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Embedding human capital into governance design: a conceptual framework

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“Henry Ford announced a special dividend, but then reneged, saying that the cash earmarked for the dividend would be spent for the benefit of employees. A shareholder sued on the grounds that corporations existed for the benefit of shareholders and the management did not have the right to improve the lot of workers at shareholders’ expense. Ford lost the case.

Subsequently it appeared that Henry Ford reneged on the dividend so that he could purchase blocks of shares at depressed prices” (Brealey et al. 2006, p. 936).

Abstract

The purpose of the manuscript is to develop a conceptual framework for embedding human capital into governance design and associated corporate governance mechanisms, and attempts to answer the following key research question: How do human capital characteristics such as human capital specificity, complementarities, and uncertainty, affect governance design? The proposed conceptual framework maps different human resource policies as they relate to building and investing in human assets to different human capital governance designs including hierarchy (or firm governance), contract-based governance (e.g., outsourcing and/or off shoring) and market-based (or arms’ length) employment contracts. By identifying the most important human capital attributes and linking them to governance modes, this manuscript attempts to fill a research gap by building a conceptual framework to guide optimal human capital investments policies and align firm-level human capital attributes and governance mechanisms to support and deploy such a strategic resource in the future. The framework may be useful for financial reporting and accounting purposes.

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Notes

  1. “70 % of corporate value is from intangible assets (according to Accenture) and skill shortages are acute worldwide… being an attractive employer is critical to keep a sustained comparative advantage” WWW.UNIVERSUMGLOBAL.COM/top50.

  2. "MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)." February 24, 2011.http://about.TELUS.com/investors/downloads/20104Q/2010_MDA.pdf.

  3. Although we acknowledge that rent appropriation and potential conflicts would arise between various stakeholders (namely employees and shareholders in our case), we focus our discussion in this paper on how to increase value to all stakeholders (rent generation) when human capital is explicitly incorporated in governance design. For a detailed analysis of human capital-related rent generation and distribution, see Coff (1999, 2011).

  4. The degree of specificity of human capital in term of task idiosyncrasy (Williamson 1975, Foss 2011) and/or specialized skills and organizational routines, relationships and socially complex networks (e.g., Coff 1997, 2011, Wright et al. 2001, 2007). Prior research shows that firm-specific, industry-specific and occupation-specific human capital are all valuable to firms particularly under conditions of “thin markets “and mobility in the labor market such as executive management positions (Sturman et al. 2008, Hatch and Dyer 2004, 2012).

  5. See for example the blog by Erik Sherman titled “Could Your Company Manage without Managers?” August 15, 2013.

  6. The full story and comments about Boeing and its machinist union labor contract negotiations can be found at http://www.pbs.org/newshour/bb/business-jan-june14-boeing 01-03 among other news outlets.

  7. The website for Amazon’s workplace distribution platform is: https://www.mturk.com/mturk/welcome.

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Acknowledgments

The author would like to thank Joseph T. Mahoney for valuable feedback on an earlier version of this manuscript. She also wishes to thank the Editor of the Journal of Management and Governance and two anonymous reviewers for very helpful comments. The Certified General Accountants of Ontario’s (CGA Ontario) financial support for this research is gratefully acknowledged.

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  1. Telfer School of Management, University of Ottawa, Ottawa, ON, K1N 6N5, Canada

    Kaouthar Lajili

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Lajili, K. Embedding human capital into governance design: a conceptual framework. J Manag Gov 19, 741–762 (2015). https://doi.org/10.1007/s10997-014-9295-8

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