Contract Governance within Corporate Governance: A Lesson from the Global Financial Crisis†

The 2009 Nobel Prize for Economics was awarded to Elinor Ostrom and Oliver Williamson for their work on economic governance. Williamson once defined governance as “an effort to implement the ‘study of good order and workable arrangements’, where good order includes both spontaneous order in the market [...] and intentional order.” Even though corporate governance has been studied quite well over the last decades, the global financial crisis revealed important weaknesses in governance mechanisms. Yet this crisis did not primarily emerge due to specific corporate structures, but rather had its roots in the instability of markets. Hence the study of good order and workable arrangements needs to take markets into account as well. Contract governance is an important lesson of the recent crisis. By this token, the destruction of financial values might create a legal innovation, posing new challenges not only for regulators and legal academics, but also for management practice. Contract governance provides an important link between the corporation and its contractual environment. By virtue of this link, contract governance can contribute to avoid future crises and make the system of market economy more stable in the long run.