Institutional Complementarities between Organizational Architecture and Corporate Governance

Abstract

This paper explores an analytical reason why diverse corporate governance structure can be generated and sustained. The paper identifies three generic modes of organizational architecture in terms of information connectedness between the manager and the workers. Any of them cannot have absolute informational advantage in achieving an organizational objective independently of attribute of organizational product and technological task environment. Using the concept of strategic complementarity in game, it is then shown that a different type of governance structure may be associated with each mode of organizational architecture that can resolve respective moral hazard problem in the second best manner. Argument clarifies a limited applicability of the property rights approach for understanding a diversity of corporate governance. Topics such as codetermination, the stake-holder society view, and the Silicon Valley model are related to the analysis.