Constructing Envelopes: How Institutional Custodians Can Tame Disruptive Algorithms

The infusion of algorithms into organizational fields—accelerated by advances in artificial intelligence—can have disruptive effects that trigger defensive responses. One important response involves establishing a boundary around an algorithm to delimit its interactions with its environment—in engineering terms, constructing an “envelope.” Yet, we know little about the process through which such envelopes are constructed. We address this issue by exploring how institutional custodians construct envelopes around disruptive algorithms. We empirically examine custodians’ responses to the high-frequency trading algorithms that disrupted the field of U.S. securities trading, focusing on the years 2009–2016. Our inductive analysis shows that custodians created an envelope with interconnected normative, governance, and practice “layers” that jointly constrained high-frequency trading. Each layer emerged as custodians “coupled” one element of the field (e.g., its values) to one aspect of the disruptive algorithms (e.g., their impacts). Our study contributes to research on the social dynamics of algorithms by generating novel theory of how envelopes around algorithms are constructed, and to research on institutional custodianship by highlighting the constructing of envelopes as a custodial response to a wide range of threats—including, but not restricted to, disruptive algorithms.