Institutions primarily shape how individuals interact by setting up rules for games. People and organizations are all playing some game that has different ways of gaining status and power
At the same time People do not like conforming to external structures, so there is always some inherent tension between individual incentives and institutional rules. However the goal of the rules is to get everyone to a better equilibrium by creating a shared set of rules that can themselves compete - Institutions are the second level of a group selection evolutionary system.
Institutions both shape how individuals interact within an institution but also how individuals interact between institutions.
The ‘within institution’ context includes both interactions within an organization, but also within Level II institutions like ‘The Media.’ Institutions are the second level of a group selection evolutionary system. The former is company culture, while the latter is fuzzy things like ‘journalistic ethics’ or ‘honor.’
‘Between institution’ interactions are our expectations and perceptions of individuals knowing that they are part of an institution. You have a different expectation of a police officer, journalist, and professor knowing nothing but their profession^1 and there may be different spoken or unspoken rules around interactions. Most people respond differently when a police officer asks them to do something than when a non-police officer asks the same thing, or when a journalist asks for an interview. These expectations from outside the institution are based on the perceived role of the institution. Institutions have implicit, explicit, and perceived missions.
A lot of how institutions shape how individuals interact between institutions is tied up with someone acting in their institutional role. When an individual acts ‘in an institutional role’ they basically become an avatar of that institution. They are imbued with that institution’s power and reputation - both good and bad. Any action they take reflects not on them, but on the institution as a whole.
Drawing a line between someone acting in an institutional role and as an individual is the tricky piece. At the end of the day, an institutional avatar and an individual are the same physical human, so distinguishing between the two is an act of imagination. It might even be a Load Bearing Fiction. In the relatively easy cases, uniforms and shifts distinguish people between their institutional and individual roles: an officer in uniform represents the department and a waiter on shift represents the restaurant. The line between institution and individual just becomes murkier from there until you get to someone like the Queen of England who is always in her institutional role. But even when ideally the uniform is a bright line, the real line is not so clear: there are implicit institutional expectations on individuals 24/7.
Part of these constant expectations are conduct based: there are standards you expect individuals in different institutional roles to obey regardless of whether they are embodying the institutional avatar or not. In a way, these are almost purity standards that determine whether the individual is worthy of embodying the avatar. But a bookmark in this notion of purity. Politicians having sex scandals is the classic example here.
Part of these constant expectations are based on the fact that the institutional avatar and the individual are never truly separated. This incomplete separability is why many people think professors should not have relationships with their students. In a more clear cut situation, the student could be using the relationship to get better grades or the student could feel subtlety coerced. Even if they both are truly attracted to each other, relationships can end, people an act poorly in response to breakups, and the professor still controls a lever of power. Note that the stronger the individual norms on institutional behavior, the less you need institutional rules mediating behavior. In an extreme case, if all professors would never ever ever let anything affect grades besides the quality of the work, then you need less strict rules about relationships between professors and students. As soon as one professor breaks this standard though, the institution tightens rules on all the professors. Shifting from norms to explicit rules like this creates Institutional scar tissue.
The incomplete separability of avatar and individual also shapes how people interact because people know that the separability is incomplete. People will treat people with power differently even when they are playing golf or posting about something totally unrelated to their job on twitter.
Which brings us to two big ways that the ways that institutions have shaped how individuals interact have changed.
^1: Of course, it’s important note which expectations are institutionally imposed vs. just correlated with people in the institutions, like the stereotype of the absent-minded professor. However even that is complicated, because institutions tend to encourage or at least shelter these traits. If someone had some absent-minded tendencies and went into, say, hedge funds, they may have suppressed them while as a professor they let them flourish. This institutional trait-encouragement may be nothing more than the reenforcement from keeping a bunch of people with the same trait in the same place and You are the average of the five people you spend the most time around doing its work. But since Organizations don’t do anything, people in organizations do things, ‘enhancing traits by getting a bunch of people with similar traits together in the same place’ is a reasonable, if mundane, mechanism by which institutions can reasonably shape how individuals interact.