Charles W. Smith
This chapter includes extra insights into how the board works. It shows that the most relevant board decisions are made in the context of certain committees and not in the board setting. It then studies the three main board committees—nomination, compensation, and audit—and assesses the available research on the key aspects of their composition. It shows that there is a positive relationship between the expertise and independence of board committees and key effectiveness measures, although process research determines that there are tensions which committees face.
Nicolai Foss and Stefan Linder
The economic theory of the firm has strongly influenced our current understanding of the raison d’être, functioning, and internal organization of organizations. Yet, organizations today operate under quite different conditions than the ones that prevailed when some of the foundations for the contemporary theory of the firm were laid (i.e., the 1930s to the 1970s). The unfolding knowledge economy and the growing pressure for corporate social responsibility promise to profoundly affect the nature of corporations. We discuss what the economic theory of the firm has to offer for understanding the challenges faced by corporations today, and where the knowledge economy and corporate social responsibility push the limits of the economics of organization.
Collective Bargaining as a Form of Employee Participation:: Observations on the United States and Europe
Richard N. Block and Peter Berg
The purpose of this article is to examine the differing rationales for collective bargaining in the United States and Europe, and how these rationales affect the nature of participation through collective bargaining. The article shows how the basis for collective bargaining in the United States has been the removal of impediments to economic efficiency caused by disputes over union recognition, while in Europe it has generally been industrial pluralism and worker rights. In the United States, given the economic rationale for collective bargaining, in situations in which collective bargaining is perceived as impairing economic efficiency the scope of participation through collective bargaining is narrowed. On the contrary, the pluralistic and worker rights rationale for collective bargaining in Europe has resulted in deep collective worker participation at all levels on a range of matters ranging from national policy to work scheduling.
The idea of complementarity is of considerable use in studies of institutions, because if it can be correctly applied, it enables analysts to consider when and how certain institutions ‘belong’ together to form a Gestalt or overall shape, or, in contrast, to indicate when two or more institutions might be incompatible with each other. If it is possible to reach conclusions of this kind, not only is institutional analysis placed on a scientific basis, but it can also acquire relevance to policymakers and other institution builders. This article distinguishes between three different usages of the concept to be found in the literature, and analyses that literature as it falls within these different usages. The overall tendency of the argument is to advise caution in the use of complementarity in institutional research, though the concept is not rejected, as a distinct role will be found for it.
Adrian Wilkinson and Tony Dundon
This article defines direct participation and considers the context in which participation has changed over time. It is concerned with clarifying what is meant by different participation schemes. The article also evaluates the extent to which various practices allow workers to have a say in organizational decisions. Next, it considers the issue of management choice over employee voice and participation. The article then reviews a framework against which to evaluate employee participation, and this is followed by an explanation of the types of schemes used in practice. Furthermore, it considers the impacts on organizational performance and employee well-being that are often claimed to arise from employee participation. The article concludes by reviewing some of the current influences and policy choices in the area of direct employee participation.
David Marsden and Almudena Cañibano
The approach of this article is to look at participation against the canvas of the employment relationship, its organization, core processes, and their outcomes for organizational performance and social well-being. The article starts with a brief historical overview of developments over the past forty years because it is useful to set theories in their wider historical context: why people posed the questions they did at a particular time. It then reviews a selection of the major theoretical approaches that illustrate the broad tent which encompasses the ‘economic approach’. The article considers the diffusion and the ecology of participatory practices and how these have been interpreted. Next, it presents a partial survey of recent quantitative work on the performance effects of participatory practices updating that of Levine and Tyson. Finally, the article examines some of the conceptual problems posed by these studies.
Margaret M. Blair
This article opens by identifying two principal reasons for looking into the definition of human capital (HC). Defining HC broadly as the ‘skills, knowledge, and capabilities of the workforce’, it argues: first, that these are critical inputs to production; and second, that resources expended on increasing them are investments like more conventional investments in resources, facilities, and equipment. While a person's possessing ‘skills and knowledge’ is an old idea, the article argues that the recent history of HC is its rehabilitation as an additional variable to help explain economic growth not otherwise accounted for by conventional macroeconomic analysis. It reports that despite forty years of objections, HC has become central to macroeconomics, labour economics, growth theory, trade theory, development economics, the economics of education, the theory of the firm, human-resource management, and strategy theory – a very significant impact.
Organization theory has displayed a remarkable creativity during its roughly 100 years of existence. But even if organization theory is interdisciplinary, it remains a stubborn fact that most research on organizations is carried out within distinct disciplines and according to disciplinary traditions. This article presents the concept of organizational economics. The main focus of this article is on transaction cost analysis, agency analysis, and also the evolutionary, game theoretical and property rights perspectives. This is followed by a presentation of the way that firms have been studied in economic sociology, and here the article discusses the Weberian heritage in organizational sociology, the focus on firms in this type of sociology and the role that culture and meaning plays in it. Finally, this article concludes with a brief discussion of the antagonism between organizational economics and the sociology of organizations, and how this antagonism perhaps can be overcome.
Christos N. Pitelis
This article aims is to provide a short critical account of extant economic theory(ies) of the firm, business (and industry organization), and the state and government. It explores competing perspectives, such as neoclassical economics, transaction costs, the evolutionary perspective, resource, capabilities, and the system-based view as well as Marxism and identifies common ground and differences. It also attempts a limited eclectic synthesis. The task of covering such apparently diverse topics in the context of a single entry is facilitated by the fact that extant alternative economic perspectives have implications on all the aforementioned theories. It also tries to show that the issues at hand are central to an appreciation of international organization and system-wide economic performance.
