Not logged in.

Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Shareholders Should Welcome Knowledge Workers as Directors
Organization Unit
Authors
  • Margit Osterloh
  • Bruno Frey
Language
  • English
Institution University of Zurich
Series Name Working paper series / Institute for Empirical Research in Economics
Number No. 283
ISSN 1424-0459
Date 2006
Abstract Text "The most influential approach of corporate governance, the view of shareholders supremacyndoes not take into consideration that the key task of modern corporations is to generate andntransfer firm-specific knowledge. It proposes that, in order to overcome the widespreadncorporate scandals, the interests of top management and directors should be increasinglynaligned to shareholder interests by making the board more responsible to shareholders, andnmonitoring of top management by independent outside directors should be strengthened.nCorporate governance reform needs to go in another direction altogether. Firm-specificnknowledge investments are, like financial investments, not ex ante contractible, leavingninvestors open to exploitation by shareholders. Employees therefore refuse to make firmspecificninvestments. To gain a sustainable competitive advantage, there must be an incentivento undertake such firm-specific investments. Three proposals are advanced to deal with thisndilemma: (1) The board should rely more on insiders. (2) The insiders should be elected bynthose employees of the firm who are making firm-specific knowledge investments. (3) Thenboard should be chaired by a neutral person. These proposals have major advantages: theynprovide incentives for knowledge investors; they countervail the dominance of executives;nthey encourage intrinsic work motivation and loyalty to the firm by strengthening distributivenand procedural justice, and they ensure diversity on the board while lowering transactionncosts. These proposals for reforming the board may help to overcome the crisis corporatengovernance is in. At the same time, they provide a step in the direction of a more adequatentheory of the firm as a basis for corporate governance."
Official URL http://www.econ.uzh.ch/wp.html
PDF File Download from ZORA
Export BibTeX
EP3 XML (ZORA)