Abstract
In many organizations, decisions are taken by unanimity giving each member veto power. We analyze a model of an organization in which members with heterogenous productivity privately contribute to a common good. Under unanimity, the least efficient member imposes her preferred effort choice on the entire organization. In the presence of externalities and an incomplete charter, the threat of forming an "inner organization" can undermine the veto power of the less efficient members and coerce them to exert more effort. We identify the conditions under which the threat of forming an inner organization is never ,executed, and under which inner organizations are equilibrium outcomes. Finally, the members' welfare can be both higher or lower under the simple majority rule than under unanimity, thereby providing a rationale for the emergence and diversity of decision rules.