Published Online:

This paper examines the efficiency rationale for democratic governance in economic organization. In addition to markets, hierarchies, and clans (the standard repertoire), democracy should be added as a viable and efficient form of organization, particularly for the modern knowledge-intensive economy. In fact, even using established organization theory and organizational economics, democratic governance would constitute a superior structural alternative under such conditions. Based on this theoretical argument and more than a decade of empirical research on the organization of new knowledge-based firms, as well as the governance of innovative activities in established firms, this paper advances a set of propositions articulating the efficient mix of governance mechanisms defining such democratic structural alternative; they include “partnership” rather than “exchange” employment contracts, “democratic” allocation of decision and control rights, negotiated rent-sharing, and open boundaries. The potential and due applications of these practices to situations where knowledge contributions are present but not prominent are highlighted.


  • Alchian A. A., Demsetz H. (1972). Production, information costs, and economic organization. American Economic Review, 62(5), 777–795. Google Scholar
  • Alvesson M., Lindkvist L. (1993). Transaction costs, clans, and corporate culture. Journal of Management Studies, 30(3), 427–452. Google Scholar
  • Aoki M. (2004). Comparative institutional analysis of corporate governance. In Grandori A. (Ed.), Corporate governance and firm organization. Oxford, UK: Oxford University Press. Google Scholar
  • Arthur M. B.Rousseau D. M. (Eds.). (1996). The boundaryless career: A new employment principle for a new organizational era. New York: Oxford University Press. Google Scholar
  • Bagdadli S., Solari L., Usai A., Grandori A. (2003). The emergence of career boundaries in unbounded industries. International Journal of Human Resource Management, 14(5), 788–808. Google Scholar
  • Barney J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. Google Scholar
  • Baron J. N., Kreps D. M. (1999). Strategic human resources. New York: Wiley. Google Scholar
  • Becker G. S. (2002). The concise encyclopedia of economics. Human capital. New York: Columbia University Press. Google Scholar
  • Blair M. M. (1999). Firm-specific human capital and theories of the firm. In Blair M.Roe M. J. (Eds.), Employees and corporate governance. Washington, DC: Brookings Institution Press. Google Scholar
  • Blair M. M., Stout L. A. (2006). Specific investment and corporate law. European Business Organization Law Review, 7(2), 473–500. Google Scholar
  • Bloom M., Milkovich G. T. (1998). Relationships among risk, incentive pay, and organizational performance. Academy of Management Journal, 41(3), 283–297.AbstractGoogle Scholar
  • Boisot M. (1998). Knowledge assets. New York: Oxford University Press. Google Scholar
  • Colombo M. G., Grilli L. (2005). Founders’ human capital and the growth of new technology-based firms: A competence-based view. Research Policy, 34(6), 795–816. Google Scholar
  • de Jong G., van Witteloostuijn A. (2004). Successful corporate democracy: Sustainable cooperation of capital and labor in the Dutch Breman Group. Academy of Management Executive, 18(3), 54–66.AbstractGoogle Scholar
  • Fama E., Jensen M. (1983a). Agency problems and residual claims. Journal of Law & Economics, 26(2), 327–349. Google Scholar
  • Fama E., Jensen M. (1983b). Separation of ownership and control. Journal of Law & Economics, 26(2), 301–325. Google Scholar
  • Foss N. J. (2002). Coase vs. Hayek: Economic organization and the knowledge economy. International Journal of the Economics of Business, 9(1), 9–35. Google Scholar
  • Foss N. J., Klein P. G. (2012). Organizing entrepreneurial judgment. Cambridge, UK: Cambridge University Press. Google Scholar
  • Grandori A. (2010). Asset commitment, constitutional governance and the nature of the firm. Journal of Institutional Economics, 6(3), 351–375. Google Scholar
  • Grandori A. (2013a). Human capital and property rights. In Grandori A. (Ed.), Handbook of economic organization: Integrating economic and organization theory. Cheltenham, UK: Edward Elgar. Google Scholar
  • Grandori A. (2013b). Epistemic economics and organization: Forms of rationality and governance for a wiser economy. London: Routledge. Google Scholar
  • Grandori A., Furnari S. (2008). A chemistry of organization: Combinatory structural analysis and design. Organization Studies, 29(3), 459–485. Google Scholar
