Nature and governance of the firm: in search of an integrated perspective

Abstract

In this paper we argue that in order to analyse firm governance we need to reappraise the nature of the firm. Based on Austrian and Marshallian categories we consider the firm as a processor of production and knowledge, whose governance is implemented through the cooperative actions of stakeholders involved in a collective learning process. This interpretation conflicts with models of corporate governance based on shareholder‐value principles.

Keywords:

• nature of the firm
• governance of the firm
• processor of production and knowledge
• stakeholders
• shareholders
• collective learning processes

JEL classifications:

• G30
• L20

Notes

1. Differences between agency theory and TCE are notable. The differences are in the choice of the basic unit of analysis (transaction vs individual agent) and in the ex ante analysis of agency costs and the ex post analysis of transaction costs. But there are some basic commonalities between them: moral hazard and opportunism are ‘merely terminological differences’, whereas the need to realign incentives or craft governance structures are equivalent means for efficient contracting facing prospective distortions (Williamson 1988, 570).

2. Coase’s (1972) programmatic paper has been systematically ignored by most of his followers, who reduce Coase’s insights to a simple forerunner of TCE. Coase insisted that it was necessary to put his 1937 and 1972 papers into perspective, in order to understand the key role of firms in industrial organization (Coase 1988).

3. A number of authors have developed parts of this research programme in several articles and books: Loasby (1976), Langlois and Robertson (1995), Foss (1999).

4. See, for instance, Garicano (2000) who clarifies the key role played by the hierarchical organization in organizing the acquisition of knowledge in a problem‐solving framework inspired by Hayek (1948).

5. In what follows we develop further some sketchy proposals made by Foss (1999, 478–479).

6. Solutions have been proposed from both ends of the theoretical range: Jensen and Meckling (1992), Dosi, Levinthal and Marengo (2003).

7. In the sense of Gaston Bachelard who wrote that a scientific experiment is a ‘materialized theory’ (Bachelard 1934, 16).