Weber noted that bureaucracy does have some disadvantages. It tends to result in oligarchy, or rule by a few officials at the top of the organization, which results in the danger of a few people holding all the social, political, and economic power and controlling all the aspects of people's lives. This issue was first addressed by Weber but was explored in further depth by Robert Michels, a sociologist and friend of Max Weber. Michels attempted to address why power tends to fall in the hands of small groups of people in all organizations. He studied labor and socialist movements of his time, the early 1900's. As organizations expand in size and complexity, Michels concluded, the need for effective leadership becomes more and more essential. Size eventually renders collective decision making impractical because of both the number of issues and the need for the organization to appear united (Oligarchy; Light 397).

Those who are known for their talents in administration and public relations are then chosen to lead organizations and make decisions. Eventually, these leaders develop an interest in maintaining their positions and thus develop selfish attitudes. Apathy and indifference among the rank-and-file furthers the concentration of power in the leaders' hands, and maintaining power among the ruling group becomes a goal in and of itself. With time, this goal begins to precede all other goals of the group. Conservatism emerges among the leaders, and conflict is avoided so the leaders' positions are protected. Leaders also use powerful positive and negative sanctions to promote the behavior that they desire. They can grant or deny raises, assign workloads, and fire, demote, or promote people, for example. The efficiency of the organization is thus undermined. This is the basis of Michels' "Iron Rule of Oligarchy." Michels stipulated, "Who says organizations says oligarchy." In other words, the Iron Rule of Oligarchy states that power tends to become concentrated in the hands of a few members in any social structure. According to Michels' Iron Rule, democracy and large-scale organizations are incompatible. Michels pointed out that any large organization is faced with coordination problems that can only be solved by creating a bureaucracy. A bureaucracy is hierarchical in nature and therefore requires a concentration of much power in the hands of a few people. This led Michels to conclude that the Iron Rule is always true (Light 397; Oligarchy; Shepard 137-138; Yorburg 370, 375-377).

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