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Abstract:
Employees are motivated intrinsically as well as extrinsically. Intrinsic motivation is crucial when tacit knowledge in and between teams must be transferred. Organizational forms enable different kinds of motivation and have different capacities to generate and transfer tacit knowledge. Since knowledge generation and transfer are essential for a firm's sustainable competitive advantage, we ask specifically what kinds of motivation are needed to generate and transfer tacit knowledge, as opposed to explicit knowledge.

Motivation, Knowledge Transfer, Tacit Knowledge, Crowding Effects, Firm Theory, Resource-based View

Abstract:
Management fashions promise solutions for allegedly urgent problems. Pay-for-Performance appears to be such a fashion. It seems to guarantee a more effective monitoring of the management considering the failure of the board of directors. We show theoretically and empirically that Pay-for-Performance, like many fashions, did not reach the intended task, but leads to the contrary. The example Pay-for-Performance shows that many fashions rather aggravate problems that they pretend to solve. Nethertheless they are able to persist until a new fashion takes over.

Pay-for-Performance, Management fashion, Crowding-out

Abstract:
Corporate scandals, reflected in excessive management compensation and fraudulent accounts, cause considerable damage. Agency theory's insistence on linking the compensation of managers and directors as closely as possible to firm performance is a major reason for these scandals. They cannot be overcome by improving variable pay for performance, as selfish extrinsic motivation is reinforced. Based on the common pool approach to the firm, institutions are proposed which serve to raise intrinsically motivated corporate virtue. More importance is to be attributed to fixed pay and strengthening the legitimacy of authorities by procedural fairness, relational contracts and organizational citizenship behavior.

Agency theory, intrinsic motivation, crowding theory, management compensation, pay for performance, organizational citzenship

Abstract:
Does Open Source (OS) represent a new innovation model, and under what conditions can it be employed in other than the software development context? OS is a term for software published under licence that does not give any private intellectual property rights to the developers. They invest private resources in inventions that are then fed into a common pool by contributing to a public good.

A look into history shows that OS isn't a unique example of an innovation model which Allen called 'collective invention' (Allen 1983). In the second half of the nineteenth century iron-making companies in Britain's Cleveland district willingly shared their innovations in blast furnace design (Allen 1983). Other examples include the enhancement of steam engine design after 1800 (Nuvolari 2002) and the search for a dominant design in the flat panel display industry (Spencer 2003).

Even though OS shares many similarities with these other cases of collective invention, there are two major differences. Firstly, collective invention regimes rarely seem to survive after the development of a dominant design (see e.g. Meyer 2002). In OS, this problem is solved with the institutional innovation of OS licences. Rather than just giving up their intellectual property rights, OS developers use these licenses to ensure that their innovations remain common property for all times (O'Mahony 2003).

Secondly, the problem of enforcing the rules of cooperation established in these licenses is solved in a rather informal, decentralised way. Enforcing the rules of cooperation establishes a public good of a second order (Elster 1989). In the Open Source context, the contribution to the second order public good can only be explained by the presence of a sufficient number of norm-based intrinsically motivated contributors who are willing to carry the private costs of rule enforcement. We show that the governance mechanisms used in OS projects are especially well suited not to crowd out this special kind of motivation.

We conclude that OS differentiates itself from other cases of collective invention by its success in solving the second order social dilemma of rule development and enforcement, which depends on institutional as well as motivational factors.

open source, collective invention, motivation

Abstract:
Corporate scandals are reflected in excessive top management compensation and fraudulent accounts. These scandals cause an enormous amount of damage, not only to the companies affected, but also to the market economy as a whole. As a solution, conventional wisdom suggests more monitoring and sanctioning of management. We argue that these efforts will create a governance structure for crooks. Instead of solving the problem, they make it worse. Selfish extrinsic motivation is reinforced. We suggest measures which clash with conventional wisdom: selecting employees with pro-social intrinsic preferences, de-emphasizing variable pay for performance and strengthening the participation and self-governance of employees. These measures help to increase intrinsically motivated corporate virtue and honesty.

