The Innovative Enterprise and Corporate Governance

The centrality of corporate enterprises for allocating resources in the economy has sparked the recent debate among economists about the manner in which corporations should be governed to enhance economic performance. The process through which resources are developed and utilised is central to the dynamic through which successful enterprises and economies improve their performance over time as well as relative to each other. The leading theories of corporate governance -the shareholder and stakeholder theories -do not, however, incorporate a systematic analysis of innovation in their analytical frameworks. Both of these theories, in fact, rely on concepts of resource allocation, borrowed from neoclassical economics, that contradict what we know about the innovation process. To deal with the economics of innovation, a theory of corporate governance must come to terms with the developmental, organisational, and strategic dimensions of innovative resource allocation. This article describes an organisational-control theory that demonstrates the implications of innovation for corporate governance.