Embedding human capital into governance design: a conceptual framework

Abstract

The purpose of the manuscript is to develop a conceptual framework for embedding human capital into governance design and associated corporate governance mechanisms, and attempts to answer the following key research question: How do human capital characteristics such as human capital specificity, complementarities, and uncertainty, affect governance design? The proposed conceptual framework maps different human resource policies as they relate to building and investing in human assets to different human capital governance designs including hierarchy (or firm governance), contract-based governance (e.g., outsourcing and/or off shoring) and market-based (or arms’ length) employment contracts. By identifying the most important human capital attributes and linking them to governance modes, this manuscript attempts to fill a research gap by building a conceptual framework to guide optimal human capital investments policies and align firm-level human capital attributes and governance mechanisms to support and deploy such a strategic resource in the future. The framework may be useful for financial reporting and accounting purposes.