Corporate Virtue, fraud, intrinsic motivation, crowding theory, pay for performance, employee participation

Abstract:
There is a controversy about the finding that performance-contingent rewards undermine intrinsic motivation. While standard economics states that pay-for-performance increases work efforts, psychological economics counter that it sometimes weakens work efforts. We show both predictions are valid in a job-related environment. Based on a meta-analysis and a vignette study we find a) performance-contingent pay strengthens extrinsic motivation, i.e., elicits a price effect; simultaneously b) performance contingent pay weakens intrinsic motivation, i.e., provokes a crowding-out effect. We disaggregate the net result of both effects contingent on the nature of the task. We show: pay-for-performance always produces hidden costs of rewards.

motivation, pay for performance, crowding-out, price effect, meta-analysis, vignette study

Abstract:
The most influential theory of corporate governance, principal agency theory, does not take into consideration that the key task of modern corporations is to generate and transfer firm-specific knowledge. It proposes that, in order to overcome the widespread corporate scandals, the interests of top management and directors should be increasingly aligned to shareholder interests by making the board more responsible to shareholders, and strengthening the monitoring of top management by independent outside directors. Corporate governance reform needs to go in another direction altogether. Firm-specific knowledge investments are, like financial investments, not ex ante contractible, leaving investors open to exploitation by shareholders. Employees therefore refuse to make firm-specific investments. To gain a sustainable competitive advantage, there must be an incentive to undertake such firm-specific investments. Three proposals are advanced to deal with this conflict: (1) The board should rely more on insiders. (2) The insiders should be elected by those employees of the firm making firm-specific knowledge investments. (3) The board should be chaired by a neutral person. These proposals have major advantages: they provide incentives for knowledge investors; they countervail the dominance of executives; they encourage intrinsic work motivation and loyalty to the firm by strengthening distributive and procedural justice, and they ensure diversity on the board while lowering transaction costs. These proposals for reforming the board may help to overcome the crisis corporate governance is in. At the same time, they connect agency theory with the knowledge-based theory of the firm.

Conflict management, corporate governance, agency theory, firm-specific investment, knowledge capital

Abstract:
Mergers and Acquisitions (M&A) aim to increase wealth for shareholders of the acquiring company, in particular by creating synergies. It is often assumed that relatedness is a source of synergies. Our study distinguishes between business, cultural, technological and size relatedness. It discusses the reasons why these different forms of relatedness can lead to an acquisition success and conducts a meta-analysis of 67 prior M&A studies. Results indicate that positive effects can be expected under specific conditions only and have a limited overall impact on acquisition success. A moderator analysis finds that synergies stemming from relatedness depend on industry-, country-, and investor-characteristics.

M&A, acquisitions, synergies, meta-analysis, managerialism, hubris

Abstract:
The prevailing shareholder-oriented view of firm governance is based on agency theory. This view emphasizes that financial markets should impose discipline on top managers and that top managers should act exclusively in the economic interest of shareholders. Surprisingly, various successful forms of firm governance are inconsistent with this view. Therefore, we develop a framework that integrates three distinct theoretical perspectives on firm governance: the "financial market discipline" view, the "employees' voice" view, and the "implicit contracts" view. Each perspective is related to a specific role of top management. We discuss these different roles and their implications.

Corporate governance, firm-specific investments, top management, financial market discipline, employee voice, implicit contracts

Abstract:
The most influential approach of corporate governance, the view of shareholders' supremacy does not take into consideration that the key task of modern corporations is to generate and transfer firm-specific knowledge. It proposes that, in order to overcome the widespread corporate scandals, the interests of top management and directors should be increasingly aligned to shareholders' interests by making the board more responsible to shareholders, and monitoring of top management by independent outside directors should be strengthened. Corporate governance reform needs to go in another direction altogether. Firm-specific knowledge investments are, like financial investments, not ex ante contractible, leaving investors open to exploitation by shareholders. Employees therefore refuse to make firm-specific investments. To gain a sustainable competitive advantage, there must be an incentive to undertake such firm-specific investments. Three proposals are advanced to deal with this dilemma: (1) The board should rely more on insiders. (2) The insiders should be elected by those employees of the firm who are making firm-specific knowledge investments. (3) The board should be chaired by a neutral person. These proposals have major advantages: they provide incentives for knowledge investors; they countervail the dominance of executives; they encourage intrinsic work motivation and loyalty to the firm by strengthening distributive and procedural justice, and they ensure diversity on the board while lowering transaction costs. These proposals for reforming the board may help to overcome the crisis corporate governance is in. At the same time, they provide a step in the direction of a more adequate theory of the firm as a basis for corporate governance.

