Can Private Learn from Public Governance?

Corporate governance is importantly based on agency theory and relies on extrinsic incentives to align the interests of managers, employees and shareholders. This article argues that in view of recent corporate scandals, private governance can learn from public governance: (1) Goaloriented intrinsic motivation of agents should be supported by fixed incomes and an extensive selection process of employees; (2) Extrinsic, but non-monetary incentives (e.g. conferring orders and titles) can be used; (3) The power of actors should be restricted by a clear division of power, appropriate rules of succession and institutionalised competition for positions in firms. The way scholars think of corporate governance today has been importantly shaped by agency theory (Shleifer and Vishny, 1997; Daily et al., 2003). It takes the firm to be a web of voluntary contracts. The major task is to find the most efficient way to align the interests of the managers as the agents to the interests of the stockholders as the principals (Jensen and Meckling, 1976). The market for corporate control is taken to work well, so that this system is self-regulating. There is no reason to assume Ôcontractual failureÕ; the collective action problems faced by