CORPORATE GOVERNANCE FOR KNOWLEDGE PRODUCTION: THEORETICAL FOUNDATIONS AND PRACTICAL IMPLICATIONS

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Margit Osterloh ORCID logo, Bruno S. Frey ORCID logo

https://doi.org/10.22495/cocv3i4c1p2

Abstract

Agency Theory as the dominant view of Corporate Governance disregards that the key task of firm governance is to generate, accumulate, transfer, and protect firm specific knowledge. Three different foundations to the theory of the firm which underpin different concepts of corporate governance are discussed: The traditional view of the firm as a nexus of contracts, the view of the firm as a nexus of firm specific investments and the view of the firm as a nexus of firm specific knowledge investments. The latter view distinguishes two fundamental differences between contracting firm specific knowledge investments in contrast to financial investment: (1) A knowledge worker cannot contract his or her future knowledge in the same way as the exchange of tangible goods; (2) Only insiders can evaluate firm specific knowledge generation and transformation. We suggest a concept of corporate governance that takes investments infirm specific knowledge into account: (1) The board should rely more on insiders; (2) Those employees of the firm making firm-specific knowledge investments should elect the insiders; (3) A neutral person should chair the board. This concept provides a theoretical foundation of corporate governance based in the knowledge-based theory of the firm.

Keywords: Corporate Governance, Agency Theory, Firm-Specific Investment, Knowledge Production

How to cite this paper: Osterloh, M. & Frey, B. S. (2006). Corporate governance for knowledge production: Theoretical foundations and practical implications. Corporate Ownership & Control, 3(4-1), 164-174. https://doi.org/10.22495/cocv3i4c1p2