"Open source corporate governance" in the era of digital transformation

Abstract

Legacy corporate governance has long been based on the “closed system” framework that is focused on the idea of aligning the interests of managers (agents) and shareholders (principals) through internal and external mechanisms and practices. The more recent “open system” approach to governance seems potentially more helpful to align different stakeholders when companies need to strategize and execute strategy in the new realities of openness, interdependencies, dynamism, and fluidity brought forward by digital technology diffusion and use. We build on the “open system” approach and introduce the idea of a “open source” approach to corporate governance. This framework builds on two core principles: (a) the need of systematically increasing complementarities among internal and external stakeholders in both governance and strategy; and (b) the need for purposely balancing short-term compliance and long-term legitimacy among broader groups of the firm’s stakeholders. A key part of open-source governance is associated with a reliance on “strategic” rather than “financial controls” within the firm’s governance mechanism. We claim that these changes are needed if boards are to remain relevant and effective. We highlight a research agenda to develop the open-source corporate governance approach further.