Stakeholder Governance: A Cybernetic and Property Rights Analysis

Abstract

A cybernetic perspective is used to evaluate firms with or without stakeholder participation in their information and control architecture. This approach also provides a basis for evaluating firms with more than one board or control centre as found in Japan, Europe, and labour‐managed firms. Empirical evidence supports the hypothesis that multi control centres with stakeholder participation can provide competitive advantages. This hypothesis is supported by the Law of Requisite Variety and the Williamson analysis of why Multi‐divisional firms provide advantages over Unitary Form firms. The opportunity to support stakeholder governance with stakeholder ownership is identified from an analysis of how corporate rights of perpetual succession permits investors to be overpaid. The public policy implications of investor overpayments are considered. Also considered is the use of cybernetic principles to introduce self‐regulation as proposed by the US Vice President. Policy initiatives are identified to build a ‘stakeholder economy’ as proposed by the Leader of the Labour Party in Britain. The paper concludes that appropriate stakeholder governance could improve equity and self‐governance in the private sector, the quality of democracy in the public sector, and the efficiency of both sectors.