxplications their social force in an organisational context.

Imagine the organisation as a kind of mechanical structure consisting of bodies of knowledge and belief, of expectations and

intended acts related to different individuals and groups, all of

these being linked together by pullies and rods that make them

interact - these linkages are the norms. A deontic structure is

not at all mechanical but the image will serve our purpose. This

structure undergoes constant changes as the people involved canmunicate with one another. Each meaningful utterance will act

upon the structure with the illocutionary force that has been

given to it by its performative ccmponent. It is as though the

performative were the vector directing the camnunication act onto

the right part of the deontic structure to make the desired

changes in the obligations, beliefs, goals, and so on, that form

the social reality.

Let us try to illustrate how these changes take place, how performatives function. Suppose the organisation involves two

departments that are like the supplier and customer in a camplex,

idiosyncratic transaction. Mr.A, the manager of the internal

custcz terwill request a supply of widgets able to do XXX, call

them XXX Widgets. This request will establish what Mr. A

believes possible .nd desirable. The constitution of the campany automatically generates an obligation upon Mr. B, manager of

the Widget Workshop to attempt to supply this product. (Note

53
the immediacy of this deontic change.) But B believes that the

best they can do is to supply XO 1 Widgets. When inter-departmental discusssions have failed, a status norm enables this to

be recognised explicitly. This new social fact automatically

generates an obligation upon the R & D departrent to help bridge

the gap between A s perceived needs and B s capabilities. (This PI

very specific and swift response to a complex consultaicy requirement would be difficult for a market to furnish, especially

as the internal experts have a huge investment of relevant experience to draw upon.) A Task Group might be formed perhaps with

a ready-made consti-ution that everyone is familiar with. The -.

power to make rules has been exercised. The problem appears to

arise partly fram a lack of mutual understanding of technical

issues, which is gradually removed through the discussions and

experimental production runs engaged in by the Task Group.

(These innovative situations are ones for which the market is

generally ill-suited if only because the elaborate process of

reaching mutual understanding would be prohibitively costly if

attempted with several suppliers, and because the process would

often involve disclosure of commercially valuable knowledge.)

The solution proposed by the Task Group might involve purchasing

a new machine tool at a cost of $200,000, a figure that autcatically allows the Finance Director to invoke a review procedure.

He does so, and the final product requiring XXX widgets is studied from a marketing point of view, with the result that the

earnings are seen to be very great. The exercise of powers of

intervention resulted in the making of a new and larger context

54

--.. * 'i v . - m . . . ... • o - .: ,.,. *.'.-:v §,., , . .. , .... . , ,.. .- '.'
&7 Okq

of enquiry to enable profitability to be studied from a ccmpanywide angle, rather than from the perspective of individual departmrents. Finally the investment is made and the standing

orders governing the execution of a project are activated in

order to generate the direct commands that appear in work schedules. It seemed unnecessary in telling this story to write the

dialogue and picture the performative documents imparting the

cormunication acts at each stage. The overall message is that

human cormunications do far more than transmit copies of character-strings from one location to another; human camnication

acts alter a deontic structure.

The Practical Significance of Deontic Systems a

he have already looked at the technical problems that arise when

we use com-puters to handle performatives. Looking behind the

performatives at the social structures that give them their

special significance, we discover the elaborate systems of norms

that encode organisational knowledge. (See Lee 1985.) The

deontic system is a knowledge structure.

One practical result of the analysis is to reveal how limited is

the IKBS paradigm for understanding organisational problems. By

all means use this limited model as an approximation where the

problem domain is relatively well understood. But be careful

about transporting the attitudes of the IKBS paradigm into areas

where the central problems are resolving conflicts of interest or

understanding. In the IKBS view, the world is given: in the

55

::-: :,: : -- ::-::: -'"-".-:." .i ._.... -::_ - --- - -- '- -- -- - - . . . . . . . . . .- - • -. - ,- - -- -' .
deontic paradigm, people construct the world of business affairs.

Another practical result is to direct attention to the structures

displayed by organisational knowledge. If we can represent a

deontic system as a knowledge-base, then we shall have a way of

removing from the application programs of a canputer system the

information that is specific to the organisation but not concerned with the use of the computer. The confounding of these two

complex sets of knowledge is one of the main reasons for the

costly rigidities of computer systems.

Finally, we should point to the appropriateness of the deontic

paradigm in the field of decision support systems. By exploring

the norms that relate the people in an organisation, it should be

possible to be more sensitive and accurate in devising methods of

supporting group decision-aking. Whereas the IfBS paradigm is

useful in the design of support for individual decisions, the

deontic paradigm is more relevant to decisions involving several

parties who need to reach consensus on their understanding of the

problem and evaluation of outcomes.

