Towards a social theory of corporate governance: interaction, incentives and information in private and semi-public managerial decision-making

Programme group Political Economy and Transnational Governance (PETGOV)

In this, NWO-VENI funded, project Eelke van Heemskerk aims to develop a social theory of corporate governance.

NWO-VENI

Period: 01/2011 - 12/2014 

During the last years it has become increasingly clear that the quality of the board of directors of large organisations is of public concern. Mismanagement of corporate boards marked the beginning of the financial crisis, but also in semi-public sectors as health and housing governance problems of mismanagement and fraud have occurred.

After decades of academic attention to corporate governance we still lack a proper understanding on what basis decisions are made at the top-level of organisations. General rational choice theories based on principal agent problems fail to provide an satisfying explanation for these failures. Furthermore, these theories are only with difficulty applicable to organisations other than private enterprises with dispersed ownership.

In this theory, decision-making is a function of social interaction, rather than a function of rational individualistic rent-seeking strategies. Directors make decisions which they believe are appreciated by significant others.

Eelke van Heemskerk postulates that this is a generic axiom, applicable to boardroom decisions both in private as in semi-public organisations. The model can help understand enduring stability of corporate governance practices as result of mimicking behaviour among directors leading to similarity. Sudden change can be explained by the leading role of high status actors how can change their opinions and ideas.

In order to test the hypotheses generated by the theory, Eelke van Heemskerk will develop a new survey instrument specifically designed for directors of private and semi-public organisations (conducted in the Netherlands). With this survey she can compare patterns of decision-making of directors across private and semi-public organisations, and uncover the influence of social interactions on these decisions.

The results of this project will help to nuance and complement common rational choice theories of corporate governance, and make them applicable to a wider range of organisations.

Published by  AISSR

27 June 2013