Learning from Ancient Athens: Demarchy and Corporate Governance

The corporate governance literature increasingly recognizes that firms can benefit from protecting and thereby inducing firm-specific investments of various stakeholders. Such investments by shareholders, employees, suppliers, customers, and the local community strengthen the sustainable competitive advantage of the firm. However, the protection of multiple stakeholders' interests poses substantial implementation problems. This paper explores a novel approach to such protection, based on the creative use of random selection procedures in appointing stakeholder representatives to the board. These procedures are the foundation of demarchy, a form of governance that was successfully used in ancient Athenian democracy. The paper presents advantages and disadvantages of demarchy, develops a corporate governance proposal that combines demarchy with representative voting, and addresses key issues concerning its implementation. It is suggested that the use of demarchy opens new avenues for stakeholder involvement in corporate governance.