Corporate governance, shareholders, board directors, insiders, firm-specific knowledge

Abstract:
Research evaluation is praised as the symbol of modern quality management. We claim firstly, performance evaluations in research have higher costs than normally assumed, because the evaluated persons and institutions systematically change their behavior and develop counter strategies. Moreover, intrinsic work motivation is crowded out and undesired lock-in effects take place. Secondly, the benefits of performance evaluations are questionable. Evaluations provide too little information relevant for decision-making. In addition, they lose importance due to new forms of scientific cooperation on the internet. Thirdly, there exist superior alternatives. They consist in careful selection and supportive process coaching - and then leave individuals and research institutions to direct themselves.

Evaluation, rankings, hidden costs, multi taskng, intrinsic motivation, control

Abstract:
The financial crisis made apparent the fact that managers and the boards of banks had failed to see the implications of irrational behavior and had ignored the risk associated with group think. Taking data from Switzerland our study shows that there is an increasing homogeneity of management and board teams. Most committees mainly consist of males with a managerial background. We derive from the existing literature the hypotheses that in radically changing environments women and individuals without a managerial background are less affected by systematic forecasting errors. Using a dataset collected shortly before the peak of the financial crisis we demonstrate that the groups which are highly underrepresented in most boards and management teams were significantly more capable of giving correct forecasts than the groups generally best represented in boards and management teams. To mitigate corporate governance failures we argue that firms should use simple social mechanisms in order to increase the diversity of their management and board teams while at the same time avoiding the danger of time consuming team conflicts. They should therefore include criss-cross individuals, i.e. individuals with no clear-cut group affiliation such as males with a non-managerial background as well as women with a management-related background.

Financial crisis, Board diversity, psychological economics, forecasting predictions, gender, expert knowledge, uncertainty

Abstract:
The corporate governance structure of monasteries is analyzed to derive new insights into solving agency problems of modern corporations. In the long history of monasteries, some abbots and monks lined their own pockets and monasteries were undisciplined. Monasteries developed special systems to check these excesses and therefore were able to survive for centuries. These features are studied from an economic perspective. Benedictine monasteries in Baden-Württemberg, Bavaria and German speaking Switzerland have an average lifetime of almost 500 years and only a quarter of them broke up as a result of agency problems. We argue that this is due to an appropriate governance structure, relying strongly on the intrinsic motivation of the members and on internal control mechanisms.

Corporate Governance, Principal-Agency-Theory, Psychological Economics, Monasteries, Benedictine Order

Abstract:
Helping and sharing behaviors - the essence of team work and organizational success - are to a great part intrinsically motivated. How can organizations influence intrinsic motivation in a predictable way? Different research approaches give different answers: The situationist approach suggests designing a good organizational context. The individual difference approach concentrates on the selection of employees with good motivational dispositions. We follow an interactionist approach which has been rarely applied in the field of helping and sharing behaviors. It combines organizational design with personnel selection. We draw on self-determination theory to specify the determinants of interaction between organizational design and motivational dispositions. Our propositions are tested with a vignette study. The results show that the organizational context is the strongest predictor of helping and sharing behaviors. Nevertheless, motivational dispositions play an important role by acting as perceptual filters. In a good organizational setting even individuals with a "bad motivational disposition" can be motivated to cooperate in a good-spirited way.

