Flaws and Remedies in Corporatisation and Privatisation1

Abstract

This paper analyses the inherent operational defects of centrally controlled hierarchies which are common to both the public and private sectors in Anglo-Saxon corporate architecture and suggests how these defects may be ameliorated. The defects arise from the use of unitary boards which introduce conflicts of interest for directors and reduces both their ability and incentive to improve operational performance. The use of supervisory boards and stakeholder councils to decentralise control, provides a basis for improving the operational performance of directors and their organisation. Also, stakeholder participation provides a way to convert ‘open’ hierarchies into several decentralised ‘closed loop’ information and control systems to improve operating performance. Practical examples are found in Japanese keiretsu firms, the employee/consumer co-operatives found around the town of Mondragón in Spain and in the governance of the Australian Aboriginal and Torres Strait Islander Commission. This paper considers the opportunities for public and private sector organisations using Anglo-Saxon corporate architecture to improve their performance, social accountability and competitiveness by introducing stakeholder governance.