Collective bargaining contracts with teachers unions have reduced principals' autonomy but have still left them opportunities for effective administration of their schools. Interviews with 289 educators in six diverse school districts across the country show that contracts have limited principals' powers both from above, by centralizing labor relations at the district level, and from below, by expanding teachers' rights in areas like job security and grievances. Many principals understand, however, that three organizational factors help them maintain much control. These include the necessary interdependence between teachers and principals; teachers' desires that are not covered by the contract, such as student discipline or public and parental support; and teachers' ambivalence toward unionism. The most effective principals are those who respond best to teachers' concerns, whether included in the contract or not. Both effective and ineffective principals cope with contractual limitations through one of three strategies: an aggressive one, which meets the letter, but not always the spirit, of the contract; a defensive one, which strives only to avoid contract violations; or a reciprocal one, which wins cooperation by trading favors or fostering convictions of interdependence. (RW)