Volunteering, intrinsic motivation, organizational design

Abstract:
Director compensation has become a fashionable topic: Cross-nationally, the earnings of executives and non-executive directors have risen significantly in recent years. Academic literature offers two hypotheses for this trend, a "fat cat" and an "optimal-contract" explanation. Proponents of the "fat cat" explanation state that directors are paid too much due to their unjustified power. Proponents of the "optimal-contract" hypothesis state that competition in the managerial labour market establishes an optimal compensation contract. This study contrasts both hypotheses and presents evidence that the level of directors' pay in Swiss corporations is to be explained by "optimal contracts" and by managerial power. We give evidence to which degree the two explanations are valid.

executive compensation, optimal contracts, suboptimal contracts, market power

Abstract:
The financial crisis is a crisis of governance as well. In search of answers and solutions many scholars and practitioners recommend improved output control, i.e. better external incentives or even stricter regulations. Monasteries demonstrate that alternative models may be more suitable to enhance sustainable governance quality and to reduce agency problems. In the long history of monasteries, some abbots and monks were known to line their own pockets and some monasteries were undisciplined. Monasteries developed special systems to combat these excesses thus ensuring their survival over centuries. We study these features from an economic perspective. Derived from an analysis of the Benedictine monastery of Engelberg we offer three improvements of applied governance designed to reduce agency problems. First, monastic governance emphasizes clan control rather than output control. Second, monasteries demonstrate that organizations can prevent agency problems by complementing external discipline with internal behavioral incentives, such as value systems and voice. Third, organization members who make firm-specific investments are motivated by broad participation rights and co-determination.

Corporate Governance, Financial Crisis, Psychological Economics, Monasteries, Principal Agency Theory, Benedictine Order

Abstract:
A rarely studied trend in corporate governance is the increasing tendency to fill CEO openings through external hires rather than through internal promotions: Kevin J. Murphy and Ján Zábojník (2004) show that the proportion of outside hires has doubled and their pay premium almost quadrupled over the last thirty years. Assuming that general managerial skills are becoming more important relative to firm-specific skills, the authors conclude that competition in the managerial labor market establishes optimal contracts. In our model and our empirical analysis we question this explanation by assuming that over the past decades the dishonesty of the predecessor has become relatively more important for the appointment decisions of firms. We conclude that outside hires are a suboptimal trend because external candidates even step up the regression of integrity in firms: As nobody has an incentive to invest in firm-specific knowledge, not only the performance of firms drops, but also the remaining integrity.

CEO Appointments, external hires, suboptimal contracts

Abstract:
We show theoretically and empirically that Pay-for-Performance, like many management fashions, has not achieved its intended aim. Our research focuses on previous empirical studies that examine the relation between variable executive pay and firm performance on various different dates. Our results indicate that a variable CEO income contributes very little to the increase of the firm’s performance, and that CEO salary and firm performance are not linked. The example of Pay-for-Performance shows that in the long run, many management fashions do not solve the problems that they promise to solve.

CEO Compensation, Corporate Governance, Crowding Out, Management Fashion, Pay-for-Performance

Abstract:
There is a growing debate about economics not only being bad for practice but also destroying good management practice. The focus of this debate has been on the negative influences of wrong assumptions in theory building which become a self-fulfilling prophecy. We analyze why standard economics indeed can be bad for managerial and political practice. Aside from wrong assumptions, economic imperialism is another important factor. We argue that psychological economics is better for practice than standard economics, but is still not good for practice, as long as it uses an imperialistic approach. We propose a different research strategy, which we call multidisciplinary mapping. It not only bridges between different disciplinary approaches but also between the knowledge of scholars and practitioners. It is good for practice as well as for theory building.

Psychological economics, economic imperialism, self-fulfilling prophecy, multidisciplinary mapping

Abstract:
Peer reviews and rankings today are the backbone of research governance, but recently came under scrutiny. They take explicitly or implicitly agency theory as a theoretical basis. The emerging psychological economics opens a new perspective. As scholarly research is a mainly curiosity driven endeavor, we include intrinsic motivation and supportive feedback by the peers as important determinants of scholarly behavior. We discuss whether a stronger emphasis on selection and socialization offers an alternative to the present regime of academic rankings.

peer reviews, rankings, research governance, agency theory, psychological economics, new public management, economics of science, control theory