A Conceptual Framework to Integrate Uncertainty and Creativity into Corporate Governance

Abstract

Corporate governance research makes claims about the nature of ‘ideal’ arrangements using Agency Theory. However, traditional corporate governance mechanisms designed to curb agency problems may undermine firm growth because they are mostly backward-looking and inherently problematic when facing uncertainty. In fact, they may restrain or disincentivize managerial creativeness and alertness, which can be instrumental to maximize firm value. Our goal is to advance a conceptual framework that integrates into corporate governance elements literature factors that are key for creativity but which have been overlooked in corporate governance. Drawing on a combination of creativity and entrepreneurship literatures, we discuss two parameters—unlikelihood and opacity—which serve as the basis to propose four different types of entrepreneurial projects. Additionally, we provide an in-depth analysis of the optimal corporate governance configurations for each project types. Our framework can inform the design of better tailored governance mechanisms that are specific to a firm’s environment and its projects.