Understanding an Emergent Diversity of Corporate Governance and Organizational Architecture: Essentiality-Based Analysis

Abstract

This article proposes a simple framework for understanding an emergent diversity of linkage between corporate governance (CG) and organizational architecture (OA). It distinguishes discreet modes of their linkage by different combinatorial patterns between three basic assets: managers' human assets (MHA), workers' human assets (WHA), and non-human assets (NHA). Using the concept of essentiality of human assets proposed by Hart (1995) and distinguished from that of complementarities, we first propose a new characterization of four known modes of CG-OA linkage: three traditional (Anglo-American, German, and Japanese) and one relatively new (Silicon Valley) models. Then we present empirical evidences of emergent diversity of Japanese CG-OA which is somewhat at odds with the old Japanese model. We interpret its emergent dominant mode as the path-dependent evolution of a new pattern of human assets essentiality, made viable by lessening of institutional-complementarity-constraints which surrounded the traditional Japanese model. We argue that this new mode interpreted in terms of reciprocal essentiality may have broader applicability beyond Japanese context.

Keywords: Corporate governance, essentiality, human assets, institutional change, organizational architecture, path dependence

JEL Classification: G34, D02, P51, D23, J24, Z13