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Enlightened Corporate Governance: Specific Investments by Employees as Legitimation for Residual Claims

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Abstract

While much has been written on specificity (e.g., in texts on new institutional economics, agency theory, and team production theory), there are still some insights to be learnt by business ethicists. This article approaches the issue from the perspective of team production, and will propose a new form of corporate governance: enlightened corporate governance, which takes into consideration the specific investments of employees. The article argues that, in addition to shareholders, employees also bear a residual risk which arises due to their specific investments. This residual risk presents a valid and legitimate basis for residual claims. In this way, employees can be seen as residual claimants due to the fact that their income depends upon a hazardous quasi rent. Therefore, this article will call on the fiduciary duty of board members to protect those employees who are exposed to such residual risks and may thus be vulnerable as a result. This leads to a fundamental change of perspective on the “theory of the firm” – a change which will adopt the theories of new institutional economics, agency theory, and team production theory in order to promote business ethics research. Against this background, enlightened corporate governance aims to follow the criterion of specific investments as a legitimate basis for residual claims. Furthermore, it seeks to understand the consequences for board members, and to promote the sharing of control and ownership. The article will close with some discussion of the implications and future prospects for business ethics.

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  1. Institute for Philosophy, Bayreuth University, Universitätsstr. 30, 95440, Bayreuth, Germany

    Alexander Brink

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Brink, A. Enlightened Corporate Governance: Specific Investments by Employees as Legitimation for Residual Claims. J Bus Ethics 93, 641–651 (2010). https://doi.org/10.1007/s10551-009-0245-3

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