Nicole J. Saam
This article takes a look at the economics approaches to management consulting. It discusses the evolution of economics as well as its basic assumptions. The next section identifies the contributions of new institutional economics for a better understanding of management consulting, especially the concepts of transaction-cost economics, agency theory, and property rights theory. This article also discusses the classical microeconomic theory and behavioral economics and presents contributions from heterodox institutional economics.
Eric Kaarsemaker, Andrew Pendleton, and Erik Poutsma
Employee share ownership involves employees acquiring shares in their employer so that they become shareholders. It takes a variety of forms, some of which may have greater significance and effects than others. The extent to which employees possess profit sharing, information, and participation rights varies considerably. This variety means that generalizations about employee share ownership have to be made with caution, as becomes evident in this article. The article provides more details of the various types of employee share ownership plans, before providing information on the incidence of employee share ownership. It examines the factors associated with the use of employee share ownership plans by companies (‘determinants’). The article also reviews the extensive literature on the effects of employee share ownership on attitudes, behaviour, and performance.
This article focuses on employee voice in non-union enterprises. It provides a brief review of the literature on employee voice and mutual gains that focuses on how they are linked. The article summarizes the evidence, including a new source of evidence, about the incidence of alternative dispute-resolution (ADR) systems and practices in (US-based) non-union enterprises. Furthermore, it draws on a sample of such enterprises to estimate the extent to which employees actually exercise voice under these ADR systems and practices. The article then analyses the survey, interview, and archival data drawn from four of these non-union enterprises to document and assess the extent to which employee exercise of voice under these enterprises’ ADR systems and practices result in mutual gains to employer and employee. Finally, it summarizes the main conclusions of this study and derives certain implications for a broadened theoretical perspective on employee voice and mutual gains.
Zoe Adams and Simon Deakin
Mutuals and co-operatives have a distinct legal form which sets them apart from commercial companies. This chapter reviews the theoretical and empirical literature on the governance and performance effects of these differences, showing that it may be misleading to think of workers and customers as the owners of mutual enterprises, and that a more precise focus on the content of voice, income, and control rights in particular organizations is needed in order to assess the implications of different legal structures for economic performance. Empirical evidence suggests that, on average, worker and customer mutuals are more risk-averse and less profitable, but more sustainable, than commercial entities structured as companies limited by share capital. However, the mutual form does not guarantee that the firm is run in a more democratic and participative way. Mutualization, therefore, while useful in some contexts, should not be explored at the cost of wider corporate governance reforms.
Ewald Engelen and Martijn Konings
This article starts with a section on the literature on financialization, briefly sketching the different approaches, objectives, methodologies, and data sources that can be traced in that literature. It then presents quantitative data on the extent of financialization in five political economies (UK, US, The Netherlands, France, and Germany), highlighting both similarities and differences. The article subsequently identifies three different trajectories of financialization and gives some suggestions as to how comparative institutionalism might conceptualize these. Comparative institutionalism needs to do more to come to terms with the structural transformation in contemporary capitalism, whereby finance has transcended its traditional intermediary role and has become a self-standing growth industry primarily geared to the production of liquidity. This change is reflected in the continuous role-shifting of investment banks. The article argues that comparative institutionalists should consider turning to the growing financialization literature to that end.
Olav Velthuis and Erica Coslor
Nicolai J. Foss
Human capital (HC) may be defined as the stock of valued skills, knowledge, insights, and so on, controlled by an individual: the attributes of the relevant individual that are valuable in an economic context. It yields services such as labour services, management services, or entrepreneurship. While this overall perspective cuts across organizational economics perspectives – such as transaction-cost economics (TCE), property rights/incomplete contracts theory, and agency theory – the specific terminology applied here is particular to TCE. This article surveys TCE as it pertains to HC, concentrating on: the work of TCE's most prominent flag-bearer, Oliver Williamson; the precursors of his work; and the various operationalizations and extensions of his approach. Also briefly discussed is the property-rights approach, which, like TCE, rests on the notion of incomplete contracting and the need to safeguard transactions under such conditions.
Janne Tienari and Eero Vaara
This chapter conceptualizes identity construction in mergers and acquisitions (M and As) as sensemaking where discursive resources are mobilized to construct, transform, and at times destruct senses of organizational identity. M and As are offered as specific contexts where resources such as stereotypes, tropes, narratives, and antenarratives are drawn on to make sense of self (and others) in the transition from legacy organizations to new combined organizational entities. The chapter proposes a theoretical framing based on discursive sensemaking and offers examples from extant research to specify and illustrate it. As a case in point it highlights dynamics of discursive sensemaking with regard to national identity in international M and As. Finally, the chapter outlines avenues for future research.
Following the 2007–08 global financial crisis and subsequent years of stagnation in many economies, there remains no consensus alternative to ‘capitalism unleashed’. This chapter considers that alternative. Just as the rise of capitalism led to the co-operative, Marxian, and other critiques, and just as the crisis of the 1930s led to Keynesianism and social democracy across much of Western Europe and a new international order as fashioned at Bretton Woods, so the failure of capitalism unleashed needs to herald a new era of global economic development—sustainable environmentally, economically, and socially. This will require a greater degree of corporate diversity, with a range of corporate forms—private, state, and co-operative and mutual. This is needed to make the productive system more resilient. It would also be a way of tackling the otherwise relentless spiral of ever greater inequality.