Authority Versus Loyalty: Social Incentives and Modes of Governance

51 Pages Posted: 7 Jun 2010

See all articles by Samuel Lee

Samuel Lee

Santa Clara University - Leavey School of Business; European Corporate Governance Institute (ECGI); Swedish House of Finance

Petra Persson

Stanford University; Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2010

Abstract

This paper examines the effects of social ties on governance. Social ties are per se neutral and merely act as incentive bridges that transmit incentives between individuals. Whether such transmission of incentives improves or undermines governance depends on the particular incentives transmitted. We demonstrate this through a delegated monitoring model where the supervisor is friends with the agent and cares about social recognition. Two basic modes of governance emerge, authority and loyalty, which differ in whether they encourage or discourage social ties. This dichotomy reconciles opposing views on the effect of social ties on governance, and provides new perspectives on family firms, gray directors, business networks, and organizational culture.

Suggested Citation

Lee, Samuel and Persson, Petra, Authority Versus Loyalty: Social Incentives and Modes of Governance (April 2010). NYU Working Paper No. 2451/29609. Available at SSRN: https://ssrn.com/abstract=1621154

Samuel Lee (Contact Author)

Santa Clara University - Leavey School of Business

500 El Camino Real
Santa Clara, CA California 95053
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Petra Persson

Stanford University ( email )

Stanford, CA 94305
United States

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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