Complexity Theory, CSR, and Corporate Governance - The Need for Alternative Governance Models

Abstract

Manuscript Type: Conceptual

Research Question/Issue: How can increased environmental complexity be managed better through more effective integration of corporate governance and CSR? What are the deficiencies of the predominant corporate governance architecture with regard to CSR support and how can the corporate governance architecture improve to support higher levels of managerial responsibility?

Research insights/findings: Based on insights from complexity theory, we find that the prevailing complexity reduction approaches lead to suboptimal corporate governance and CSR with regard to establishing managerial responsibility. We suggest that the lens of complexity absorption provides ways to redesign the approach to both corporate governance and CSR. Integrating governance and CSR by establishing decentralized governance structures that divide labor and power among all strategic stakeholders ensure higher levels of managerial responsibility.

Theoretical/Academic Implications: We outline the conceptual connection between corporate governance and CSR and advance thinking about integration that improve both. We outline why traditional, centralized governance architecture (e.g. unitary board structures) fail to support monitoring and strategic advice functions concerning CSR of the board adequately. We use complexity theory and argue that complexity reduction approaches to both governance and CSR are failing in complex environments. We also suggest that complexity absorption approaches can help address such failures. Finally, we suggest how governance and CSR can be integrated to absorb complexity and increase managerial responsibility. We thus contribute theoretically by advancing the conceptualization of corporate governance and CSR as well as by providing alternative thinking on governance structures.

Practitioner/Policy Implications: We suggest that practitioners and policy makers consider complexity absorption as an alternative to integrate Corporate Governance and CSR which will lead to higher levels of managerial responsibility. We provide evidence that decentralized governance structures that actively divide labor and power among stakeholders can lead to better outcomes in a complex environment.

Keywords: CSR, Complexity Theory, Corporate Governance, Complexity Reduction

JEL Classification: D8, E18, G38, L22, Z00