Decentralizing corporate governance? A praxeological inquiry

Abstract

The theory and practice of corporate governance has been in something of an arms race with corporate malefactors—as corporate governance mechanisms have incrementally advance, so too have the strategies of malefactors who skirt those governance practices to engage in costly misconduct. Modern centralized governance approaches appear inapt to filling the gaps caused by agency and knowledge problems. Here, we start afresh using the atypical ‘praxeological’ method to reconstruct governance theory anew from basic foundations. The resultant theory is distinctive from prevailing corporate governance theorizing in several key ways. One of the more important conclusions from our reconstructed theory is that governance may benefit from a more ‘market’ or decentralized approach. In short, the governance holes derived from agency and knowledge problems are, or may be, much smaller when governance is decentralized, where employees police each other. While the implementation of such a radical rethinking of governance practice is left ambiguous in our treatment, the theoretical basis for such an approach is compelling.

Good governance, bad governance: A refinement and application of key governance concepts

“…While the unpacking of specific governance practices for disparate organisational aims is beyond the scope of our work here, we propose that firms must start to think and act entrepreneurially in their governance practices to innovate new and better initiatives that better comport to their specific and, perhaps, unique aims. For example, our argument that the governance function is not an ownership subfunction but can be performed by other stakeholders, and that it can be delegated, implies that the governance function might be decentralised within an organisation, i.e., performed in part by its employees (Mitchell et al, 2022). Traditional governance theory implicitly supposes that governance is necessarily the task of supervisors.…”