  • Grandori A., Gaillard L. (2011). Organizing entrepreneurship. London: Routledge. Google Scholar
  • Grandori A., Soda G. (2004). Governing with multiple principals: An empirically based analysis of capital providers’ preferences and superior governance structures. In Grandori A. (Ed.), Corporate governance and firm organization. Oxford, UK: Oxford University Press. Google Scholar
  • Grant R. M. (1996). Toward a knowledge-based theory of the firm. Strategic Management Journal, 17(S2), 109–122. Google Scholar
  • Hansmann H. (1988). The ownership of the firm. Journal of Law, Economics, and Organization, 4(2), 267–304. Google Scholar
  • Hart O. (1995). Firm, contracts, and financial structure. Oxford, UK: Clarendon Press. Google Scholar
  • Hart O., Moore J. (1990). Property rights and the nature of the firm. Journal of Political Economy, 98(6), 1119–1158. Google Scholar
  • Jensen M. C., Meckling W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360. Google Scholar
  • Kaplan S. N., Strömberg P. (2003). Financial contracting theory meets the real world: An empirical analysis of venture capital contracts. Review of Economic Studies, 70(2), 281–315. Google Scholar
  • Kochan T. A. (2002). Addressing the crisis in confidence in corporations: Root causes, victims, and strategies for reform. Academy of Management Executive, 16(3), 139–141.AbstractGoogle Scholar
  • Lepak D. P., Snell S. A. (2002). Examining the human resource architecture: The relationships among human capital, employment, and human resource configurations. Journal of Management, 28(4), 517–543. Google Scholar
  • Marshall A. (1920). Principles of economics (8th ed.). London: Macmillan. Google Scholar
  • Masten S. E. (2013). The enterprise as community: Firms, towns, and universities. In Grandori A. (Ed.), Handbook of economic organization: Integrating economic and organization theory. Cheltenham, UK: Edward Elgar. Google Scholar
  • Miles R. E., Snow C. S., Mathews J. A., Miles G., Coleman H. J. (1997). Organizing in the knowledge age: Anticipating the cellular form. Academy of Management Executive, 11(4), 7–21.AbstractGoogle Scholar
  • Milgrom P., Roberts J. (1992). Economics, organization, and management. Englewood Cliffs, NJ: Prentice Hall. Google Scholar
  • Nahapiet J., Ghoshal S. (1998). Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23(2), 242–266.LinkGoogle Scholar
  • Ouchi W. G. (1979). A conceptual framework for the design of organizational control mechanisms. Management Science, 25(9), 833–848. Google Scholar
  • Ouchi W. G. (1980). Markets, bureaucracies, and clans. Administrative Science Quarterly, 25(1), 129–141. Google Scholar
  • Perrow C. (1967). A framework for the comparative analysis of organization. American Sociological Review, 32(2), 194–208. Google Scholar
  • Petty R., Guthrie J. (2000). Intellectual capital: Literature review. Journal of Intellectual Capital, 1(2), 155–176. Google Scholar
  • Rajan R. G., Zingales L. (2000). The governance of the new enterprise. In X. Vives (Ed.), Corporate governance (Chapter 6). Cambridge, UK: Cambridge University Press. Google Scholar
  • Sacconi L.Blair M.Freeman E.Vercelli A. (Eds.). (2010). Corporate social responsibility and corporate governance: The contribution of economic theory and related disciplines. Basingstoke, UK: Palgrave Macmillan. Google Scholar
  • Simon H. A. (1951). A formal theory of the employment relationship. Econometrica, 19(3), 293–305. Google Scholar
  • Stuart T. A. (1997). Intellectual capital. New York: Doubleday. Google Scholar
  • Wilkins A. L., Ouchi W. G. (1983). Efficient cultures: Exploring the relationship between culture and organizational performance. Administrative Science Quarterly, 28(3), 468–481. Google Scholar
  • Williamson O. E. (1975). Markets and hierarchies: Analysis and antitrust implications. New York: Free Press. Google Scholar
  • Williamson O. E. (1981). The economics of organization: The transaction cost approach. American Journal of Sociology, 87(3), 548–577. Google Scholar
  • Williamson O. E. (1991). Comparative economic organizations: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36(2), 269–296. Google Scholar
  • Youndt M. A., Subramaniam M., Snell S. A. (2004). Intellectual capital profiles: An examination of investments and returns. Journal of Management Studies, 41(2), 335–361. Google Scholar
Academy of Management
  Academy of Management
  555 Pleasantville Road, Suite N200
  Briarcliff Manor, NY 10510-8020, USA
  Phone: +1 (914) 326-1800
  Fax: +1 (914) 326-1900