Towards an integrated theory of economic governance – Conclusions from the governance of ethics

A number of review articles on theories of governance have recently come to the conclusion that theories of governance are characterized by a very strong focus on particular aspects of governance, both with regard to governance problems (e.g., incentives, contracts) and theoretical approaches employed (agency theory). At the same time, however, the problems that firms (and managers) are facing are typically multi-layered and complex. For instance, financial flows, knowledge flows, flows of goods etc. all have to be governed simultaneously. In consequence, in a string of recent articles, calls have been issued to broaden governance theory in order to enable taking into account a wider range of governance dimensions and theories. For doing so, two initial steps are required: establishing the governance dimensions that matter, and describing the inventory of governance mechanisms available. After addressing these two steps, the paper the present article provides building blocks for an integrated theory of economic governance in four ways : on the one hand, it analyzes the effects of the characteristics of the additional governance dimensions on governance mechanisms and the interaction effects between governance mechanisms that are applied simultaneously. On the other hand, it follows up on a key finding: the relevance of identity for governing dimensions such as knowledge, stakeholder perceptions, and ethics. Building on the work of Wieland (e.g.1996), the paper argues that intrinsic motivation and reputation are the main wedges to identity and therefore hold the key to governing the dimensions just mentioned. A first analysis of the characteristics of the various governance mechanism with regard to reputation is provided, to serve as a first input to discussion and further elaboration of an integrated theory of economic governance.