The deontic basis of the firm—Implications for corporate governance

Abstract

The paper presents a conception of firms' efficiency that breaks with the agency theory of the firm, which sees the efficiency of firms as no different in nature from that of markets. We argue that firms are efficient relative to markets, thanks to two kinds of social interaction, namely, interpersonal interactions and compliance with authority; these interactions take place among workers engaged in a collective productive venture and could not develop in markets. Two kinds of norm emerge from these interactions that create the rights and obligations needed for horizontal and vertical cooperation; the functioning of firms and their specific efficiency thus have a deontic basis. Just as shareholder-oriented governance is normatively derived from agency theory's vision of the firm, which has succeeded in powerfully influencing corporate law and corporate governance since the 1980s, participatory governance is the governance mode that normatively derives from our understanding of the firm.

The History of Agrarian Reforms in Indonesia: A Sociological Perspective

“…Another aspect still needs attention, namely regarding 'organizational structure,' which, according to Richard Hall, relates to 3 main topics: the size of the number of personnel, complexity, and formalization. In addition, Keban stated that the organization can also become a political system that seeks to control the decision-making process and can be used as a tool to dominate (Lopes, 2022).…”

Tax Avoidance Mediated by Constitutional Ownership as Moderating Variables

“…Institutional ownership is critical in minimizing agency conflicts between shareholders and management (Jensen & Meckling, 1976;Lopes, 2022). Agency theory state that each person is driven entirely by his or her interests, resulting in a conflict of interest between the principal and agent (Panda & Leepsa, 2017).…”

“…It will create a conflict of interest between the principal and the agent. Jensen & Meckling (1976) and Lopes (2022) reveal that institutional ownership is vital in minimizing agency conflicts between shareholders and managers. Institutional investors with considerable shareholdings and voting rights can force managers to focus on the company's performance and avoid opportunities to attach importance to their interests.…”