The Science of Corporate Governance

Abstract

Transaction Byte Analysis (TBA) is introduced as a basis to ground corporate governance in the science of information and control described as cybernetics. TBA provides fundamental criteria for evaluating the governance integrity of any type of organisation because all individuals possess physiological and neurological limits to receive, store, manipulate and transmit information measured in bytes. Cybernetics laws of requisite variety in communication channels, decision making centres and control agents provide strategies for overcoming human variations and their limitations in managing complexity. The paper identifies the cybernetic advantages of compound boards and concludes that a unitary board cannot reliably govern complex firms.

Keywords: Bytes, Control, Compound board, Cybernetics, Distributed decisions, Firm architecture, Governance, Information, Regulation, Requisite variety, Supplementation, Transaction Byte Analysis, Unitary boards

JEL Classification: B49, D20, D70, D80, G30, L20, L30, M10