The impact of information and communication technology on relation-based governance systems

Abstract

This study offers a new perspective to the analysis of the interface between information and communication technology (ICT) and corporate governance and how the interface differs across countries with different political and economic environments. We first introduce a theoretical framework of relation-based and rule-based governance that distinguishes economies/firms based on whether they rely on public rules or personal relations to govern business. Economically more developed countries tend to be rule-based and less developed countries (LDCs) tend to be relation-based. Based on the theoretical framework, the paper analyzes the interface between ICT and corporate governance and the barriers to adopting ICT by relation-based LDCs. We argue that economic- and legal-system-specific governance effects are more fundamental than national cultural effects on ICT adoption, and that the barriers to adopting ICT are greater for the LDCs that rely on relation-based governance. We expect that in the long run ICT will make rule-based, developed countries more competitive, thus exerting pressures on relation-based LDCs and accelerating the transition of LDCs from relation-based to rule-based governance. Increasing ICT compatibility, in turn, will facilitate LDCs transition to rule-based governance. © 2005 Wiley Periodicals, Inc.