The ideas for this collaborate paper have arisen naturally as

outgrowths from the authors' major research studies. One has

been working on a language, CANDID, for the formalisation of

contracts (Lee 1981) whilst the other has directed a project to

create a language, LEGOL, for representing legal and business

norms (St-mper 1985).

56
Conclusion

It seems appropriate to conclude a paper that argues for a new

paradigm, and claims that its adoption would have a number of

valuable practical consequences, by proposing research that would

begin to realise these claims. Each of the authors, individually, has already undertaken much of the necessary preliminary

work. The fusion of these separate strands appears possible and

desirable. The following is a sketch of a programmre of research

on rule-based systems, exploiting the theory of deontic systems

and performatives, outlined above.

The programmte would have two major canponents that would proceed.7

in parallel:

(1) the study of parts of some large bureaucratic systems to

develop a methodology of investigation that would am to create

descriptive techniques leading to methods for diagnosing and

curing their ineffectiveness;

(2) the development of a prototype rule-based systemn which

can remve from application programs the shared organisational

knowledge which makes them difficult to maintain (this is the

next major innovation in the spirit of database management that

* removed fran the application programmer the responsibility for

the shared data).

574.
- These -%' br ranhes of the research would camplemen: one another.

The second would inpose formal disciplines upon the openended

exploration of the issues that give the whole exercise its central point - to make bureaucracy cost-effective.

Large acrinistrations, both civil and military, in both the

public and private sectors, have a reputation for bureaucratic

inefficiency. To understand these systems is to have the

potential means of removing their inefficiencies. This paper

has indicated how their structures can be described in deontic

terms and how their functioning can be analysed in terms of the

effects of performatives. This strand of research would examine

in detail same concrete examples in order to demonstrate how to

recognise the over-all deontic structures they rely upon and to

show how first to recognise and then critically to analyse their

use of performatives. In this paper, it has been shown that

such a study can help us to discover where the transaction costs

are incurred; the research would generalise results of this

kind and embody them in a rethodology to support an on-going

efficiency audit within any bureaucracy prone to the familiar

defects of this kind of organisaticn.

The second branch of the research programe would centre upon the

implementation of a Rule-base Management System to store a

representation of the norms of an organisation quite separately

from the application programs. For example, the expression:

if AGE > 25 then

58 .~'-a
m A"would have the same arithmetical consequences in many application

programs with totally different meanings. In every case, the

meaning would belong to the category of business knowledge and

its specific interpretation could be derived from one of the

norms of which it forms a condition. The application programmer

would not be expected to write such an expression but to retrieve

it from the Rule-base. In one case it may refer to the age of a

person, in another to the age in months of an engine ccnponent,

and so on. The focus of the application programmer would be

upon the transaction mix and intensity that would govern how best

he should deploy computing resources to handle such rules. The

construction of the Rule-base would be a task for the business ".%

analyst using a language which could build upon the earlier

research of the authors', the languages CANDID and LEG)L. The 'p.

proposed RBMS would separate the functions of business analysis

and software engineering quite clearly and enable both to be done

to a higher standard.

One of the main pratical goals would be to simplify the maintenance of data-processing systems. The proposed method is to hold

in one place the organisational knowledge that influences the

shape of many application programs. Of course, the norms of a

business will form a seamless fabric, so the changing of one norm

cannot be made safely in isolation, but a representation of the

norms as a separate and coherent body of organisational knowledge

will enable the effects to be judged with reasonable precision.

Today, the only formal representation of much of this knowledge

59 __ ?****:. _ .aa-?
is with the application programs of a large system; change one,

and the knock-on effects are hard to gauge. We can get rid of

this needless cmplexity.

The two parts of the research would be indispensible to one

another. There would be no point in developing a Rule-base . ..

management System if there were no supporting methodology of . .

business analysis; the study of actual deontic systems and their

performatives by relatively informal methods would lead to the -

methodology. Similarly the possibility of carrying out a detailed, on-going audit of a large bureaucracy would be impared if

there existed no formal tool for modelling and analysing such

complex structures. The RDBMS would be the right tool. The

combined programme of research would generate a software product

(in prototype form initially) and a methodology for using it.

The research suggested here would derive its inspiration from a

paradigm unfamiliar to most people working with camputers. It

is socially orientated but such an orientation is surely the

appropriate one for working on business applications. It gives

us the opportunity to break new and difficult ground with a high

chance of success warranted by earlier work done by the authors

in this new field.

60
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